| In Texas you can refinance your home as well as | | | | the best rate, if it's not affordable to you-it's not the |
| your investment property. And with today's low | | | | wise loan. Go with the 30 year rate. |
| mortgage rates, lots of people are doing just that using | | | | 3) How long do I plan to keep this home? Is this home |
| home equity loans | | | | appreciating? |
| Plus some are doing the | | | | 4) What is my long term financial plan, and how does |
| two-birds-one-refinance-approach: Refinance the | | | | this new mortgage help me accomplish this plan? |
| home and pull cash out. | | | | #4 is where the rubber meets the road. And this is |
| When it comes to refinancing, you have two options. A | | | | where I spend the most time with my clients; |
| "rate and term" refinance or a Texas home equity | | | | constructing the long term plan and then customizing |
| loan "cash out" refinance. | | | | the mortgage to fit this plan. Most people chase the |
| With a home equity loan you pull equity out of your | | | | lowest rate when getting into homes however without |
| home or investment property. | | | | a mid-long range goal they usually end up paying more |
| Most people refinance to get a lower rate; this is called | | | | in the long-term. |
| a "rate and term" refinance. One is keeping the same | | | | Take the sub-prime meltdown. There's nothing wrong |
| loan amount, they are just lowering or changing the | | | | with sub-prime loans. Sometimes things happen that |
| rate or term of the mortgage. | | | | cause people's credit to go in the trash. Divorces do |
| Maybe they are moving out of a 30 year note to a 15 | | | | happen and sometimes medical bills come out of no |
| year note. This is called a rate and term refi because | | | | where and people have a lot of collections. Jobs are |
| they are just changing the rate or the term of the | | | | sometimes lost and savings are use up before they |
| original loan. | | | | were originally intended. The problem with sub-prime |
| Lower mortgage rates do mean lower payments. But | | | | loans is not that they are bad, but that they need to be |
| some clients choose a "cash out" refinance (Home | | | | on Fixed rates. Not adjustable. This country has lost |
| Equity loan)- which means they pull equity (cash) out of | | | | billions of dollars during the sub-prime meltdown for one |
| their homes or investment properties for other | | | | reason: People chased the lowest rate when they |
| purposes ...like paying off debt or buying additional | | | | bought the home and ARMs have lower rates than |
| property. | | | | FIXED rates. And since ARMs had lower rates people |
| For example, let's say a family has a $450 car | | | | chose ARMs over Fixed rates. |
| payment where they owe $15000. If they have | | | | So thousands of people with bad credit bought homes |
| enough equity in their home, it's common for a family to | | | | on ARMs and today we have a major problem: |
| refinance the home and pull enough cash out of their | | | | Because people chased the lowest rate. |
| home to pay off other costly debt; like credit cards, | | | | Having a long term financial plan. Example, let's say |
| cars, etc. The house payment might go up $50 but the | | | | you're self employed and don't have a company |
| car payment is eliminated. So a family has $400 more | | | | retirement plan-401k-to rely on. One approach in solving |
| each month. | | | | the "no 401K/IRA" problem is to own real estate. The |
| Some suggest against home equity loans to pay off | | | | goal is to own a few choice properties so when you |
| debt stating it's not wise to take a 3-5 year debt and | | | | do retire you will have these properties paid off and |
| spread it across 15-30 years. And these people are | | | | creating passive retirement income. Imagine if your |
| right. However, when I help a client save $400-500, | | | | mortgage broker took the time to understand your |
| sometimes $1000/month now these families can | | | | long-term goals and structured the new loan around |
| afford to pay extra on their 30 year mortgage and | | | | these goals. Funny thing, most people are 15-30 years |
| pay it off in 12-15 years. | | | | from retirement and the typical home loan is paid off in |
| In fact, most of the time a family will pay their home | | | | 15-30 years. Bottom line: The home you buy today |
