Mortgage Tips

Apache is functioning normally

We’re currently in a strange sort of housing crisis where existing homeowners are in a fantastic spot, but prospective buyers are mostly priced out.

The issue is both an affordability problem and a lack of available inventory problem. Namely, the type of inventory first-time home buyers are looking for.

So you’ve got a market of haves and have nots, and a very wide gap between the two.

At the same time, you’ve got millions and millions of locked-in homeowners, with mortgages so cheap they’ll never refinance or sell.

This exacerbates the inventory problem, but also makes it difficult for mortgage lenders to stay afloat due to plummeting application volume.

The solution? Offer your existing customers a second mortgage that doesn’t disturb the first.

Loan Servicers Want to Do More Than Service Your Loan

Over the past several years, mortgage loan servicers have been embracing technology and making big investments to ramp up their recapture game.

They’re no longer satisfied with simply collecting monthly principal and interest payments, or managing your escrow account.

Realizing they’ve got a goldmine of data at their fingertips, including contact information, they’re making big moves to capture more business from their existing clientele.

Why go out and look for more prospects when you’ve got millions in your own database? Especially when you know everything about your existing customers?

Everyone knows mortgage rate lock-in has effectively crushed rate and term refinance demand.

And cash out refinances are also a non-starter for many homeowners unless they have other really high-rate debt that’s pressing enough to give up their low-rate mortgage.

So lenders are left with a pretty small pool of in-the-money borrowers to approach. Still, thanks to their investments, they’re getting better and better at retaining this business.

Instead of their customers going to an outside lender, they’re able to sell them on a streamline refinance or other option and keep them in-house.

But they know the volume on first mortgages just isn’t there, so what’s the move? Well, offer them a second mortgage, of course.

Your Loan Servicer Wants You to Take Out a Second Mortgage

I’ve talked about loan servicer recapture before, where new loans like refis stay with the company that serviced the loan.

So if you have a home loan serviced by Chase, a loan officer from Chase might call you and try to sell you on a cash out refi or another option.

I’ve warned people to watch out for inferior refinance offers from the original lender. And to reach out to other lenders when they reach out to you.

But that was just the tip of the iceberg. You’re going to see a big push by servicers to get their existing customers to take out second mortgages.

This is especially true on conventional loans backed by Fannie Mae and Freddie Mac, for which borrowers are mostly locked-in and streamline options don’t exist.

They know you’re not touching your first mortgage, but they still want to increase production.

So you’ll be pitched a new HELOC or home equity loan to accompany your low-rate first mortgage.

As a result, you’ll have a higher outstanding balance and blended rate between your two loans and become a more profitable customer.

This is Pennymac’s approach, as seen above, which launched of closed-end second (CES) mortgage product in 2022. They are one of the nation’s largest mortgage servicers.

It allows their existing customers to access their home equity while retaining their low-rate, first mortgage. And most importantly, it keeps the customer with Pennymac.

Notice how much higher the recapture percentage is once they tack on a CES.

Other servicers are doing the same thing. Just last month, UWM launched KEEP, which recaptures past clients for its mortgage broker partners.

Second Mortgage Push Might Allow the Spending to Continue

One major difference between this housing cycle and the early 2000s one is how little equity has been tapped.

In the early 2000s, it was all about 100% cash out refis and piggyback seconds that went to 100% CLTV.

Lenders basically threw any semblance of quality underwriting out the door and approved anyone and everyone for a mortgage.

And they allowed homeowners to borrow every last dollar, often with faulty appraisals that overstated home values.

We all know how that turned out. Fortunately, things actually are a lot different today, for now.

If this second mortgage push materializes, as I believe it will, consumer spending will continue, even if economic conditions take a turn for the worse.

Lots of Americans have already burned through excess savings squirreled away during the easy-money days of the pandemic.

And you’re hearing about folks being a lot more stretched, not even able to weather three months without income. But if they’re able to access a new lifeline, the spending can go on.

Then you start to envision a situation similar to the early 2000s where homeowners are using their properties as ATMs again.

In the end, we might start to see CLTVs creep higher and higher, especially if home prices flatten or even fall in certain overheated metros.

The good news is we still have the highest home equity levels on record, and home equity lending remains quite subdued compared to that time period.

