Your House is NOT an ATM Machine! Refinancing is Not the Only Alternative

By
Mortgage and Lending with Primary Residential Mortgage Inc.

ATM's charge high fees when you withdraw your OWN money from a competing bank's machine.   This fee ranges from $2.00 to as high as $10 if you ever needed to get some cash from a Casino in Atlantic City.   It is absolutely insane that we pay these high fees in order to access our own cash, but I have to tell you, it is a lot cheaper than another method many people use...Refinancing!

 

 

In the past 5 years, many homeowners have used their house like their own personal ATM machine.    Homeowner wants to put on new siding....Refinance!    Homeowner wants to put on an addition, paint the house, take the kids on a vacation, shopping spree, new car, vacation house, new lawn mower, new basketball hoop, college education...Refinance!

 

I know this sounds strange coming from a mortgage professional, and I do make my living through refinances, BUT it is not always the best solution.    Many different variables go into a refinance along with fees.   Deciding to take the plunge needs proper planning, but more importantly, it takes a pad, a pencil, a calculator, and an honest mortgage professional to guide you along the way.

 

Many sub-prime loans were taken out with some interesting options and descriptions in order to create a lower payment.   Many of these refinances were done based on the notion that the value would increase forever, and more equity would be available later.    Some really paid the price because of the product chosen.   Here are just a few examples of these exotic products:

 

Interest Only loan - homeowners pay only the interest that accrues on the loan.  They are not required to pay any of the principal.   This offered homeowners a lower payment on which they could qualify.

 

40 and 50 year terms - in order to reduce the monthly expense and qualify for a lower payment, many borrowers were offered longer terms.   By stretching out the loan to 40 or 50 years, payments on loans would decrease several hundreds of dollars, allowing homeowners to buy or refinance more house.

 

Negative Amortization Loans - The "Neg -AM" loan actually allowed borrowers to pay less than the interest each month.   The loan balance on this product would increase each month because homeowners were not required to pay the interest accruing on the home.    Many homeowners were losing hundreds of dollars in interest each month.

 

The "Fixed - Adjustable" Loan - this is a term created by sub-prime lenders that created the illusion borrowers were in a fixed product.   The "fixed" period lasted for 1, 2, or 3 years, then the loan would adjust.    Many times these loans were sold with high margins which would increase interest rates by 2 or 3 percent.    Often times these are considered "teaser rates".  (This is a term I have heard from many homeowners trying to refinance in the last year.   In my opinion, it was a tactic to trick borrowers into specific loans)

 

Most homeowners in the products above have already come to realize the product was not what they were expecting, and some are finding out the hard way that a drop from a 50 year term to a 30 year term, regardless of the rate, makes a pretty significant dent in their monthly budget.   

 

I just wonder how many people in the loans described above actually took the loan not to lower their rates or consolidate debts, but to use the money for something more enjoyable.   I can tell you from experience, many just refied because they were accustomed to a lifestyle and needed some cash to continue.    Now they are paying the price.

 

When it comes to a refinance, first ask yourself the question..."what am I trying to do?"   Do you need cash for a necessity, or are you trying to keep up with the Jones?    Can you save for the next several months to get what you want?    Do you have money in a rainy day fund that you can use?    What is in your checking or savings account?  

 

Often times, a Refinance is a Great Option and can accomplish many goals!   Decreasing your rate, shortening your loan term, consolidating debts, getting out of an adjustable and into a fixed are all excellent reasons to refinance.   You still need to run the numbers and make sure it makes sense.   Talk with a mortgage professional that is looking out for your best interest, and will tell you if a refinance is not the best option.

 

To find out more about refinance opportunities and whether a refinance makes sense for you, check out our website today at www.tmmortgagegroup.com or call 1-800-696-1424.

 

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Jim Crawford 09/03/2008 10:56 AM
Location:
Maryland
Tags:
homeowners
subprime
fixed rate
40 year mortgage
interest only
adjustable rate
neg am
refinance
fixedadjustable rate
50 mortgage

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Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Hey Gabe, could you imagine not having a mortgage payment?   Wouldn't life be a lot easier with a lot less stress?   Someday!?!?

 

Kathleen, funny how some people's ATM's are bigger than others.    Some use it for additions, others use it for jet skis.

 

Anthony and James, thanks for the comments.

Sep 02, 2008 11:44 AM #11
Ambassador
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Roland Woodworth
eXp Realty - Clarksville, TN
eXp Realty

Tim: This is a great way of looking at Refinance.. Looks as if they type of loan has a lot to determine the best interest of the home owners

Sep 02, 2008 12:24 PM #12
Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Roland, we both know we just can't line them up and knock them off one by one.   Thanks for the comment.

Sep 02, 2008 12:37 PM #13
Rainer
14,648
George Sanchez
California Housing Realty - Corona, CA

Very good sir.  I applaud your desire to educate the borrower so that they make wiser decisions.  I used to be a Loan Office working for a dishonest broker....I hated it.  Back then, I was told that "This is the only way to make money"....so I left and became a Realtor.

I am glad to see "Honest Loan Officers" doing there best to make a difference.

Cheers.

