The Gross Domestic Product (GDP), which is a measure of the total amount of business in our economy, increased at an annual rate of 2.4% in the the second quarter of 2010. Although this is an increase, it is much slower growth than the first quarter (3.7% increase) and less than the 2.7% that economists had forecast. This means that the economy is slowing down.  At this point in the recovery, after so much money in stimulus has been spent by the Federal government, growth should be accelerating. The fact that it isn’t, especially when taken together with other recent reports, puts to rest the idea that we will be getting back to what was considered normal any time soon. In my opinion the reason for this is that the banks are holding onto the money by not making commercial loans that would normally be approved, it’s like they are kinking a hose so water trickles out instead of flowing. But that is another topic. The result of this report is that this morning stocks are down and money is flowing into bonds, including mortgage bonds which determine mortgage rates.

Mortgage rates have been sitting at all time lows, but it looks like this will push them down another level. Mortgage bonds this morning have spiked sharply higher. Mortgage rates haven’t come out yet this morning, but they will be better, and this means the best rates we have ever seen. If you are in a position to refinance your mortgage, this is the time to get serious. Talk with your loan officer and get your documents together. This is an opportunity that will help many borrowers, including those who refinanced last year, save on their payments every month, and we can often do this with no cost to you. If I can help in any way, please give me a call.

Peter Thompson 630-479-6424       

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

With mortgage rates at all time lows, it makes a lot of sense to fix in your rate and refinance at what may turn out to be the lowest real rates ever. Getting a fixed rate mortgage makes a whole lot of sense for any one who is pretty sure that they will be in their home for a long time. But even now, even with fixed rates as low as they are, fixed rate mortgages aren’t the right choice for everyone. Adjustable Rate Mortgages (ARMs) are priced even lower, and though you are taking on some extra risk, they are the best choice for many. The question is, when does it make sense to go with an adjustable rate mortgage. ARMs are structured in different ways, but the most popular, and safest ARMs are the longer term adjustables which are fixed for a period of time before adjusting. Most ARMs amortize, or pay down, over 30 years, just like the most popular fixed rates. The difference is that the rate is only fixed in for a specific period of time, and then it floats, up or down based on what is happening in the market. The time that the rate is fixed in can be as short as one year, or as long as 10 years. The rates are usually lowest for the shortest periods because you are taking on more risk that the loan will be higher if mortgage rates increase. When you are looking at ARMs, you want to get the lowest total cost for the time you plan on being in the home (or the mortgage). Taking a 1 year or even a 3 year ARM rarely makes sense in a market like this. But a longer term may be a great deal. The 7-1 ARM (fixed for the first 7 years then adjusts once a year after that) is over 1/2 a point less than a comparable 30 year fixed rate mortgage. If you don’t plan to stay with your mortgage forever, this could save you thousands of dollars over the life of the loan.

Questions to ask to see if an Adjustable Rate Mortgage is the right choice for you:

How long do you think you will be in the home?  A lot of this has to do with where you are in life, and what you expect to happen in the future. Are you a single income now, but expect to have a spouse working down the road? Do you expect to out grow this home as your family grows? Do you expect to be transferred or are going to need to move out of the area at some point? Or maybe you are at the other end of the spectrum and have kids who are finishing up with school and are thinking about downsizing in the future. The key is that if you have a good understanding of your future needs, and you really don’t expect to be in the home past a certain point, an ARM may be the right choice.

Is your income steady, declining, or likely to go higher? Are you a single income now, but expect to have a spouse working down the road? Are you in a job where you know that your income will be higher as time goes by? If you feel confident that your income will rise, an adjustable could be a good way to go. On the other hand, if your income is likely to be topped out and you don’t expect raises of more than the cost of living in the future, you are better served by going with a fixed rate where you will know the payment is going to stay affordable, even if you are there longer than expected and interest rates jump.

Do you have extra money coming in that you can use to pay down the mortgage? I’ve worked with borrowers who get get bonus as a substantial amount of their compensation. If you are getting a smaller monthly payment, but a big check once or twice a year, it may be easier to keep the monthly payment small and then pay extra toward the mortgage when you get these big checks. ARMs fit in well here (Interest only mortgages are sometimes appropriate, too). Everyone’s circumstances are different. The best approach is to match your needs to the loan that is most appropriate for you.