But it should be noted that it hit its highest point since 2008 in the first half of 2024. And if it increases substantially from there, we could have a situation where homeowners are overextended again.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

With mortgage rates surging higher again, somewhat unexpectedly, a thought came to my mind if you’re currently home shopping.

A couple years ago, I threw out the idea to adjust your maximum purchase price lower when looking for a property.

That post was driven by the many home sales that were going way above asking at the time. In other words, a home may have been listed for $600,000, but eventually sold for $700,000 in a bidding war.

That was all to do with a very hot housing market, driven in large part by a combination of record low mortgage rates and very low for-sale supply.

Today, we still have relatively low inventory, but the cheap mortgage rates have come and gone.

And now that they’re so volatile, you may want to input a higher rate into your mortgage calculator to ensure you don’t get caught out.

Mortgage Rates Are Highly Volatile Right Now

At the moment, mortgage rates are super unpredictable. While they had enjoyed a very good 11 months, falling from as high as 8% to nearly 6% in early September, they’ve since reversed course.

The 30-year fixed was nearly back into the high 5% range before the Fed cut rates and a better-than-expected jobs report arrived.

Sprinkle in some doubting about the Fed’s pivot and the upcoming uncertainty regarding the election outcome and home buyers are now facing a rate nearly 1% higher.

Per MND, the 30-year fixed has risen from a low of 6.11% on September 17th to 6.92% as of October 23rd.

Talk about a rough month for mortgage rates, especially since many expected the Fed’s rate cutting campaign to be accompanied by even lower mortgage rates.

It’s a good reminder that the Fed doesn’t control mortgage rates, and that it’s better to track mortgage rates via the 10-year bond yield.

Also, those yields are driven by economic data, not what the Fed is doing. By the way, the Fed makes moves based on the economic data too. So follow the economic data for crying out loud!

Anyway, this recent move up serves a great reminder that mortgage rates don’t move in a straight line. And to expect the unexpected.

Err on the Side of Caution By Inputting a Higher Mortgage Rate

If you’re currently looking to purchase a home, it’s generally a good idea to get pre-qualified or pre-approved upfront.

That way you’ll know if you actually qualify for a mortgage, and at what price point, including necessary down payment.

The thing is, these calculations are only as good as the inputs. So if your loan officer or mortgage broker puts in overly favorable numbers, it could skew the affordability picture.

In other words, you almost want to ask them to put in a mortgage rate that is 1% higher than today’s market rates.

That way you can absorb a higher payment if rates happen to worsen during your property search, which can take months and months to complete.

If rates happen to fall during that time, wonderful, it’ll just be the icing on the cake. Your expected monthly PITI will be even better than expected.

But like those bidding wars that took place, which resulted in higher asking prices, unexpected spikes in rates should also be anticipated.

And if they are, you might look at properties that are more within your price range, as opposed to homes that only work if everything is just right.

Given that homeowners insurance and property taxes are also on the rise (with just about every other cost), it can pay off to be prudent with your proposed home buying budget.

Adjust the Mortgage Rate on the Property Listing Page

If you’re using a site like Redfin to browse listings, there’s a handy mortgage payment calculator on each listing page.

It provides default amounts based on typical down payments, mortgage rates, property taxes, and homeowner insurance.

Let’s say that interest rate is 6.77% today, which is pretty reasonable given current market rates.

If you click on the little pencil icon, you can change it to anything you want. You can also select a different loan type while you’re at it.

Once you do, it tends to save your inputs, so when you look at other properties, the rate you selected earlier should apply to other homes.

This can give you a faster, perhaps more realistic estimate of the monthly payment, instead of a rate that might turn out to be too good to be true.

So you could put in 7.75%, or maybe 7.50%. That way if rates go up, or you qualify for a higher rate thanks to some loan-level price adjustments, you won’t be caught off guard.

You’re basically playing it more conservatively in case pricing worsens, which is the prudent approach.

While you’re at it, you may want to review the other inputs to ensure they are reflective of your proposed loan.

Are you really going to put 20% down on the home purchase, or just 3% to 5%?

Overestimating these costs instead of potentially underestimating them can help you avoid being house poor. Or worse, missing out on your dream home entirely due to inaccurate estimates.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Did those higher mortgage rates ruin your plans to refinance your mortgage?

