Real Estate Newsby Peter G. Miller
Peter G. Miller
OurBroker®
There"s something lenders don"t want to tell you, a little secret that can save
homeowners thousands of dollars.
It works like this: Rates have fallen and you want to refinance a fixed-rate
loan. You contact your lender and discover that because you"re a great and
wonderful person and all your payments have been full and timely, you"re
qualified to refinance. New papers will be required, and that will mean a new
closing, legal fees, survey, appraisal, and perhaps a bunch of taxes.
What lenders don"t say is this: You may be able to refinance without the need
to fill out 900 forms or pay big closing costs.
For instance, several years ago rates were down and I needed to refinance an
investment property. I called the lender and said, "let"s modify the loan."
I exchanged letters with the lender setting out the new terms. My attorney
looked at the letter, the lender accepted, and that was it. Total cost: about
$35.
What really happened was this: The property was not refinanced. Instead, the loan terms were modified. Because the terms of an existing loan were
changed, there was no need to record a new loan. Since there was no new loan,
there was also no need for a new closing, title search, or smaller checking
account.
None of this is especially revolutionary. There are millions of adjustable rate
mortgages and the terms for such financing change constantly with new rates and
payments. When these changes are made, no one refinances. The terms change
because both lender and borrower have agreed that the loan provisions can be
modified.
We now have lenders who have gone public with ARM products where the initial rate is also the highest rate. If interest levels drop, the loan rate also falls.
Given the choice of an ARM where rates can rise and fall, or an ARM where rates
can only fall, you can bet that few consumers will
opt for the greater risk of possibly higher rates -- unless lenders want to
make such loans attractive with significantly easier qualification terms, lower
rates, and fewer costs.
But while the modification "genie" is now somewhat out of the bottle, there is
more to go.
Not only can new ARMs be modified, so can millions
of existing loans whether they are ARMs or
fixed-rate products. If lender and borrower agree, loans terms can be changed
to whatever might be mutually acceptable.
So the next time you get the urge to refinance, stifle that feeling and think
"modification." Increasingly, lenders will welcome such thinking -- or lose
your business.
Question Of The Week
Q I"m buying a new house and
putting only 5% down. The house is scheduled
to be completed in August, and as new phases are becoming available for sale
values have been going up dramatically. I believe that when I move in I will
have 20% equity. I want to remove my PMI as soon as possible. Can I have an
appraisal done and petition for my PMI to be removed, or do I have to wait some
period of time?
A Lenders want borrowers to obtain
private mortgage insurance when homes are bought conventionally with less than
20 percent down. In your situation, the combination of your down payment and
rising property values will likely give you 20 percent equity.
New federal rules say that lenders must end PMI requirements when most
new borrowers have reduced loan balances by 22 percent -- something that can
take years with typical amortization schedules. The requirement for lenders
does not relate to equity, but only to paying down the original loan balance.
You thus have a situation where a lender cannot be compelled to immediately end
PMI -- but you surely have the right to ask. I suspect that lenders will be
pleased with your increased equity because it means less risk for them, but
they will also want a better understanding of your credit standing and
therefore may respond by saying, "let"s talk after 12 payments."
Weekly Resource
Does it seem like you need a degree in advanced mathematics to understand the
new 10-10 long distance phone plans? If so, try www.10-10phonerates.com
for a little clarity.