What is your risk tolerance? Will you be able to sleep at night if rates do move higher? With mortgage rates at all time lows, we know that rates have to go up, the only question is when, and how much. If your circumstances change, and it looks like you will need to stay in the mortgage longer than you planned, is this going to add to your stress? There are safety features built in, but if you are still in the loan when the payment adjusts, it could be a big jump. You will have saved a lot of money up to that point, but unless you used the savings as part of an investment plan, you need to be ready for the higher payment. Consider your risk level and temperament before choosing an ARM. There are a lot of people who would benefit financially from and adjustable rate loan, who still are better off taking on a fixed rate loan.

The other thing to keep in mind when deciding which loan is right for you, is that the future doesn’t always turn out like we expect. There are a lot of homeowners now who are stuck in homes too small for their needs because they can’t afford to sell and buy a new home with the market conditions now. For most home buyers who took on ARMS years ago, their adjusted rates have fallen as the ARMs came due. That probably won’t happen in the future, but if you match up your real needs and an accurate estimate of what your situation will be over the years you plan to be in the home, an Adjustable Rate Mortgage can save you a lot.

Peter Thompson 630-479-6424       

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

The markets are now coming around to the view that inflation is not on the near horizon, and that our recovery is going to be a long, slow grind. As a result, the stock market is faltering and as money rushes into the safer haven of bonds, mortgage rates are at their best levels ever. Consumer confidence readings are down, inflation is nearly non-existent, and the Fed meeting minutes from last month show that the they expect slower growth going forward. The reality is that we are going to have to deal with high unemployment and a tough housing market for quite some time. This is all bad news for the economy in general, but it is a big enticement for those who can take advantage of the lowest mortgage rates since they’ve been keeping track of mortgage rates (there were lower rates years ago, but they weren’t for 30 year fixed rate loans). The question now is whether these low rates are  just a blip before they head higher, or if rates will hold at these levels or drop even lower. Last year a lot of people lost out on the lowest rates at the time (the 4.75% range) because they were waiting for rates to drop to 4.5%. The good thing is that there is a solution to this problem. We can often do refinances with no closing costs, so if rates do go lower, you aren’t out any money. Also, if rates drop by a lot while we are processing the loan, we will do our best to renegotiate for a better interest rate. One thing we know about the market is that it is always volatile, and rarely does what is expected. If you own a home and have a rate of 5.00% or higher, it makes sense to at least consider refinancing.

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Mortgage rates have dropped to all time lows. What used to be looked at as super low interest rates (in the mid or even low 5s), are now considered high. You may be able to lower your payment by a lot, often with no closing costs. For homeowners that are able to take advantage of the lower rates, this can mean big savings over time. With home prices lower and tougher qualifying requirements, refinancing is tougher than it used to be. But there are still a number of mortgage programs which make it easier to refinance now. One of the easiest and most beneficial loans available is the FHA Streamline Refinance.

FHA Streamline Refinance Loans

The FHA Streamline Refinance loan program is only available if you already have an FHA mortgage on on your home (Refinancing into a new FHA loan can make sense for a lot of other reasons, including adding improvements to your home and being able to use cash out to consolidate debts, but for these you need to do a fully documented mortgage). The advantage of this loan is that you can take on the new lower rates with out having to go through the full qualifying process, you usually don’t need an appraisal (which is a major headache with refinances today) and we can often structure this so you aren’t paying any closing costs (we pay the closing costs with a slightly higher rate). You will need to have some cash at closing to set up the new escrow accounts (to pay for your property taxes and home owners insurance) but you will get whatever money is in your escrow account with your current lender back after closing, so it will end up as a wash. If you have enough equity in the home, you may be able to add the escrows into the loan amount and come to closing with no cash at all, but we would need a new appraisal for this to work.