Well, there might be a temporary solution to save some money while you wait for interest rates to move lower again.

Assuming you have the extra cash on hand, you can reduce your interest expense by simply paying more each month until you refi.

For example, pay an additional $100, $250, or $500 per month and you’ll save on interest and knock down your loan balance.

In the process, you will reduce the effective interest rate on your existing home loan and potentially make it easier to refinance later.

You Can Still Save Money Without a Refinance

First off, you can save money on your mortgage without refinancing if you simply pay extra each month.

Let’s consider a simple example where you’ve got a 7% mortgage rate and a $400,000 loan balance.

The monthly principal and interest payment is $2,661.21. In just one year, you’d pay $27,871.29 in interest.

Now imagine you pay an extra $500 per month to save on that interest. The payment is $3,161.21 per month.

After a year, your outstanding balance would be $389,740.45 instead of $395,936.77.

After 24 months, the balance would drop to $378,739.26 instead of $391,579.82.

Your total interest expense for that period would fall from $55,448.86 to $54,608.30.

That’d be about $840 in interest saved and a balance that is $12,841 lower.

The cost would be $12,000 ($500×24 months) for savings of $1,681. That’s a return of roughly 14%.

A Lower Balance Could Make Your Refinance Rate Cheaper Later

Now imagine rates finally fall to a point where you are “in the money” to refinance. Say the 30-year fixed slips to 5.5% by that time.

If you originally put 20% down on your home purchase ($500,000 price tag), your balance could be closer to 75% loan-to-value (LTV).

Using that lower outstanding balance of $378,739.26, you could find yourself in a lower LTV tier. You’d only need a new appraised value of around $505,000.

Being in a lower LTV bucket means you are subject to lower loan-level price adjustments (LLPAs).

As a result, your mortgage rate should be lower all else equal. That might mean a rate of 5.375% instead of 5.5%, or perhaps even 5.25%.

Your rate and term refinance just got even better, simply because you made an extra payment to principal for 24 months.

Sure, it requires you to hand over an additional $500 to your loan servicer each month, and if cash is tight, it’s not doable.

But if you do have extra money on hand and are disappointed that rates haven’t fallen as you thought they would, this is one way to limit the damage of a higher interest rate.

If you were just paying the mortgage on schedule, the appraised value would need to be closer to $521,000 to fall into that lower LTV bucket.

So it could be a double-win in terms of saving some money before you refinance, and enjoying even greater savings once you do eventually refinance.

Read on: How to Lower Your Mortgage Rate Without Refinancing

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Recently, Zillow began airing a commercial called “Homeowner Mates.” It depicts three women moving into a home together.

It shows their individual “BuyAbility” followed by “Your BuyAbility,” the latter of which combines the purchasing power of all three.

The three women have individual buying power of $117,000, $124,000, and $131,000, but a combined $372,000 when pooled together.

This apparently allows them to go in on that near-$400,000 home purchase, despite not being anywhere close on their own.

While having co-borrowers does indeed boost your purchasing power, the question is it a good idea when it’s a friend (or two)?

It’s Hard Enough to Buy a Home on Your Own

When I first saw this commercial, I was pretty taken aback. It felt somewhat irresponsible, and a lot related to the current housing market being unaffordable for most.

For me, that doesn’t mean forcing your way into a purchase. It might mean holding off on your homeownership goal, saving up more money, perhaps hoping for a raise, and generally getting all your ducks in a row.

Oh, and maybe lowering your maximum purchase price to something you can actually afford!

Instead, Zillow presents a solution to just find a couple close friends and buy the house today.

It pretty much ignores what happens after the dust settles and the moving boxes are unpacked.

It doesn’t get into what happens when one of the roommates wants to move out. It also seemingly glosses over who gets what room, or what happens if one of the co-owners loses their job.

Simply put, it presents a very simplistic view of homeownership, without giving us the whole picture, which could get pretty dark in a hurry.

Ultimately, it’s hard enough to be a homeowner without having to discuss all the what ifs with two other people.

It’s a big decision to buy vs. rent, and exponentially more complicated once you multiply that by three individuals.

