Should You Consider an Adjustable Rate Mortgage?

Today's fixed interest rates remain low. Even so, some home purchasers are considering an adjustable rate mortgage (ARM). Here's a look at why it might still be the best mortgage for you.

They key feature of an adjustable rate mortgage (ARM) is that the percentage changes - or adjusts - after a specified time. However, the initial rate is quite a bit lower than the 30-year fixed rate. Often, even when the rate increases at the specified time, it can still be lower than the going rate for the fixed-rate loans.

There are 1-, 3- and 5-year ARMs which indicate how many years after the loan origination date your interest rate will change. Another variation of an adjustable loan is a 3/1, 5/1, 7/1 and 10/1. These are 30-year loans with a fixed rate for the first 3, 5, 7 or 10 years. At that specified year of the loan, it turns into into a 1-year ARM for each of the remaining years.

With today's market, houses cost less than they did a few years ago. This means people are able to buy a bigger, nicer house than could before. Add into this scenario of an ARM and you can buy even bigger or better because you will most likely qualify for a larger loan. Or, the lower interest rate means lower house payments.

Another scenario in which it makes sense to consider an ARM is if you know you will be moving within a couple years.Will you be transferred soon? Will you be starting - or adding to - your family and need a larger home? Obtaining an adjustable rate mortgage, knowing you'll be moving within a few years, could save you money due to the lower interest rates.

A lower house payment, if only for a year, can be beneficial. It's not uncommon to pay a few hundred dollars less per month during your initial year(s) of an ARM, compared to a fixed-rate loan. Using this extra money for remodeling, landscaping, purchasing furnishings, etc., can be a boost for you to get started.

Work with a mortgage broker who has extensive knowledge and experience. He or she can help you crunch the numbers and review the different scenarios to help you determine the proper loan for you based on your current situation and your future plans.

Special Homebuyer Tax Credit for the Military

Last week was a special week set aside to honor our military men and women. If you are a member of the military, first of all I want to say "thank you" for your service to our country. Secondly, I want to share this information (if you know of a member of the military, please pass this on to them).

If you are thinking about buying a home, members of the military have a great opportunity. You can claim a Homebuyer Tax Credit, but you only have until April 30th of this year. This is tax credit is either 10% of the purchase price, or $8,000 - whichever is less. If this is not your first home purchase, you are eligible for either 10% of the purchase price or a $6,500 tax credit - whichever is less.

There are other benefits designed especially for you. One significant option is that you can purchase a home with no down payment! Talk to a professional mortgage broker for more information, so you can take advantage of this special tax credit designed especially for you.

Foreclosures and Fraud: A Correlation?

New statistics that have recently been released suggest that there is a correlation between fraud and foreclosures. When reading an article in National Mortgage News, my immediate thought was, "why wouldn't that be a given?" Unfortunately, when people are in their worst situation, there are others that seek them. These fraudsters know that many are hanging by a threat and take advantage of that situation.

So, where is mortgage fraud happening most frequently?

Arizona, California, Florida, Michigan and Nevada have the highest risk of fraud. Along those lines, high unemployment and declining property values are all prevalent in these states as well.

On the other side of the equation, it makes sense that Kansas, Maine, Mississippi, South Dakota and West Virginia (the 5 least risky states) have index values that fall below the national average.

This is attributed to fraud schemes created by people who prey on those who are facing the possibility of losing their houses to foreclosure. One such scheme is a "rescue" opportunity that people, who are desperate, are likely to fall for.

Interthinx, the company who compiled the information, states that their most recent analysis shows that "fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them." California has some of the most risky cities, with 12 of the top 20 in the nation.

Even though the economy seems to be on the upswing and unemployment figures are looking better, there are still a lot of people hurting while attempting to stay in their houses. Others are struggling to make the right purchase. If you are seeking assistance for yourself or a family member, be sure to work with a reputable mortgage broker.

Case Study: Subordinate Loan Almost Halted Refinancing

Two previous posts discussed refinancing your current mortgage and how a subordinate loan can affect that process. But there is nothing better than a real-life situation to explain how intertwined your finances are.

A recent customer had difficulty selling their house due to the current housing market. They chose to take their house off the market and remodel instead. It would be easy to refinance, right? Their thought was that with a lower mortgage payment, they would have available funds to make the upgrades in their current home.


Here's a brief outline of what happened:

• The balance owed on their 1st mortgage was $99,000 and $26,000 was due to a different bank on a 2nd mortgage.
• They wanted to combine the two loans into a $125,000 re-finance.
• Their house only appraised at $127,500 (seven years ago, it was valued at $141,000).
• Because a different bank had the 2nd lien on the house, they had the right NOT to subordinate that loan - and chose not to - citing that the total of the loans were too close to the appraised value of the loan.

This customer was surprised, because they were never late on a payment, both hold full-time jobs and have a very good credit rating. Their hopes of remodeling disappeared. They felt all was lost, until a family member suggested they call Grandview Lending. Here's what happened next.

• We found a lender that agreed to a re-fi, consolidating the two loans.
• Since we serve the customer, not just the mortgage, we felt they were being over-charged for their homeowners insurance, so referred them to a different insurance agent.
• The customer had closing costs, but also received a reimbursement from their escrow which resulted in little out-of-pocket expenses. 
• Overall, their monthly payment was lowered by about $300.
• They chose to pay a higher amount per month, and will now be able to pay off their new loan about 7 years sooner.
• They have a new mortgage, less costly insurance, will pay their home off sooner and have completely remodeled their current home.

Of course, not all situations turn out this way. However, there are many times we can assist those who feel they have no other options. This is the benefit of working with an experienced mortgage broker. More options, more knowledge and more alternatives.