Here are some of the basic requirements of an FHA streamlined refinance:

• The loan must be FHA insured and you have to have made at least 6 payments on the Loan. If the loan is less than a year old, you can’t have any 30 day or more late payments. If the loan is older you need to be up to date on the payments with no more than one late payment in the last 12 months.
• The refinance has to be for your benefit. We need to lower the payment by at least 5%.
• We need to verify that you have enough cash to close the loan (this means enough money in a bank account to pay for the new escrow account and any other cash you may need).
• We need to show that you are employed and have income coming in. We don’t need to do a full underwriting of your income.
• You may be able to change the loan program (if you have an adjustable rate loan you may be able to go to a fixed rate, and visa versa) but we need to make sure that there is a real benefit attached. If you want to shorten your loan term we may need to do a full qualification.
• You can add a spouse or some one else to title without having to go through the full approval process. If you want to delete a borrower we will need more documentation.

Here is the documentation I will usually need for an FHA Streamline Refinance:

• I will need several items from your closing package, including a copy of our HUD1 closing statement, the Note and it makes it easier if I have a copy of your application.
• A current paystub showing you are employed.
• A bank statement showing you have enough cash to close.
• Proof of your Social Security number – this can either be a copy of your social security card or your W2 from last year.
• A copy of your mortgage statement.
• The name and phone number of your insurance agent.

If you have an FHA loan now, this could be a great way to save money. Give me a call and in a short conversation I can let you know how this will work for you, and put together a written estimate.

Peter Thompson                              630-479-6424

Chicago FHA Mortgage Rates          First time home buyer loans

Chicago Mortgage Company

Free Mortgage Pre-approval

Last week was a quiet week with no major economic reports released and no bombshells dropped. Without much news, the mortgage bond market was most influenced by the direction in the stock market (when there is optimism in stocks, bonds sell off, and visa versa). The stock market has been selling off over the last few weeks as concern mounts that the recovery is stalling out, and major problems are still brewing in Europe. Last week the stock market bounced higher after touching a level of resistance. The question this week is if the rally in stocks has any legs. We are now getting into earnings season, and over the next few weeks all the major companies will release their earnings for the 2nd quarter. Earnings over the last year have come in better than expected, largely as a result of cost cutting. If they are able to extend this streak and some big name companies come in better than expected, this could push stocks higher and as money flows into stocks, bonds suffer which could mean mortgage rates may move higher. Mortgage rates are off their best rates now, and volatility is the norm. But mortgages are still trading in the same range. The big picture is still uncertain, and mortgage bonds are likely to rally at the first hint of bad news (bad news is good news for low mortgage rates). We are still in a historically low range for mortgage rates. If you are thinking about doing a refinance, I would gather up my paperwork and get it into your mortgage loan officer now, and wait for the right time to pull the trigger.

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*A better option may be to break your Jumbo loan into 2 parts a conventional loan to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be, especially for the lower end of the Jumbo range.

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbles available.

payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

Homepath Financing – Call for a personal quote

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Foreclosed properties are one of the biggest factors in the real estate market.  Buying a foreclosed home isn’t for everyone, but if you know what you are looking for, you can find bargains. Foreclosures can come form banks, loan servicers and other entities, and the red tape and bureaucracy involved in getting a purchase together and closed, can make it a rough ride. The lenders have a need to sell, but because they are understaffed, and the loan often has to be approved by someone higher up the food chain, you need to have patience and resolve. But some players have moved further along the curve than others, and have come up with more systematic ways of cleaning out their inventory. Fannie Mae, the biggest buyer of loans in the mortgage after market, has 89,000 homes that are now on their books, and they have worked out a system to help buyers find and finance these properties at terms that work for more home buyers. They have developed the Homepath website where buyers can go to find Fannie Mae foreclosed homes, and the Homepath financing program as a way to offer financing with terms that better fit the unique problems of foreclosed homes.

Homepath financing is only available for specific Fannie Mae foreclosed homes, and you don’t have to use the Homepath financing. It makes sense to compare options. Depending on your situation and the condition of the property, other financing may make more sense. But in many cases the Homepath will be the best option, and it will usually be the easiest way to close on the home. These homes are all available for purchase immediately, and though the listing price is set by Fannie and listed through a broker, you can use your own Realtor and negotiate the price and terms, just like any other listing.