Homes Are Too Expensive for Many Americans Right Now

Making it all much worse is this commercial only exists because homeownership has fallen financially out of reach for many Americans.

Clearly the people behind the ad got together and said what are the main pain points for prospective home buyers right now?

And they likely all agreed that it’s too expensive for most to buy a home thanks to a combination of high home prices and elevated mortgage rates.

But instead of recognizing this, they found a creative workaround to tackle the affordability piece, regardless of what the outcome might be.

Ironically, the commercial says, “That’s when buying a home got real.” When the three women pooled their incomes together to make it work.

Sadly, they probably don’t know how real is will become after living together and paying the mortgage for a year.

It’s hard enough to rent with a friend without facing all sorts of pitfalls. To buy a home with a friend and do so successfully sounds like the feat of all feats.

In other words, it probably won’t go well for most. And how do you even work out who gets what if someone wants to move out?

This all sounds so complex, yet is juxtaposed by the three women eating pizza and joking about one of them breaking the other’s vase.

My guess is that would be an afterthought once real problems reared their ugly head.

Maybe It’s Just Not the Right Time to Buy a Home…

As I wrote in my other piece, Marriage and Mortgage May Not Mix, it’s perfectly fine to rent initially, especially if your wedding date and the housing market conditions don’t exactly line up.

The same is true here. There doesn’t need to be a rush to buy, nor do you need to force the issue if it doesn’t feel quite right. Or simply doesn’t pencil.

While I am a huge advocate of homeownership and believe it brings with it a lot of positives, it’s not for everyone. Nor is it always the right time.

I’d personally never buy real estate with friends, and probably not even with family when it came down to it.

Take the time to really think it through if you’re considering this. What will it look like to own a home with your friend(s) a year from now, three years from now, or five? Will you sell at some point or rent it out?

You’re going to need a serious plan if you expect to pull something like this off. Even those who purchased a home recently on their own are feeling the heat.

Now imagine several people dealing with conflicting emotions at the same time. It’s not for the faint of heart.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Over the past several years, mortgage lenders have been offering “early bird” conforming loan limits for the upcoming year.

This allows them to make bigger loans that adhere to the underwriting guidelines of Fannie Mae and Freddie Mac without them being considered jumbo loans.

Instead of waiting until January 1st, they make a projection for where the loan limit will land the next year and offer it around the fourth quarter.

For example, in early October 2023 some lenders raised the 2024 loan limit to $750,000 ahead of the announcement that came in late November.

That loan limit wound up being $766,550, which meant the lenders who offered the higher loan limits ahead of time didn’t get caught out.

But that only worked because home prices kept on marching higher and higher.

Some Lenders Are Already Offering 2025 Conforming Loan Limits as High as $803,500

Like last year, lenders haven’t waited for the conforming loan limit announcement in late November to raise it.

And this year it has come even earlier than in years’ past. It has actually become a sort of game between competing mortgage companies to be the first out of the gate.

Rocket Pro TPO, the wholesale division of Rocket Mortgage, was first to come out with the 2025 loan limits this year.

On September 13th, they announced a limit of $802,650, up from the current limit of $766,550. This represents a 4.7% increase.

While that seems like a fairly reasonable estimate, home price appreciation has been slowing this year.

At last glance, home prices as measured by the FHFA HPI were up 4.5% from July 2023 to July 2024.

To come up with the conforming loan limit, the FHFA uses home price movement from the third quarter of the prior year to current year (see FAQ).

So we need the August and September data before they can make that determination.

Since the YoY appreciation is currently below the 4.7% needed to hit those projected 2025 loan limits, the next two releases will need to show home prices rising at a faster clip. What if they don’t?

What Happens If Home Prices Fall Short and the 2025 Loan Limits Are Lower?

Remember how I said this has become a game between lenders to see who comes out with the loan limits first? Well, it has also become a game of who goes highest.

And it appears that the nation’s largest lender, United Wholesale Mortgage (UWM), has won that battle.

They weren’t first, but they came out with the highest 2025 loan limit, offering to fund loans up to $803,500 for the remainder of 2024.

That’s a 4.8% YoY increase in home prices. Not much different than Rocket’s, but well above some other mortgage lenders who are playing it a little safer.

