Mark R. Chaffee's Blog

When is the right time to refinance?

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 11:04:17 -0600

Many borrowers wonder, "when is the right time to refinance"? A simple answer to this question is to take the total cost of the refinance and divide it by the monthly savings. For example if the total cost to refinance is $2000 and the monthly savings is $100 the break even is 20 months or nearly two years. In this case, if you are planning on staying in the property (or the loan) for more than two years you should refinance. But what if rates drop within that two-year break-even period? In many cases it is beneficial to look at a relative newcomer to the refinance arena - the no cost refinance. If the cost to refinance is zero, as it is with a true no cost refinance program, than go ahead and refinance no matter how long you plan to stay in the property. Furthermore, if rates drop after you close, you can simply refinance again with no closing costs. The only downside of the no cost refinance is that you will pay a slightly higher rate than if you pay closing costs to refinance. Mortgage rates have dropped in recent months and if your rate is 6.00% or higher (or you have an adjustable rate mortgage) now may be a good time to check into the best refinance options for you.

Shopping For A Mortgage Loan

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 11:03:50 -0600

In today's sophisticated marketplace it is not uncommon for a prospective buyer to shop around for a mortgage loan. In fact, with so many companies and options available, it is important to shop for the best overall fit. Always begin by making sure you are working with an experienced, professional mortgage officer. The purchase of a home, one of life's largest financial transactions, is far too important to place in the hands of someone unfamiliar with the many nuances of modern day lending. Here are a couple of simple questions an experienced lender will be sure to know. What are interest rates based on? Many inexperienced mortgage officers will tell you the 30 or 10 year Treasury note. The correct answer is Mortgage Bonds or Mortgage Backed Securities. Another question is what effect does the 'Fed Rate' have on mortgage rates? Though surprising to the general public, any seasoned mortgage officer will know that mortgage rates, on a short term basis, will often move in the opposite direction of the fed rate change.

Although many people think of shopping for a mortgage as shopping for interest rates, it is imperative that you also shop for a knowledgeable mortgage professional. After all, the absolute lowest cost on the wrong mortgage plan does not save you money.

The Right Loan: More Than Just The Lowest Rate

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 11:01:46 -0600

It is always a challenge for homebuyers to select a suitable loan program that comes with a great interest rate. Rising real estate prices, a national shortage of housing and climbing interest rates has increased the pressure to make a quick decision about mortgage financing. But buyers who want the right loan with the best interest rate know that they cannot afford to hurry through the process.

Make sure to work with an experienced mortgage loan professional at an established and reputable company. Ask other trusted professionals like your accountant, attorney or Realtor for a referral. Remember, you will be relying on your mortgage banker to explain loan options and recommend a loan plan that you can live with. You need to discuss your long-term goals and the details of your personal finances in an atmosphere of trust.

Remember, the best loan is not necessarily the one with the lowest interest rate. A lender might offer you a very attractive note rate, but additional fees can push the total Annual Percentage Rate up significantly. Another common problem is unscrupulous lenders offering a low rate but then hiding fees or labeling them as Paid Outside of Closing (POC) so that they do not add to the final totals on the good faith estimate. Be prepared to ask about the lender's charges for escrow waiver and appraisal as these are often marked POC or TBD (To be determined). The best-case scenario is to find a loan that combines a low note rate and low (and adequately disclosed) closing fees.

Owner's Title Insurance- A Must?

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:58:30 -0600

Title insurance companies ensure that sellers have clear title to
the property they are selling. The title insurance company's agent performs
a thorough search of the public records and certifies that the proper
parties signed the paper work, paid the taxes and discharged all liens each
time the house changed hands. Why then, does a buyer need title insurance
if these searches are so meticulous?
Public records can be incorrect if a mistake was made when the legal
document was recorded. When you buy owner's title insurance, you are
protected against forgeries, misrepresentation and mistakes made at any
point during the chain of ownership. Someone may have forged a deed,
divorce papers or a death certificate. For a one-time premium, title
insurance provides protection against title claims even long after you sell
your home. Legal expenses and other costs are paid by the company to defend
your title. In Vermont, many title issues arise due to permit problems. One type
of owner policy insures against loss arising from failure to have certain
kinds of permits. Storm water issues are also making headlines and title problems

could arise due to the complicated permitting requirements.

Title insurance is like emergency oxygen on an airliner. You may
never need it, but if you do, you will be really glad that you have it!

Are You Confused By Credit Scores?