Here are some of the advantages of Homepath financing:

• Financing with as little as 3% down for owner occupants.
• Financing for investors with as little as 10% down. (Investors can finance up to 10 properties.)
• No mortgage insurance required (there are price overlays which increase the rate).
• Fixed rates, ARMs and even interest only loans are available (you will need more equity for interest only loans).
• Fannie Mae allows up to 6% for seller concessions (2% for investors) – make this a part of your offer and it will go a long way toward bringing down the interest rate.
• No appraisals are required, you use the sale price as the value.
• Can be used for primary residences, second homes and as investment properties.
• More lenient credit standards than for other conventional mortgages.
• 3% down payment can come from a gift.
• More relaxed condo documentation and approval requirements.

One thing to keep in mind with Homepath, is that the terms are great, but the price can be high. They start with a base price but with overlays (price hits) the actual price may be much higher. One of the keys to this program is that they allow up to 6% in seller concessions – be sure and ask for all you can get when you make the offer.

Here is the website which lets you search for all the properties eligible, you can break it down so by county, town or zip code to see what is in the area you are most interested in -  http://www.homepath.com/. If you want to see how the financing works, and compare it to other options, give me a call and I can tell you what will work out best.

Peter Thompson                             630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Mortgage bonds sold off on Friday, but mortgage rates are still sitting at the best levels of the year.  Earlier in the week the Fed signaled that long term growth would be sluggish, and the unemployment report on Friday gave more evidence to that view. The report came in negative with about 125,000 jobs lost, but most of those were temporary government paid census workers. The silver lining to the report was that the private sector added almost 100,000 new jobs, and the unemployment rate fell from 9.7% down to 9.5%. Upon closer review the silver lining looks more grayish. The reason for the drop in the unemployment rate is that more people have grown discouraged and stopped looking for jobs, so they are now no longer counted. The gain in private sector jobs is good news, but no nearly where we should be in this stage of a recovery if there is any hope that the economy will start to reignite. Because of new workers coming into the job market (think of all the college graduates that just finished school) the market needs to add 125-150,000 new jobs each month just to stay even. Also, the gains from the two previous months were revised downward. All this is bad news for the economy, and though this is usually a reason why mortgage bonds would rally and mortgage rates would continue their downward trend, but right before a holiday with low volume and a long weekend ahead, traders got defensive and sold off to lock in some gains. We will see what happens when they get back to work on Tuesday for a real test.

Listening to politicians and pundits talk, it sounds like our biggest problem is how we are going to pay off all the debt we have taken on in recent years. But the markets are singing a different tune. Based on the slide in the stock market and the run-up in bonds, the markets are saying that they are more concerned with deflation. The Fed has set the best rate it offers to banks at 0-.25% so it can’t lower rates to stimulate the economy. But if it is too concerned that we are sliding lower again, it has other tools at its disposal, the biggest being the printing machine it has in the basement. If it decides we are at the danger point again (instead of the molasses slow growth mode we are in now) it could go into a quantitative easing program where they print out money in mass. If that happens, the bond market will turn and rate could quickly pop higher.  If you want to refinance your Chicago area mortgage or get a free mortgage pre qualification, let me know. This could be a great time to pull the trigger.

I hope you have a happy and safe 4th of July!

Here are the current Chicago Illinois Home mortgage rates for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. N0-cost refinances are available, usually for just a slightly higher rate. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. The conventional and FHA rates are based on the highest conforming loan amounts, which give the best pricing. Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me (Illinois mortgage company) and I will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*A better option may be to break your Jumbo loan into 2 parts a conventional loan to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be, especially for the lower end of the Jumbo range.

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbles available.

FHA LOANS 3.5% down payment FHA Maximum varies by County

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

Call for information on no-cost VA Streamlined Refinances

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Good news for many short sale and foreclosure buyers, Congress passed and President Obama has now signed a bill to give homebuyers another three months to close on their home loans and receive tax credits up to $8,000 ($6,500 for move up buyers). The bill applies ONLY to homebuyers who had a signed contract to purchase a home by the April 30, 2010 deadline. The bill extends the deadline to September 30, 2010, for homebuyers to close on their real estate transaction.