For example, Rate (formerly Guaranteed Rate) has only offered to go as high as $792,000, while Pennymac is only willing to go to $795,000.

Inside Mortgage Finance writer James Dohnert expressed some concern with these varying limits, noting that “it’s possible that some origination shops shot too high.”

And that if the actual 2025 loan limits come in below what these lenders are currently allowing, any of the related conforming loan production would “inherently turn into non-agency product.”

At that point, these lenders would either need to keep the loans on their books or perhaps sell them at a discount (maybe a loss) if they wished to unload them.

They wouldn’t qualify for backing by Fannie Mae or Freddie Mac, meaning they couldn’t be sold to or guaranteed by the pair.

This could present problems for the lenders who do a decent amount of volume using these new provisional loan limits.

It may also change how they offer early bird limits going forward if home prices do indeed come in lower than expected.

Given how home prices have been screaming higher and higher each year, it has yet to be a problem.

But this could finally be a turning point as housing affordability finally weighs on appreciation.

Stay tuned on this one. It might get interesting.

Which Lenders Are Already Offering 2025 Conforming Loan Limits?

CrossCountry Mortgage – $802,650
Guild Mortgage – $799,125
Movement Mortgage – $802,650
Newrez – $795,000
Pennymac – $795,000
Rate – $792,000
Rocket Mortgage – $802,650
TowneBank Mortgage – $795,000
United Wholesale Mortgage – $803,500

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

I know, I know, mortgage shopping is the worst. It’s not a fun thing to do.

It’s not like shopping for a new car or a new TV, or even a new house. But it’s a necessary evil unless you’ve got a boatload of cash.

The reason it’s not fun is because there’s lot of math, paperwork, and high-pressure salespeople involved.

Not to mention lots of mortgage lingo that will likely go over your head.

But there’s a silver lining to putting in all that time to shop; you’ll learn a lot about mortgages.

I Get It, Mortgages Aren’t Fun

Look, I’ll be the first person to tell you that mortgages are boring af. I’ve been writing about them for nearly 20 years now.

And before that, I was working on the frontlines with mortgage brokers and loan processors and underwriters.

None of it was fun, and it’s probably even less fun when you’re new to it and simply trying to get through it.

Conversely, you might have a blast shopping for a new car and doing test drives while checking out all the cool features.

The same goes for new clothes, a new TV, computer, etc. They call it retail therapy for a reason.

I’ve never heard anyone say mortgage shopping is therapeutic. In fact, it’s usually the exact opposite.

Typically, people say they’d rather go to the dentist than go through the mortgage process.

Okay, so what’s the point here? Well, as mentioned, you can learn a lot if you do shop around.

Learn About Mortgages as You Shop Your Rate

Most people don’t shop around for their home loan. They either just go with the lender their real estate recommended, or the first quote they come across.

Again, this is because mortgages are not at all fun. And not getting any funner.

Not only does this cost people (since studies prove multiple quotes leads to lower rates), it also means you won’t learn a whole lot.

Again, I understand. Most people are literally just trying to get through it so they can move into their new home. Or enjoy a new low rate on their existing mortgage in the case of a refinance.

But aside from potentially paying more, you’ll also learn less. And when you know less about something, the probability of a bad decision increases.

For example, you might pick the wrong mortgage product for your individual situation.

Or you might be told to pay discount points at closing, only to sell your home or refinance before the breakeven period.

You might even refinance even when it doesn’t make sense to do so. Or buy too much house and become house poor because the numbers were only presented to you one way.

Bringing it full circle, you might also get ripped off because you’ll be a novice and more easily taken advantage of.

If you actually make a few phone calls and speak to multiple loan officers, mortgage brokers, etc., you’ll learn more about the ins and outs of it all.

Each time you talk to someone new you’ll have a little bit more knowledge than the prior call.

And this will help you avoid the typical gotchas and perhaps allow you to come off more confident. That can lead to better mortgage rate negotiating and ultimately better odds of a lower rate.

Here Are Some Mortgage Shopping Tips to Make It Less Awful

If you’re stressed about it your credit scores, keep in mind that while mortgage inquiries can lower your credit score, it’s often not by much.

You also don’t need to let everyone run your credit. And FICO now combines multiple mortgage inquiries into one when made within a 14- to 45-day window.