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:56:42 -0600

Credit scores still confuse and frustrate many consumers, according to a study by the Consumer Federation of America. "Despite all the news coverage about credit scores over the past year or so, many consumers still do not understand important facts about these increasingly influential numbers," said Stephen Brobeck, CFA's executive director. To provide consumers with basic information about credit scores, CFA and Fair Isaac Corporation (developer of the FICO credit score) have prepared a brochure that is being distributed by the Federal Citizen Information Center. The brochure contains the most important information about the score most mortgage lenders and other businesses use, including what factors influence its rise and fall and how consumers can get their own scores. To obtain a copy of the brochure, titled "Your Credit Scores," contact the Federal Citizen Information Center at 1-888-878-3256 or online at: www.pueblo.gsa.gov. It's important for persons shopping for a home to understand the basics of credit scores. Accessing your personal score and learning how to improve it can put you in a much stronger position to obtain the best possible mortgage.

Protecting Your Credit During Divorce

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:55:16 -0600

When a marriage ends in divorce, the lives of those involved are changed forever. During this time of upheaval, one thing that shouldn't have to change is the credit status you've worked so hard to achieve. Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills and a breakdown in communication can lead to unwanted credit issues. These issues may affect your ability to refinance your current loan or purchase a new home. The good news is it doesn't have to be this way. By taking a proactive approach and creating a specific plan to maintain your credit status, you can ensure that "starting over" doesn't have to also mean rebuilding credit. The first step is to obtain a valid copy of your credit report. Once you've gathered the facts, it's time to make a plan: Can you purchase a new home now or will you have to wait until everything is finalized? Can you refinance the house to pay off your spouse and consolidate debt? These are some of the questions that a trained mortgage professional can assist you with. Divorce is difficult for everyone involved. By having professional advice, both legal and financial, you can ensure that your credit remains intact.

Mortgage Rates Drop

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:54:08 -0600

Finally some good news among the endless news stories about the Financial Crisis. Conventional fixed rates dropped sharply after the Fed announced plans to purchase up to $600 billion of debt backed by Fannie Mae and others. This news caused mortgage rates to drop around .75% for a 30-year fixed 0 point loan. So when does it make sense to refinance? If your rate is 6.00% or above you should consider the benefits of refinancing. Also, if you have an adjustable rate mortgage or need cash for debt consolidation, college education or home improvement, now may be a good time. What about the costs to refinance? If the cost to refinance is zero, as it is with a true no-cost refinance program, than refinancing, even if you recently purchased your home, makes sense as long as the new rate is lower than your current rate. Furthermore, if rates drop after you close, you can simply refinance again with no closing costs. The only downside of the no cost refinance is that you will pay a slightly higher rate than if you paid closing costs to refinance.

Low Cash, High Expectations

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:52:22 -0600

If you are saving for a new home, you may feel that it will take you
forever to come up with the cash necessary for the down payment and closing costs. Before you delay your purchase any longer, make sure you check into the latest low down and no down mortgage products. You may find that your dream is much closer to a reality than you imagined

If you have acceptable credit and a steady job, you may not need a lot of cash to purchase a home. Some loan programs still allow you to put as little as 0 down if you are a first time homebuyer or are a veteran. For example, in Vermont, the Vermont Housing Finance Agency (VHFA) still offers a 100% financing program when combined with Rural Development's mortgage insurance. If you are a veteran you can also obtain 100% financing through the VA's loan program. If you don't meet the above criteria you can purchase with as little as 3.5% down using Federal Housing Administration (FHA) financing and all of this money can even be a gift from family. By doing a pre-purchase credit check you can verify if you qualify for any of these programs or if you need to work on resolving any credit problems before you begin your search for a home. Buyers who thought they were years away from the purchase of a home are often pleasantly surprised to find that they don't have to wait to begin their search.

Fed Cuts vs. Mortgage Rates

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:06:36 -0600

You may have noted the many recent news stories regarding rates being down due to the recent 'Fed cuts'. Unfortunately, the press often misinterprets the facts regarding how Fed cuts affect mortgage rates. Here is the way things really work: Fed cuts and mortgage rates are not directly related. In fact, when the Fed cuts short term rates, mortgage rates frequently spike (as Fed cuts are used to stimulate the economy which often drives money out of lower yielding bonds and into stocks). Aggressive cuts can also spark the fear of inflation which eats away at the value of bonds (pushing rates even higher). However, the Fed rate cuts do affect the Prime rate. The Prime rate is the short term rate that most home equity lines are tied to. So the good news is that borrowers will see an almost immediate drop in their equity line rates.