| off earlier-after a home equity loan-than they would | | | | could help you retire tomorrow-and you need the right |
| have before. | | | | home loan to go along with it. |
| You can always call us to see if Texas home equity | | | | Remember, most mortgages are based on a 15 or 30 |
| loan cash out refinance makes sense for you. | | | | year basis, why not structure your first home to help |
| Home Equity Rules | | | | you retire in 30 years. I know this seems unrealistic |
| Home equity loans have slightly higher rates than | | | | because most people don't keep homes that long, but |
| traditional rate and term refinances because one is | | | | going into a mortgage with a plan is better than just |
| raising the original loan amount. Plus when one pulls | | | | going into a mortgage. |
| cash out of a home or investment property this is a | | | | Most people don't want to take the time to think about |
| higher risk loan. Higher risk = slightly higher rate. | | | | money-but in the end-the lack of money causes a lot |
| And in Texas you are limited to 80% of your home's | | | | of other challenges in life. |
| value. Meaning if your home is worth $200,000, the | | | | This is how I'm different from the other Texas |
| most your new loan could be is $160,000. If you owe | | | | Mortgage Loan people. I believe I can either help |
| 100K, you could take out 60K or up to 80% | | | | people move forward financially or I can just get them |
| Then there's the 3% home equity rule: This means the | | | | into debt. Sure it's easier to "sell low rates" but not at |
| total fees associated can't exceed 3% of the loan | | | | the expense of helping a client in the long term. |
| amount. This mostly effects those with smaller home | | | | PMI (just so no-or at least try to get out of it.) |
| loan balances. For example, if your home is only worth | | | | My clients avoid PMI when possible. But to do an 80/15 |
| 75,000 and we are limited to 80%-your loan could only | | | | or 80/10 or an 80/10/10 one's mortgage rate is slightly |
| be 60K. 3% of 60k is $1800. So if your title company | | | | higher but the benefit is avoid pointless PMI and having |
| charges $700 for the title policy and your appraiser | | | | lower closing costs. This is another example of why |
| charges $325 and the bank charges $500 to | | | | "chasing the lowest rate" isn't always the best. Loans |
| underwrite your loan it's not hard to be over 3%. This | | | | with PMI are better than loans without. But the benefit |
| would mean the mortgage company could only charge | | | | of not have PMI is huge. Not only will you pay less |
| $275 to be under the 3% rule. | | | | when your home loan doesn't have PMI but your |
| 12 day Home Equity Rule, 3 day wait-until-we-fund rule: | | | | closing costs are less too. |
| In Texas we have to wait at least 12 days from | | | | Right now I want to touch briefly on these 3 issues |
| mortgage application to close. I even have to get a | | | | and why one should be thinking of them when you buy |
| special 12 day letter signed. Then once we close, we | | | | or refinance a home. Actually, your mortgage person |
| then can't fund the home loan for 3 days. Texas has | | | | should customize your loan around these three points |
| weird home equity refinance rules so you want to | | | | for you. If they don't-run. If all they sell is a mortgage |
| work with an experienced mortgage company who | | | | rate did they really serve you? |
| does a lot of these type of loans. If you have additional | | | | Mortgage brokers and banks love to advertise low |
| questions, please call us at 512-996-8194, we help | | | | mortgage rates. "We have the lowest rates in Texas!" |
| people all over Texas. | | | | But let's think about the loan like this: "How much did it |
| For many people home equity refinances can be a | | | | cost you to get this rate." Because low mtg rates are |
| great way to jump start a new financial plan. I offer | | | | one thing, but how much did it cost to get the rate? |
| them to my clients to help them: Get out of debt, pay | | | | Let's look at one of Today's Mortgage ads. (April 17) |
| off bills, have more money to save and invest. My | | | | They are advertising a 4.87% rate. |
| clients have saved hundreds each month by paying | | | | Funny. The real 30 year rate is around 6% but they |
| off high interest credit cards. My personal record is | | | | know people want "low rates" so they advertise a |
