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Thread: Adjusted Rate Mortgage Loan

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    God/dess Bella21's Avatar
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    Default Adjusted Rate Mortgage Loan

    Okay, I have a question for you financial guru's... My bf owns a home and has an adjusted rate mortgage loan. He's going to have to refinance in a couple of years so that he's not butt-raped. As of now, he's okay so he's in no hurry. However, a friend of mine says that he should refinance NOW since home-buying is in a slump and hence, people aren't taking out loans to buy a home. My friend believes that my bf will get a better rate on a loan due to supply and demand this way. My bf says that it doesn't matter when he gets the loan because that won't affect it so he's going to go ahead and wait.

    Who is right?
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    Default Re: Adjusted Rate Mortgage Loan

    Now would be a good time to refinance because rates are low. Does he have a prepayment penalty?
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    Default Re: Adjusted Rate Mortgage Loan

    He hasn't said anything about a prepayment penalty when talking about refinancing, so I don't think so.
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    Default Re: Adjusted Rate Mortgage Loan

    two key questions ...

    A. when your BF purchased the house, did he make a 20% down payment ? a 10% down payment ?

    B. has the house declined in appraised value such that the amount he owes on the ARM is now actually more than the market value of the house ?

    What I'm getting at here is that with the recent release of new mortgage lending standards requiring a minimum amount of homeowner 'equity', and with declining real estate market prices destroying homeowner 'equity', it's no longer a safe assumption that anybody who wants to re-fi will actually be able to secure lender approval on a new fixed rate mortgage. Yes fixed rate mortgage interest rates have dropped a bit, but a lot of people with ARMs aren't actually able to take advantage because they have insufficient 'equity' to be approved for a new fixed rate mortgage.

    Also, the disadvantage of waiting until the 'last minute' is that your BF is taking a risk that the appraised value of his house will decline even further in the meantime, destroying more of his homeowner 'equity' and making it that much more difficult to get approved for a new fixed rate mortgage.

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    Default Re: Adjusted Rate Mortgage Loan

    I don't remember for certain, but I believe he put 10% down. He's not upside down, his house value has declined, but it's at the point from where he first bought it.

    I don't want to be in his face with this... do you have any good links that I can email to him so that it doesn't sound like a lecture to him?
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    Default Re: Adjusted Rate Mortgage Loan

    Quote Originally Posted by Bella21 View Post
    I don't remember for certain, but I believe he put 10% down. He's not upside down, his house value has declined, but it's at the point from where he first bought it.

    I don't want to be in his face with this... do you have any good links that I can email to him so that it doesn't sound like a lecture to him?
    He's going to need at least 20% equity to re-fi, and pay closing costs again. Right now it appears he has no equity at all in the house, so its going to be impossible for him to find a bank willing to re-fi.

    Again, I am not a mortgage expert, I have a broker I use for this, so there could be a possibility...

    *kinda doubting myself after I flubbed Andygirl's question*

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    Default Re: Adjusted Rate Mortgage Loan

    Is he planning to stay in the house for a while? If he's not going to be there long enough for the rate to adjust, there's no reason to refi.
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    Default Re: Adjusted Rate Mortgage Loan

    ^Oh yes, he will be there for awhile. He was thinking of moving before the crash (d'oh!), but it's not even worth it for him to move and rent the place out at this point. I brought this up to him at dinner (I have a huge mouth) and got the same answer... I think I'm pissing him off by talking about this. I guess it's because it's none of my business, really. From what I gathered... his stance is that home value COULD decline... or it could get better. My personal opinion is that it's going to hit rock bottom (aka, get worse) before it gets better... of course, these issues aren't exactly any of my skills...
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    Default Re: Adjusted Rate Mortgage Loan

    None of that matters Bella. If he's afraid and wants to cut his losses, the best he can do is sell it now, or wait out the storm. My vote is for the latter. That's what happens in real estate, but chances are, it will appeciate again. Don't expect double digit growth though, that shit is over for a while!

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    Default Re: Adjusted Rate Mortgage Loan

    He's going to need at least 20% equity to re-fi, and pay closing costs again. Right now it appears he has no equity at all in the house, so its going to be impossible for him to find a bank willing to re-fi.
    yeah, that's the way it's looking with all of the major lenders that don't expect a Tony Soprano interest rate on a fixed rate mortgage. Assuming that there really was a 10% down payment, and assuming that closing costs were not taken from the 10% down payment, and assuming that the local real estate market is exactly where it was when the BF bought the house, then at best there is 11-12% existing equity. Thus to get an affordable interest rate re-fi into a new fixed rate mortgage, you're most likely talking about ponying up another 8-9% in cash to boost equity to 20%, PLUS ponying up new closing costs, plus a credit score over 730, to get approved these days.

    if you want to look into what's available for terms, is probably one of the most 'open' mortgage re-fi lenders.

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