Financing Rental Properties

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:04:45 -0600

Are you thinking about becoming a landlord? Single-family and multi family homes are popular real estate investments. These properties can be an excellent source of income. The number one question for prospective landlords is how to finance such a purchase. Typically non-owner occupied one through four unit properties are considered ‘conventional' loans by most Lenders while five plus units are considered ‘commercial'. Conventional one to four unit properties are often much easier to finance. However, due to the recent financial and credit 'crunch', one and two unit investment properties now require a 20% down payment by many lenders. Three- four unit properties typically require a 25% down payment. The Lender will determine the risk involved in acquiring rental property by looking at the buyer's personal finances and the projected rental income. However, if you don't have landlord experience, many lenders will require you to qualify without using rental income. Finally, lenders will want to make sure that the borrower has sufficient reserves to handle contingencies, such as repairs, maintenance, and taxes and insurance.

Are Credit Bureaus Selling Your Info?

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:02:11 -0600

Having credit checked is an important and necessary step in the home buying process. However, very few people realize that each time their credit is checked, the "inquiry data" that the credit bureaus (Equifax, TransUnion, Innovis or Experian) has on file has now become a commodity. This information is being sold by the credit bureaus to other lenders and also to companies that sell and resell the same names and personal information. These "inquiry leads" can include name, address, phone numbers (including unlisted), credit score, current debt and debt history, property information, age, gender and estimated income. Lenders that purchase these leads will often do everything they can to recoup their investment and turn a hefty profit. Super sneaky bait and switch tactics often used to lure clients away from their reputable lender. Clients have even been called by disreputable lenders and told that the lender they had been speaking to previously "passed on" the information to them, because they knew that they'd be able to offer much better interest rates and terms. The good news is that you can make it stop, right away. The consumer credit reporting industry has provided a way to "opt out" and remove your name from these lists. You can contact them by phone at 1-888-567-8688 or online at www.optoutprescreen.com. Opting out will also protect you from "pre-approved credit offers" arriving via mail, one of the leading causes of identity theft in the US. Take the time and opt out today.

New Loan Adjustments Affect Even Those With Good Credit

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 10:01:16 -0600

Earlier this year Fannie Mae and Freddie Mac (the agencies that provide the majority of the funding for mortgage loans) announced yet another layer of "loan level" price adjustments. These changes are making credit more expensive for both homebuyers and current homeowners looking to refinance- even those with near perfect credit. Now, if you're your credit score is 739 or below, you may pay a premium on your mortgage rate! Considering that the scoring model ranges from 300-850 and that well over 60% of the US population has a score lower than 739, these increased fees will have a major effect on borrowers. Unfortunately, these fees are mandatory and have nothing to do with the lender or mortgage professional a borrower chooses to work with. The new fees are simply Fannie Mae's and Freddie Mac's way of recouping losses associated with the recent rise in delinquencies and foreclosures. The good news is that sometimes small changes to a borrower's credit profile can increase scores- saving thousands of dollars on future mortgage payments.

Buying vs. Renting

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 09:58:54 -0600

Buying vs. renting a home is a big decision that takes careful consideration. Although there are many costs and responsibilities associated with home ownership, the rewards can be significant. Look at it this way: If you are paying $1,000 per month for an apartment, and your rent increases 5% every year, over the next five years alone you will pay your landlord over $66,000! Through home ownership you can minimize this huge expense by building equity and benefiting from the tax advantages of home ownership. In fact, depending on your tax bracket, the net monthly cost of owning a home can, in some cases, be less expensive than renting. Even in today's uncertain mortgage market there are still many loan programs available, including low down payment mortgages. Housing is an expense that takes a big bite out of the monthly budget. If you are a renter you may want to consider the advantages of purchasing real estate. Home ownership is an achievement that offers a sense of pride, financial stability and tax advantages.

Seniors Can Benefit From Reverse Mortgages

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 09:58:12 -0600

Reverse mortgages are becoming more popular with homeowners over age 62. The number of these loans surged 39 percent last year and the number of inquiries about reverse mortgages jumped by nearly 30 percent, according to the National Reverse Mortgage Lenders Association.

Reverse mortgages are a special type of loan designed to boost the income of senior homeowners by tapping the accumulated equity in their homes. Instead of making monthly payments on the loan, the homeowners can receive a monthly check. This tax-free income continues as long as the senior owns and lives in their home. The amount of monthly income a senior receives depends on the value of the property, and his or her age. If preferred, the senior can also receive a lump sum of cash, or a line of credit.