Those who have heard of those annoying trigger leads can employ a strategy I laid out years ago.

Use a temporary phone number like Google Voice for free. Share that number with all the lenders, brokers, etc.

Then ditch it once you’ve found your match and carry on with your real number. Or just keep using the temporary one!

Even if you use a mortgage broker, take the time to compare mortgage brokers too. Because many of them just send all their business to one lender. So it’s not really shopping around.

In addition, they have varying compensation structures, meaning if you compare more than one you might land on the broker who earns less per loan and saves you money.

For example, one broker might earn 2% on each loan, while another is satisfied with just 1% loan origination fee in exchange for more volume. The broker earning less will likely have the lower rate and closing costs.

Lastly, if you already have average or poor credit, know that mortgage rates can vary even more, so shopping around is even more important!

Simply put, rates are priced in a tighter range for those with really high FICO scores. But even those folks should also gather more than one quote!

Read on: How to shop for a mortgage.

(photo: Alan Levine)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

I know, I know, mortgage shopping is the worst. It’s not a fun thing to do.

It’s not like shopping for a new car or a new TV, or even a new house. But it’s a necessary evil unless you’ve got a boatload of cash.

The reason it’s not fun is because there’s lot of math, paperwork, and high-pressure salespeople involved.

Not to mention lots of mortgage lingo that will likely go over your head.

But there’s a silver lining to putting in all that time to shop; you’ll learn a lot about mortgages.

I Get It, Mortgages Aren’t Fun

Look, I’ll be the first person to tell you that mortgages are boring af. I’ve been writing about them for nearly 20 years now.

And before that, I was working on the frontlines with mortgage brokers and loan processors and underwriters.

None of it was fun, and it’s probably even less fun when you’re new to it and simply trying to get through it.

Conversely, you might have a blast shopping for a new car and doing test drives while checking out all the cool features.

The same goes for new clothes, a new TV, computer, etc. They call it retail therapy for a reason.

I’ve never heard anyone say mortgage shopping is therapeutic. In fact, it’s usually the exact opposite.

Typically, people say they’d rather go to the dentist than go through the mortgage process.

Okay, so what’s the point here? Well, as mentioned, you can learn a lot if you do shop around.

Learn About Mortgages as You Shop Your Rate

Most people don’t shop around for their home loan. They either just go with the lender their real estate recommended, or the first quote they come across.

Again, this is because mortgages are not at all fun. And not getting any funner.

Not only does this cost people (since studies prove multiple quotes leads to lower rates), it also means you won’t learn a whole lot.

Again, I understand. Most people are literally just trying to get through it so they can move into their new home. Or enjoy a new low rate on their existing mortgage in the case of a refinance.

But aside from potentially paying more, you’ll also learn less. And when you know less about something, the probability of a bad decision increases.

For example, you might pick the wrong mortgage product for your individual situation.

Or you might be told to pay discount points at closing, only to sell your home or refinance before the breakeven period.

You might even refinance even when it doesn’t make sense to do so. Or buy too much house and become house poor because the numbers were only presented to you one way.

Bringing it full circle, you might also get ripped off because you’ll be a novice and more easily taken advantage of.

If you actually make a few phone calls and speak to multiple loan officers, mortgage brokers, etc., you’ll learn more about the ins and outs of it all.

Each time you talk to someone new you’ll have a little bit more knowledge than the prior call.

And this will help you avoid the typical gotchas and perhaps allow you to come off more confident. That can lead to better mortgage rate negotiating and ultimately better odds of a lower rate.

Here Are Some Mortgage Shopping Tips to Make It Less Awful

If you’re stressed about it your credit scores, keep in mind that while mortgage inquiries can lower your credit score, it’s often not by much.

You also don’t need to let everyone run your credit. And FICO now combines multiple mortgage inquiries into one when made within a 14- to 45-day window.

Those who have heard of those annoying trigger leads can employ a strategy I laid out years ago.

Use a temporary phone number like Google Voice for free. Share that number with all the lenders, brokers, etc.

Then ditch it once you’ve found your match and carry on with your real number. Or just keep using the temporary one!

Even if you use a mortgage broker, take the time to compare mortgage brokers too. Because many of them just send all their business to one lender. So it’s not really shopping around.