The original deadline was June 30th, 60 days after the contract date. This was plenty of time to close for those in a normal transaction, but for those buyers dealing with short sales or foreclosed properties, the timing of the close was out of their control. The banks who hold the mortgage on the distressed properties look at closing dates as suggestions, not firm time lines they are required to meet. So even when the bank has agreed to the price and terms, getting the home closed in a reasonable amount of time is often a struggle. That is the case for those transactions where the bank has already entered into the contract. A lot of short sales are ones where the buyer has a contract with the home owner subject to the bank’s approval, but the bank hasn’t come back with a response yet. For these buyers, even the extra 3 month’s may not be enough. Short sales can mean big bargains, but there is no way to get the bank who holds the mortgage to move faster than they have to.

The big question now is what will happen to the housing market now that the tax credits have gone away? Last month, the first month after the credit expired, home sales dropped by 30%. This isn’t surprising, as many buyers picked up their pace to take advantage of the free money from the government. Now that this over, I am still seeing a lot of new buyers coming into the market, but they aren’t in a hurry to buy something right now. They are willing to taker their time and find the right home at the right price. Talking with many of the Realtors I work with, home sellers are starting to get more realistic about the market and I am hearing about a lot of price reductions. So the answer may be that prices fall a little further to make up for the loss of the credit. Mortgage rates are at all time lows, so for home shoppers who are still sitting on the fence, there are some incredible bargains (looking at not only price, but monthly payments). The extension of the tax credit is good news for many buyers, but for those who didn’t buy in time to take advantage of the credit, this could still work out to their advantage. But it won’t be because of the government incentives..

Peter Thompson                              630-479-6424

Illinois Mortgage Rates                   Fist time home buyer loans

Chicago Mortgage Refinance

We live in interesting times. Over the last several years we have seen a series of refinance booms as rates dropped to what had previously been unthinkable rates. Each time rates dropped we were sure they couldn’t go any lower. But here we are again, and mortgage rates are the lowest they have been since they’ve been keeping track of mortgage rates. The reason for the drop in rates is due to fear of softness in the economy, and this isn’t good news. But when you , if you can save money by refinancing your mortgage this could help by lowering your monthly payment or cutting years off your loan and paying your house off early.

Why should you consider refinancing?

• You can lower your interest rate and payments.
• You can shorten your loan term and pay your mortgage off early.
• You can take cash out for home improvements, college expenses, investments, or whatever your needs may be.
• You can restructure your debts with a refinance to get rid of your high interest credit card balances and save hundreds of dollars per month.
• If you bought with a low down payment, you can often refinance to get rid of mortgage insurance or your higher rate second mortgage.

• You can get rid of an adjustable mortgage and lock in to a fixed rate.

These are just a few reasons you may want to take on a new mortgage. It is important, though, to make sure you know why you are refinancing and that it is really in your best interest. Refinancing isn’t the slam dunk easy transaction it was a few years ago. With home prices down this makes it harder for some homes to appraise out where they need to be, and mortgage guidelines are tighter than they were before, too.  But there are programs which make it easier to refinance even if you don’t have a lot of equity (or even no equity) in your home.

The FHA Streamline Refinance -This is available only if you already have an FHA mortgage. This is still the easiest and most inexpensive mortgage around. If you can lower your rate an payment you can refinance without a new appraisal and roll some of your costs into the new loan.

Fannie Mae and Freddie Mac Home Affordable (Obama Refinance) – With these programs you can lower your mortgage rate even if your home value has gone down, and mortgage insurance will be based on what it was when you originally took on the loan (so if you didn’t have it then, you won’t have it now).

And of course, if you have been in your home for a while and have equity built up, you will have a lot of options to refinance in a way that best meets your long term needs. The big question then, is when does it make sense to refinance your mortgage? Refinancing can make a lot of sense if you are lowering your rate and payment without having to pay a lot up front. The more you have to pay to close the loan, the longer it will take for the lower mortgage payments to pay off the higher cost of getting the loan. This can still make sense if you are sure that you will be in the home for a long time, and you want to lock in the lowest rates. But too often the lowest rate isn’t the best value.

Mortgage pay Back – When does it make sense to refinance?

If you are thinking of refinancing your mortgage, you should always do a break even or pay back calculation. For this you need to know 3 things:

1. How much will you save by refinancing?
2. How much will it cost to refinance?
3. How long do you think you will stay in the home, and with this mortgage?

