About Government Refinance and Home Purchase Programs

Mortgage interest rates started increasing about a month ago and have yet to stop their ascent. For folks who are currently in adjustable rate mortgages (ARM’s) and intend to continue owning their home for years to come, the time might finally be here to get into a fixed rate mortgage.

The value of ARMs

Adjustable rate mortgages got a bad rap after the housing crash. Too many borrowers got into adjustable rate mortgages without fully comprehending how much their payments might increase when the rates started adjusting. But the truth is ARM’s are a terrific tool for folks who intend to own the home for only a few years. For those owners there is no reason to pay a premium for a 30 year fixed rate when they fully intend to sell in 5-7 years.

Milking the low rates

Huge numbers of borrowers in the U.S. are currently in adjustable rate mortgages that already started adjusting. In many of these cases these borrowers discovered that when their loans started adjusting their payments dropped over the last few years as a result of the federal government compressing mortgage interest rates. For those borrowers it hasn’t made a lot of sense to refinance into a fixed rate because doing so would increase their payments.

But this jump in rates in the last month might mean those record low rates will be a thing of the past. Rates are still very low by any historical measure, but they are up 0.5-0.75% since April.

The time has come

If you are in an ARM now and intend to own your home for several more years contact us in the sidebar right away. There is no telling how much higher rates will go as the economy continues to improve. Rates are still near the all time lows so now is the time to lock in a low fixed rate.

As the US stock market breaks new record highs mortgage interest rates have been moving higher over the last several weeks as well. The more popular stocks become with investors the less popular US treasury bonds become and when investors sell treasury bonds mortgage interest rates normally begin moving higher. It comes as no surprise that mortgage interest rates are off their recent all time lows. Everyone knew those record lows could not persist forever. The good news is that for now interest rates are still near all time lows so it is not too late to refinance or purchase a home at these astonishingly low rates. Contact us in the sidebar to get more information and/or an estimate on a government backed mortgage right away. There is still time to get in on the low interest rate bonanza that so many borrowers have already taken advantage of.

The past year has been a good one for home values in the US. Values of homes across the country have finally begun increasing after going into a free fall in 2007. Increasing home values is not necessarily great news for home buyers but it is terrific news for folks who would like to refinance to a lower interest rate. Homeowners who currently have mortgage insurance (pmi) with their mortgage stand to benefit the most from rising home values. When a homeowner has at least 20% equity in their homes they can refinance into a conventional Fannie Mae or Freddie Mac mortgage with no mortgage insurance. It behooves anyone who has mortgage insurance now — including folks with FHA loans — to investigate the current value of their home and see if they can refinance and drop their PMI entirely.

Contact us in the sidebar to get more information on the current value of your home. Our counselors have several tools that help them estimate the current value of homes. In some cases values have increased enough to allow borrowers with mortgage insurance to refinance and drop that pmi. Dropping pmi and lowering interest rates can lead to big monthly savings for families.

FHA loans have many benefits. They tend to have great rates and they are often the best option for families who don’t have a lot of money to put down when purchasing a home. However FHA loans also have mortgage insurance. The FHA keeps itself funded using the mortgage insurance fees it collects from borrowers. So the question that many borrowers who have FHA loans ask is, when and how can I drop this FHA mortgage insurance? Here are some answers:

When can I drop my FHA pmi?: Within the first five years of having an FHA loan the only way to get rid of PMI is to refinance to a conventional mortgage. And that only will work if the you have built up more than 20% equity. If lack 20% equity you would still need mortgage insurance with a conventional loan. The FHA currently has a minimum 5 year term on FHA mortgage insurance regardless of how much equity is built up in that time. In markets where housing values are not increasing quickly that normally means borrowers are best off just waiting. But housing values are starting to increase quickly in some areas of the country so in some cases borrowers are building up 20% equity in just a couple of years. If you have an FHA loan now and believe you might have more that 20% equity in your home contact us in the sidebar.

Note: This five year rule applies to current FHA loans. Starting in June 2013 the FHA will be making their pmi last for the life of the loan on all new FHA refinances or purchases.

How do I get rid of my FHA pmi?: After 5 years the FHA mortgage insurance should drop off automatically IF the principal balance is down to 78% of the value the FHA has on record for the home. That last part in important. Here is an example: Lets’ say a home was purchased in 2010 for $250,000 and was appraised at about the same value at the time. The FHA will have that $250,000 value on record and the balance of the loan would have to be 22% less than that (about $195,000) for the mortgage insurance to automatically drop off after 5 years. This would be true even if the home could appraise for more today. For instance, even if that home could appraise for $325,000 today the FHA still uses the original $250,000 value when determining when to automatically drop their mortgage insurance.

Again, in areas where home values are increasing it might make sense to refinance out of the FHA loan to get rid of the PMI rather than wait the 5-10 years for it to drop off on its own. Contact us if you have an FHA loan and think you might have 20% equity in your home soon. Rates on Fannie Mae loans with no PMI are excellent right now and could be very worth your while.