Illinois Mortgage Rates and News

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

When mortgage chicago il rates started moving up at the beginning of this summer, many people thought they missed the boat on any chances of refinancing their mortgage and getting a better interest rate and payment. Well, the boat is on the way back to port and it looks like you are about to get another chance. With the weekend takeover of Fannie Mae and Freddie Mac, the government is now standing fully behind these mortgage giants. This move was a green light for investors to buy more mortgage bonds, as the risk on mortgage bonds is now roughly the equivalent of buying Treasury securities. The mortgage bond market had a huge day yesterday, and mortgage interest rates have dropped.

Why would 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.

No one knows if this is a one time improvement for mortgage rates, or if the rally will continue and rates will keep on dropping. But we do know that mortgage rates are back in the 5s, and refinancing makes sense again. Contact me for a personal quote on an Chicago mortgage refinance.

Illinois Mortgage Rates and News

Mortgage interest rates are ticking down and refinancing is suddenly hot again. Make that Scorching Hot! A few years back when mortgage rates first dropped into the 5s, mortgage refinancing was the hot topic anywhere people gathered. It might not seem like the most scintillating party conversation, but this was a prime conversation as people vied for bragging rights on who was able to get the lowest interest rate. (Or maybe I just went to the wrong kind of parties.) Mortgage rates are back in the mid 5s again, and this time there isn’t the same level of excitement in the air. But it is a great time to take advantage of the low rates, improve your financial situation and put some extra money in your pocket

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.

For a quick check to see if refinancing makes sense for you, you need to consider 3 things:

How much will you save by refinancing?
How much will it cost to refinance?
How long do you expect to stay in the mortgage?

There used to be a rule of thumb that said that the interest rate needs to go down by 2 percentage points before it makes sense to refinance. This is no longer the case. The process has been streamlined, and closing costs are usually much less, at least here in Illinois where title costs are reasonable. So it may make sense to refinance even if you are only reducing your interest rate by a relatively small amount. (There have been periods when the rates were dropping, where I refinanced the same customer 3 times in a year, and they benefited more each time.) To find out you need to figure out your payback or break-even point. Let me work through the math to show you how this works.

The first step is to determine how much you will save. For an example, let’s assume that you now have a mortgage with a $200,000 balance and a 6.75% interest rate. This would give you a payment of $1,297 per month. Let’s say that rates have improved, and you can now get the same type of mortgage for 5.75% with a payment of $1,167 per month. This is a savings of $130 per month. Does it make sense to refinance? Maybe. We still need to know more, though.

The next thing you need to know is how much it will cost to refinance. This is where it gets interesting. 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 vary by as much as $6,000, so this is something that can make a huge difference. Closing costs include title fees and the amount the bank charges to process the loan, which includes fees for credit reports, appraisals, processing and underwriting charges as well as Points which are upfront financing charges.

To see how the closing cost can make the difference, let’s assume that the cost to refinance is $1,600. If you are saving $130 per month and it cost you $1,600 to close, that means it will take you just about a years worth of mortgage savings to pay off the up-front costs. Every month after that will be a true savings. If that same loan cost $6,000 to close, then it would take 4 years before you would have any benefits from refinancing. So the lowest rate isn’t always the best deal.

The next part is figuring out how long you expect to be in the mortgage. If you plan to stay in the home for at least 10 years, and you don’t expect that interest rates will drop much lower than they are, then paying more to get a better rate might be the best strategy. Most people will either move or refinance sooner, though. The average 30 year mortgage is paid off in about 5 years. If you are like most people, you would 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 quicker.

Things to watch out for- The idea that the lowest rate is the best deal can be a big problem. A few years back when we were in a huge refinance boom, one of my clients talked with a friend who boasted about the great deal she got, a rate below anything available on the market. My client called and she wanted the same rate as her neighbor was getting. I did a little research and found out that her neighbor was paying 3 points to buy down the rate. On a $300,000 loan that comes out to $9,000 in extra closing costs! A low rate is great, but it’s not going to help you if you have to pay so much extra to get it. Which brings up our next point. Refinancing doesn’t have to cost a lot.

No/Cost Illinois Mortgage Refinance- 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.

Some people say there is no such thing as a true no-cost refinance. It does cost money to refinance, and it’s true, the lender and title company are going to be paid, one way or another. With a no-cost refinance we use the yield spread premium (the money that the lenders pay the mortgage broker or banker 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 them a slightly higher interest rate means that the lender pays us a higher premium, which can then be used to cover all of the loan costs. This program isn’t available with all lenders, but is available with many mortgage brokers or mortgage bankers.

Here is how it works. Let’s say you have a mortgage with a balance of $250,000 and an interest rate of 6.75%. This loan would have a monthly payment of $1,621 for principal and interest. Let’s say that rates drop. If you are able to refinance at 5.75%, your new payment will be $1,459, for a savings of $162 per month with closing costs of $2,000.

If 5.75% is available with closing costs, the rate with no closing costs would be around 5.875% – just an eighth of a percentage point higher. This means a payment of $1,479 and a savings of $142 per month. The monthly savings are lower, but you save $2,000 up front. This works especially well for people who don’t plan on being in their home or their mortgage forever, or if you think that the rate trend is going down and there may be more opportunities to refinance and lower your payments again down the line.

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. That way, the next time you go a party you can be the one doing the bragging .

Illinois Mortgage Rates and News