Hope(less) for homeowners: is HARP more of the same for San Diego homeowners?
Posted using ShareThis
Monday, July 13, 2009
Thursday, July 2, 2009
Should you pay points?
Regardless of whether you are buying a home or refinancing an existing mortgage and whether you are using a broker or going directly to the bank; you have a choice when it comes to paying points. The cost of a point is one percent of your loan amount and is added to your closing costs. For a long time “points” have had a negative connotation amongst the general public. So, first time buyers in San Diego, looking to take their first step towards a now affordable home purchase may be confused on what to do. But, the truth is, points directly affect the interest rate on your mortgage. The higher in rate you go, the lower the points and the opposite applies.
So, a lower closing cost scenario can end up costing you more in the long run as a result of a higher interest rate. In today’s market, where a home is once again a long term investment and with the 30 year fixed rate as low as it is, paying a point to get the lower rate can makes sense.
When you are deciding what makes the most sense it's all about “recouping”. How will the point or cost affect the rate and how much will be saved over the long term? In short, how quickly can the fee be recouped from the savings of the lower rate? Using today’s rate as an example, let’s see:
Today the 30 year fixed with no points is at 5.625%. But by paying one point we can get the interest rate down to 5.25%. If we took a $300,000 loan amount 1 point is equal to $3000. Now let’s look at the difference between the two rates. A $300,000 loan at 5.625% will equal a payment of $1727 a month. If we paid the point and got the rate down to 5.25% it lowers the payment to $1657. So for a $3000 investment we will save $70 a month. Then divide that savings, ($70) by the cost to get it ($3000) and we get 42 months. In just 3.5 years we will have recouped that point in our monthly savings. Obviously if you are planning on staying in the home for over 3.5 years then the savings is worth the investment. (It’s also unlikely that you will refinance the mortgage within 3.5 years.)
There can be many different options to fit your closing costs and interest rate needs. You can pay just a half a point or pay more; buy down the rate further with 2 points. Always ask your loan officer for the rate with and without points and have him/her show you how quickly you will recoup that fee. As a general rule of thumb if you can recoup the cost within 3-4 years it’s probably worth it, depending on your long term plans with the home. (Be warned however of loan officers that offer “no points” and then charge 1% origination. One percent is a point regardless whether it is called “origination” or a “point”.)
So, a lower closing cost scenario can end up costing you more in the long run as a result of a higher interest rate. In today’s market, where a home is once again a long term investment and with the 30 year fixed rate as low as it is, paying a point to get the lower rate can makes sense.
When you are deciding what makes the most sense it's all about “recouping”. How will the point or cost affect the rate and how much will be saved over the long term? In short, how quickly can the fee be recouped from the savings of the lower rate? Using today’s rate as an example, let’s see:
Today the 30 year fixed with no points is at 5.625%. But by paying one point we can get the interest rate down to 5.25%. If we took a $300,000 loan amount 1 point is equal to $3000. Now let’s look at the difference between the two rates. A $300,000 loan at 5.625% will equal a payment of $1727 a month. If we paid the point and got the rate down to 5.25% it lowers the payment to $1657. So for a $3000 investment we will save $70 a month. Then divide that savings, ($70) by the cost to get it ($3000) and we get 42 months. In just 3.5 years we will have recouped that point in our monthly savings. Obviously if you are planning on staying in the home for over 3.5 years then the savings is worth the investment. (It’s also unlikely that you will refinance the mortgage within 3.5 years.)
There can be many different options to fit your closing costs and interest rate needs. You can pay just a half a point or pay more; buy down the rate further with 2 points. Always ask your loan officer for the rate with and without points and have him/her show you how quickly you will recoup that fee. As a general rule of thumb if you can recoup the cost within 3-4 years it’s probably worth it, depending on your long term plans with the home. (Be warned however of loan officers that offer “no points” and then charge 1% origination. One percent is a point regardless whether it is called “origination” or a “point”.)
More Hope for Homeowners coming in the form of HARP
Hope(less) for Homeowners.....Is HARP More of the Same for San Diego Homeowners?