Sep 02, 2008 12:39 PM #14
Rainmaker
655,982
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes

Refinancing is how a lot of people got in trouble and are not able to recover -- and are losign their homes. Sad.

Sep 02, 2008 12:41 PM #15
Rainmaker
588,565
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

I believe the biggest reason why we have had so many foreclosures recently is not just the subpime purchase money mortgages, but the home equity lines of credit that were so easy to get for years and hundreds of thousands of people used those lines to pay credit card bills, buy expensive toys, and get through lean periods without putting a dent in their lifestyle.  They were encouraged to do this because loans against their homes are deductible, and because they were assured that their equity would keep growing fast enough to cover what they withdrew.  Wrong!

Sep 02, 2008 12:52 PM #16
Rainmaker
67,383
Cathleen OnullHannigan
Keller Williams Realty - Cary, NC
Cary NC Homes Pro

My goodness, so many have used their homes as atms.  One friend even said that they have "play money" now because of the appreciation that has now disappeared.

Sep 02, 2008 01:06 PM #17
Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Susan, now the home equity loans are being frozen or the lines are being decreased.   Talk about people having to make a lifestyle change in a hurry.

 

Cathleen, sorry about your friends.   They are obviously not alone.

 

Sep 02, 2008 01:17 PM #18
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

It is amazing how many people took out every penny of "equity" they had in their home in the last few years.  Now they are faced with homes that are worth considerably less than what they owe and they are crying foul and wanting Realtors to help them with a short sale or a bank to let them walk away on a foreclosure while driving away in their paid for new car.  Hmmmmm????

Sep 02, 2008 02:06 PM #19
Rainmaker
1,768,823
John Novak
Keller Williams Realty The Marketplace - Las Vegas, NV
Henderson, Las Vegas and Summerlin Real Estate

It's a little frightening seeing all of those products (interest only, 40 and 50 year, etc.) all together in one post! I think with several of these, homeowner's took the path of least resistance - took the easiest money they could find without regard for consequences. Hopefully going forward they will take a more educated and counseled approach.

Sep 02, 2008 02:28 PM #20
Rainmaker
52,501
Roy Paeth
Keller Williams Inspire - Geneva, IL
Just a regular guy helping real people!

Very good post Tim the ATM analogy is so spot on. I think many people felt there would be a never ending supply of money to keep paying of the credit cards they lived above their means on. Now we are seeing the consequences when things take a turn for the worse.

Sep 02, 2008 04:54 PM #21
Rainer
105,859
Travis Newton
Salem and Bend Oregon FHA, VA & USDA 503.931.4490 - Salem, OR
FHA, USDA, VA, LOAN EXPERT - Salem OR Homes For Heroes SALEM OREGON

Great post...i've turned down a few refi's for this reason

Sep 02, 2008 05:18 PM #22
Anonymous
Kevin Riley

Great post Tim!!  If all loan officers would have been as honest and sincere as you over the past several years many in this country would be a lot better off today. 

Sep 03, 2008 04:04 AM #23
Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Travis - glad to hear that.   Sometimes i feel like a fool for turning down business because many times the customers will just go on to the next loan officer, but at least I can sleep at night.

 

Kevin - There are a ton of them out there, you just need to look for them.

Sep 03, 2008 06:38 AM #24
Rainmaker
449,888
Vickie McCartney
Maverick Realty - Owensboro, KY
Broker, Real Estate Agent Owensboro KY

Tim~ I never could understand why people were using the equity in their homes like it didn't matter!  Why would anyone want to put another debt against their home? I guess it made some sense since so many have done just that .... 

Sep 03, 2008 06:57 AM #25
Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Vickie, so many people thought this ATM machine (equity) was going to increase every month.

Sep 03, 2008 07:00 AM #26
Anonymous
Dana Scanlon - Bethesda Real Estate Pro

How right you are, this "ATM habit" goes right along with the idea of buying and moving every few years as a way of life. Sure, for a few years a lucky few made some money doing this, but just like in a casino, that winning streak can't last for long.

Buying a home should be a long term investment, a place to make your own dreams in life a reality. Its not a quick road to riches, though it would have been hard to convince people of that 2 years ago. I too recommend to my prospective clients that if they can't see themselves staying in the home for at least 4 years, then they should reconsider their decision. I may sell one or two less homes, but at least I can sleep at night.

Dana - 301-575-4915

Sep 03, 2008 08:09 AM #27
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Jim Crawford
Maximum One Executive REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

Excellent post and worth of featured status!

Sep 03, 2008 11:02 AM #28
Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Dana,

Wow, you hit a great point there!   With the recent shift in the market I forgot a little about all of the people that were buying and moving every few years.   It was a SURE THING wasn't it?    Thank you so much for the comment.   Bethesda?   Do you have a blog I can check out?

Sep 03, 2008 11:37 AM #29
Rainer
11,828
Tim Marose
Primary Residential Mortgage Inc. - Gaithersburg, MD
Maryland Buyer & Refinance Specialist

Jim,

Thank you for the very kind words and the re-blog.   I am fairly new so I hope I didn't miss something on the repost.    I saw something about an invite but I believe it was to view your blog, which I did.   Good stuff that I am going to check out tonight.    Thanks again for the kind words!

Sep 03, 2008 11:39 AM #30
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