A reverse mortgage is an innovative way for senior's to tap into their home's equity to generate income. Reverse mortgages, however, are not for everyone. Although the interest rates are low, there can be significant upfront costs. These costs, however, are rolled into the loan and not paid out of pocket. Make sure to discuss your options with a qualified reverse mortgage specialist.

Understanding The True Cost Of Mortgage Loans

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 09:57:06 -0600

Many borrowers are confused by the additional costs that are associated with mortgage loans. Federal law requires mortgage companies to disclose the loan's annual percentage rate (APR) in writing. The APR adds in the "other" costs of borrowing money. Unfortunately, these costs are not calculated exactly the same way by all mortgage companies. In general, the APR spreads out the up-front costs of points (if any), origination fees, pre-paid interest and application fees over the entire loan term. This produces the "effective annual percentage rate", also known as the APR. Although it can be useful to compare the APR of different loan packages, it is much more effective to compare all the costs associated with the different loans. The APR can be manipulated by unscrupulous companies to appear lower than it actually is. Use the APR as a general guide, but make sure to review all of the costs with a qualified mortgage professional before making a final decision.

Be Prepared When Applying For A Home Loan

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 09:56:06 -0600

With lending agencies scrutinizing your financial affairs, shopping for a mortgage loan can be an anxiety producing experience. Faced with the biggest debt you will assume in a lifetime, it is wise to do your homework when preparing to apply for a loan.

Before you submit an application that will spotlight your credit history, make certain you can do so with confidence. Surprisingly, many people simply hope their credit scores are adequate without taking the time to make certain. Credit reports may contain inaccuracies that can affect your credit worthiness, so request a copy of your report and review it with your mortgage officer.

Don't be tempted to borrow more than you can comfortably afford, even if the bank is willing to loan it to you. First time buyers particularly might be inclined to assume more debt than they can manage. A good rule of thumb is to limit your total debt, including housing costs, to 40% of your income.

Home Insurance On Your New Purchase

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 09:54:16 -0600

When you obtain a mortgage to purchase a new home, the lender will require that you show that you have prepaid for one year of homeowner's insurance. In the past, insurance companies could provide such a policy on short notice. In today's market obtaining the appropriate coverage can take days, or even weeks. Advanced planning for this insurance requirement allows you to shop around for the best rate as well as the coverage that best suits your needs.

Finding a good insurance agent is important. Work with a firm that has served you well in the past, or ask your friends, co-workers and family for a referral. Your mortgage officer or Realtor can also refer you to agents that they have worked with. When shopping for the best policy, compare rates but be mindful of the total package. Often the difference in price is insignificant when compared to having the correct coverage along with prompt local service.

Buying Points Rarely Pays

Mark R. Chaffee (Mortgage Financial, Inc.) — Sun, 28 Dec 2008 09:52:53 -0600

A recent report shows that borrowers tend to purchase too many points when selecting a mortgage. The study by Freddie Mac looked at points paid, interest rates and loan length. The results showed that those who paid points were drastically underestimating the amount of time they would hold their mortgage loans. In fact, the borrowers tended to pay off their mortgages over 3 years too soon for the benefit of the points to kick in. Unfortunately, many borrowers mistakenly focus on how long they plan on being in the home, rather than the loan, when calculating the break even point (the break even point is the amount of time it takes for the monthly savings of the lower interest rate to make up the up front cost of the points). The correct calculation should reflect how long they may be in the loan (not the home). Currently, according to Freddie Mac, mortgage loans are only in place, on average, four years (due to refinancing, relocation, home improvement etc.). The study showed that only 1.4 percent of borrowers who purchased points were in their loans long enough to make it pay off!

Your mortgage as a financial tool

Mark R. Chaffee (Mortgage Financial, Inc.) — Mon, 15 Dec 2008 18:34:26 -0600

Most people view mortgage loans as a necessary evil. I am frequently asked about bi-weekly plans, 15 year mortgages and other ways to pay off the loan more quickly. What few people realize is that a mortgage is one of the most powerful financial tools we possess. Let's look at it this way, consider how much you would deposit in an investment account with the following features:

The customer can pay more than the monthly contribution but not less
If the customer attempts to pay less the financial institution may keep all of the previous contributions
The money in the account is not liquid
The money earns a zero percent rate of return
The customer's tax liability usually increases with each new contribution
When the plan is fully funded, there is no income paid out

Not many of us would place money in such an account yet many of us are. This is what happens when you pay against a traditional amortizing mortgage! Instead of paying extra money into this account, consider contacting your investment advisor to see if these dollars can instead grow in a safe, conservative and tax advantaged side fund. This simple strategy may save the average homeowner thousands over the life of their loan.