The first step is to determine how much you will save. For an example, if you now have a mortgage with a $200,000 balance and a 5.50% interest rate., your mortgage payment is about $1,135 per month. Now, if current rates are at 4.75% (this is only an example.  Call me if you want a personal quote) the new mortgage payment would be $1,043 per month. The lower rate means a savings of almost $92 each month. This is a great savings, especially when you look at it over the life of the loan, But does it make sense to refinance? Maybe. We still need to know more, though.

The next step is to find out how much it will cost to refinance. This is where it can get confusing. If you have spent any time on the Internet, you’ve seen lots of ads for mortgage companies claiming they offer the lowest rates. But low rates don’t mean a thing if you don’t look at the closing costs too. I’ve seen closing costs differ by as much as $6,000, so this is something that can make a huge difference. Closing costs include title fees, the cost of the appraisal and bank charges as well as points – which are upfront financing charges.

The difference in closing costs can make a big difference in whether the loan makes sense, or not. If you are paying $1,500 in total closing costs, it will take you a little over a year to payback the closing costs with the $92 savings from your new rate.  After that, every payment you make will be a true savings. But if that same loan cost $6,000 to close, then it would take over 5 years before you would get any benefit at all from refinancing. So the lowest rate isn’t always the best deal.

The last question, is how long you do you expect to be in your home and in the mortgage. If you plan to stay in the home for at least 10 years, then paying more to get a better rate might be the best strategy, especially if you think (like I do) that rates are about as low as they will ever go. But most people don’t stay in their home forever. If you aren’t sure how long you will stay in your home, you might be better served by getting a loan with lower closing costs. Even though the rate and payment may be a little higher, your savings will come much quicker.

No/Cost Illinois Mortgage Refinance

We can take this idea one step further. When rates are down, the biggest obstacle to homeowners lowering their payments and taking advantage of the low rates is the cost of refinancing. The more that the loan costs, the longer you will need to be in the new loan before refinancing makes sense. So if a loan costs a lot up-front, it takes a big improvement in the rates before it is worth doing. On the other hand, if there are no costs at all, a small reduction in the rates can save you a lot of money over time.

With a no-cost refinance we use the yield spread premium (the money that the wholesale or end lenders pay us to bring them the loan) to pay for the closing costs. When I price loans I have several different options. Every day the lenders we deal with send us new price sheets. These sheets have matrices which allow us (the mortgage banker or broker) to price the loan in different ways. It is common in the Chicago area to price a loan to show no points or origination fees, but with the customer paying the normal costs at closing. If someone wants a lower rate, I can price it so that they pay more money up-front (points) and get a lower interest rate. We can also do it the other way, offering you a slightly higher interest rate (where the lender pays us a higher premium) and we can use part of this premium to cover all your closing costs.

Here is how it works. If you have a mortgage with a balance of $250,000 and an interest rate of 5.75%, your loan would have a monthly payment of $1,458 for principal and interest. If rates drop. and you are able to refinance at 4.50%, your new payment will be $1,267, for a savings of $191 per month.

In order to do the loan with no closing costs, we raise the rate a little to cover the costs. How much the rate increases depends on the size of the loan, but in most cases the loan will be just an 1/8 or 1/4 point higher. So with our example, if you could refinance at 4.50% with closing costs, the rate would be 4.625% with no closing costs. So the payment now goes up to  $1,285 per month, or $17 per month higher. The monthly savings are lower, but with no closing costs , you have no investment in the mortgage at all. This works especially well for people who don’t plan on being in their home or their mortgage forever.

No-cost refinances work best when the loan amount is higher. In many cases we can do a no-cost refinance for the same rate as other companies are doing full cost loans. Smaller loans, those under $150,000 are harder to do without any cost. The smaller the loan the higher the interest rate would need to be in order to cover all the closing costs. This won’t be the best route for everyone, but, depending on your situation, it could be a great option.

Things to watch out for

A true no/cost refinance means that you are not paying any fees or costs to get the loan. This is different than adding the fees and costs back into the loan. This means that your mortgage will be larger, and you will be paying the costs of refinance over the years you have the loan. There is no money coming out of your pocket at closing but you are still investing extra money. If you sold the home or decided to refinance again later, the money you paid will be gone. In some situations this could be the right way to go, but it is not a no-cost refinance. You need to know exactly what it is you are signing up for.

Peter Thompson                              630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Refinance