| saving a family $1000/month using a home equity loan. | | | | great rate. But when you look at the points it will take |
| Once they save this money they plan to pay extra on | | | | to get this rate, you'll see there's more to getting a |
| their mortgage so they pay a 30 year note in 15 years. | | | | mortgage than just rate. Closing costs. |
| So used correctly, a home equity mortgage is a great | | | | For example, if you're buying a $200K home should |
| way to move forward financially. | | | | you really "buy the rate down" with points to get a |
| After 5 years in the mortgage business I've come up | | | | good rate? To buy this low, low rate, it will cost $6,000 |
| with my personal lending philosophy. Because anyone | | | | just for discount points. And yet people do this all the |
| can do a home loan. However, my business is helping | | | | time. Mortgage people advertise low rate because |
| move people forward financially-starting on the | | | | people want low rates. |
| mortgage level; the biggest expense for a family. | | | | Sorta reminds me of when I bought my Toyota |
| Most of my clients know my personal philosophy with | | | | Tundra. I wanted to save a nickel so I went for the |
| mortgage lending. There are lots of mortgage people | | | | 2×4 instead of the 4×4 all-wheel drive. I |
| out there who promise "the lowest 30 year mortgage | | | | was so proud of getting the "lowest price in town" but |
| rate or the "best Texas 15 year mtg rate"-but this isn't | | | | when it snowed or iced I had to ask my wife to drive |
| really my approach. I tend to favor what is best for the | | | | her front-wheeled drive Honda Accord. |
| client's short and long term. If one needs a 15 year | | | | This is one reason why I suggest working with a |
| mortgage with low closing costs, let's use this program. | | | | mortgage broker (like me) who approaches mortgage |
| Need to consolidate debt, let's use a home equity loan. | | | | lending from a total financial planning perspective. |
| I just don't believe in one-size fits all mortgage plans. | | | | Because if I notice a client has a ton of credit cards |
| As soon as my clients all look the same, have the | | | | and misc. debt-this 6K should not go towards a new |
| same income/debt, goals, then I'll become a one-size | | | | (tax deductible) debt but towards paying off old, high |
| fits all mortgage guy. But for now, I work with low | | | | interest debt that's not tax-deductible. |
| income people, millionaires, investors, first time home | | | | Or to use real numbers, if you have the $6000 to pay |
| buyers, second home mortgages, etc. | | | | towards debt, retire 15% interest debt that's costing |
| One's mortgage can be either a debt instrument or a | | | | you $500/month instead of trying to save $200 on |
| better financial tool, it's really up to you and your | | | | your mortgage. Then pay $100 extra and you're still |
| mortgage professional. And in today's economy where | | | | saving $300. Use this $300 for savings, investing or |
| the realities of $5 gas aren't really unreasonable you | | | | having fun. |
| should work with a professional who will take the time | | | | But what about all the interest I'll save by having a low |
| to listen and bring the right mortgage plan to the table. | | | | rate? Shouldn't I try to get the best rate so I can have |
| Because once a mortgage is in place you must live | | | | lower monthly bills? Yes. Once you're out of consumer |
| with it. | | | | debt-and you no longer have to pay $500 out, begin to |
| Some questions you should ask yourself when buying | | | | apply $100-$200 extra on your mortgage payment. |
| or refinancing a home or investment property: | | | | This will take years off your mortgage, usually taking a |
| 1) How much debt do I currently have? How much | | | | 30 year mortgage to a 12-15 year. This will save you |
| debt am I currently servicing each month? | | | | tons in interest and give you lower payments. |
| 2) How much in liquid savings do I currently have? | | | | When you buy or refinance any property take the |
| Could I choose a mortgage that will help (a) lower my | | | | time to look at the bigger picture because a mortgage |
| bills and (b) help me to save more money each | | | | or refinance can either help move you forward |
| month? Rate is important but now the only thing to | | | | financially or just get you into debt. |
| consider. Who cares if the 15 year mortgage rate is | | | | |