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Why it’s a Good Time to Refinance, Even if You’re Still Under Water

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There are options when your mortgage is bigger than your home’s value

Last week, Sarita Harbour from Yahoo! Homes picked my brain for an article that she wrote, Refinance at 3.2 percent? One homeowner did it.

Actually, she wrote about how four sets of homeowners that were able to cut costs on their mortgages. Two of them are clients of mine, and both of them were under water with their mortgages.

One of those couples, John and Carol who live in Oakland, Calif., were not only paying a balance on their mortgage that was worth more than their home, but their current mortgage was at a rate of 6.875%. Because John and Carol had a Fannie Mae/Freddie Mac loan they’ve had since before May 31, 2009, their current loan-to-value ratio was more than 80%, and they had a good payment history for more than a year, they were eligible for a Home Affordable Refinance Program (HARP) loan.

John and Carol were able to get a HARP loan at 4.125%, over three percentage points lower than they were paying before. I was able to drop their monthly payment from $1,800 a month to $1,536 a month.

Two other clients of mine, Mike and Christine, took out an FHA loan for $688,000 on a house they bought in San Francisco four years ago. They made a 3.5% down payment and got what was a good rate at the time:  5.75%. With mortgage payments, taxes, insurance and mortgage insurance, they were making payments of $5,485 a month. I was able to get them an FHA Streamline loan at 3.75%, which dropped their monthly payment to $4,380. Mike and Christine are thrilled to have an extra $1,110 in their pockets every month—especially since they’ve just expanded their family by one small person.

Sarita also gave examples of how others in different situations were able to cut their housing payments. She wrote about a gentleman in Wisconsin who was able to go from a 5.63% on a $180,000 30-year mortgage to a 3.25%, $160,000 15-year loan. Even though he had to come up with $1,000 in closing costs and is paying an extra $100 a month, he’ll save $13,429 over the shorter course of the loan. She also wrote about a recently divorced woman in Los Angeles who was able to go from a 5.125% 30-year loan to a 4.19% 15-year loan. She’s now paying $90 a month less on her mortgage and she’ll have it paid off in half the time.

Even though average mortgage rates have recently inched up – to 3.42% on 30-year loans and 2.61% on 15-year loans—these rates are still excellent and should remain good for at least the next year (see my story, When Will the Mortgage Party Be Over?). Rising home values are also making it easier for some homeowners to refinance. According to Zillow (http://abcnews.go.com/blogs/business/2013/04/home-price-appreciation-boom-slows/), year-to-date housing values are up 22.1% in San Jose, 21.4% in San Francisco, and 20.1% in Sacramento.

As Sarita outlined in her story, everyone’s situation is different as they are for every one of our clients.

In addition to the titles, “Senior Loan Officer and Branch Director at PFS Funding,” I’m thinking of adding “Dream Maker and Professional Problem Solver” to the list of titles on my business cards.

1 comment… add one
  • dwp crisis loan phone number September 6, 2013, 1:29 pm

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