The Hope for Homeowners, (HFH) was a plan that went into affect last summer to help stop the amount of foreclosures taking place. The program relied on the lenders willingness to take a reduction in the loan amount. They were asked to refinance the home at 90% of the property’s value thus writing off a large portion of principal. Then the homeowner had to be willing to split their future equity with the U.S. Government. So no one participated. In fact, an article on CNN.com from May pointed out that, after 7 months, the HFH program had only helped 1 person! A far cry from the 400,000 homeowners the plan claimed it would assist.
So, will the Home Affordable Refinance Program, (HARP) end up as useless as HFH? Well, not as bad. I know I have done 2 HARP loans in my office alone since April so already that’s one more than the national average for HFH. But the HARP program is not without issues. It does reward borrowers who have kept current on their mortgage with an opportunity to refinance out of an adjustable or higher rate and into today’s lower fixed rates even if they are upside down in equity. Yesterday it was announced that the property can now be up 25% negative or 125% loan to value. This is an increase from the original 105%. As property values decline most homeowners in San Diego found they couldn’t use the program because they were more than 5% upside in value. The S&P Case-Shiller Home Price Index shows a 20% drop in San Diego home prices from April 2008 to April 2009.
However, other issues are still making it difficult for the homeowners who were supposed to be helped by this program. For example, lenders are adding their own guidelines and restrictions to the program. Plus, the newly enacted Home Valuation Code of Contact, (HVCC), which restricts conversation between loan officers and appraisers, is causing further problems. The other quirk is the home loan has to be owned by either Fannie Mae or Freddie Mac. Many homeowners who need help have loans that were never sold to Freddie or Fannie. In addition, technical issues in how the loan was recorded can keep homeowners from accurately knowing if there loan is owned by Fannie/Freddie. So, wrong information can result in an eligible property owner becoming ineligible for the program.
Overall the program has been more effective than the Hope for Homeowners, but there are still a lot of kinks to be worked out before it will be the saving grace the administration hopes it will be.
The Hope for Homeowners, (HFH) was a plan that went into affect last summer to help stop the amount of foreclosures taking place. The program relied on the lenders willingness to take a reduction in the loan amount. They were asked to refinance the home at 90% of the property’s value thus writing off a large portion of principal. Then the homeowner had to be willing to split their future equity with the U.S. Government. So no one participated. In fact, an article on CNN.com from May pointed out that, after 7 months, the HFH program had only helped 1 person! A far cry from the 400,000 homeowners the plan claimed it would assist.
So, will the Home Affordable Refinance Program, (HARP) end up as useless as HFH? Well, not as bad. I know I have done 2 HARP loans in my office alone since April so already that’s one more than the national average for HFH. But the HARP program is not without issues. It does reward borrowers who have kept current on their mortgage with an opportunity to refinance out of an adjustable or higher rate and into today’s lower fixed rates even if they are upside down in equity. Yesterday it was announced that the property can now be up 25% negative or 125% loan to value. This is an increase from the original 105%. As property values decline most homeowners in San Diego found they couldn’t use the program because they were more than 5% upside in value. The S&P Case-Shiller Home Price Index shows a 20% drop in San Diego home prices from April 2008 to April 2009.
However, other issues are still making it difficult for the homeowners who were supposed to be helped by this program. For example, lenders are adding their own guidelines and restrictions to the program. Plus, the newly enacted Home Valuation Code of Contact, (HVCC), which restricts conversation between loan officers and appraisers, is causing further problems. The other quirk is the home loan has to be owned by either Fannie Mae or Freddie Mac. Many homeowners who need help have loans that were never sold to Freddie or Fannie. In addition, technical issues in how the loan was recorded can keep homeowners from accurately knowing if there loan is owned by Fannie/Freddie. So, wrong information can result in an eligible property owner becoming ineligible for the program.
Overall the program has been more effective than the Hope for Homeowners, but there are still a lot of kinks to be worked out before it will be the saving grace the administration hopes it will be.
Subscribe to:
Posts (Atom)
Posts