In addition, they have varying compensation structures, meaning if you compare more than one you might land on the broker who earns less per loan and saves you money.

For example, one broker might earn 2% on each loan, while another is satisfied with just 1% loan origination fee in exchange for more volume. The broker earning less will likely have the lower rate and closing costs.

Lastly, if you already have average or poor credit, know that mortgage rates can vary even more, so shopping around is even more important!

Simply put, rates are priced in a tighter range for those with really high FICO scores. But even those folks should also gather more than one quote!

Read on: How to shop for a mortgage.

(photo: Alan Levine)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Want to lower your mortgage rate without a traditional refinance? Look into a “mortgage rate modification,” which does just that.

Instead of having to contact lenders, fill out applications, and provide stacks of paperwork, you might be able to get payment relief by simply signing a modification agreement.

Aside from it being easier than a refinance, it could cut the processing time down from a month plus to just a week or so.

That means if you start the process early in the month, your very next mortgage payment could be lower.

While that all sounds great, there are some limitations you should be aware of, and like a refinance, fees are typically charged as well.

How a Mortgage Rate Modification Works

As the name suggests, a mortgage rate modification allows you to lower the interest rate on your existing home loan without going through the formal refinance process.

Instead, you are simply asked to fill out a modification agreement with your current loan information, including mortgage rate and loan product, along with desired loan program and current interest rate.

For example, if you currently hold a 30-year fixed-rate mortgage set at 7%, you’d enter that into the form and then select the type of loan you’d like going forward.

This could be another 30-year fixed, or perhaps a 15-year fixed or even an adjustable-rate mortgage if permitted.

Or it’s possible you hold an ARM loan and want to move into a fixed-rate product at the same time, removing future rate adjustment risk and snagging a lower rate in one move.

Typically, the lending institution would use the current advertised mortgage rate as the new interest loan on the loan.

So if credit union X is offering a rate of 5.875% on their rate sheet that day, you could obtain a rate more than a full percentage point lower using our example from above.

The loan would then be re-amortized using the new mortgage rate and remaining loan term to determine monthly payments.

While that would result in some nice monthly savings, and reduce your total interest expense, there is typically a fee.

How Much Does a Mortgage Rate Modification Cost?

As noted, this type of transaction isn’t free of charge. You will need to pay a fee, just as you would for a refinance.

The banks aren’t doing it out of the kindness of their hearts. So expect either a flat fee, such as $999, or a percentage fee based on the loan amount.

For example, you might be charged anywhere from 0.5% to 1% of the outstanding loan balance in exchange for the modification.

Doing the math, a $500,000 modification could cost anywhere from $2,500 to $5,000 to process.

That’s not a small number for many households and could in fact be cost-prohibitive, especially if you’re seeking payment relief.

However, there are sometimes caps on the fee that can be charged, so even if they charge a percentage, it might top out at say $2,000.

Conversely, there could have a minimum fee as well, so even if you have a small loan amount, you might be charged the minimum dollar amount.

Another consideration is closing costs typically can’t be rolled into the loan amount. So you’ll need to come up with the funds out-of-pocket to get the deal done.

Which Lenders Allow Mortgage Rate Modifications?

From what I’ve seen, mortgage rate modifications are most commonly offered by local credit unions and sometimes larger depository banks.

Both of these types of lending institutions hold mortgages in their own portfolios (as opposed to selling them off), which gives them more control over the process.

As such, these types of offers are less common with direct-to-consumer mortgage lenders and nonbank lenders, which often sell the loans they originate shortly after closing.

In other words, you might have better luck getting approved for this type of thing with a credit union or bank. But it doesn’t hurt to ask regardless.

Try reaching out to the loan servicer if the mortgage was sold, as the originator likely won’t be able to extend an offer.

Chances are they’ll try to guide you toward a mortgage refinance if they can’t or don’t offer a mortgage rate modification.

Mortgage Rate Modification vs. Mortgage Refinance

While both a rate modification and a mortgage refinance, namely a rate and term refinance, result in a lower interest rate, there are key differences.

Perhaps the biggest is that a traditional refinance tends to take a lot longer and is much more involved.

It includes a full-on loan application, verification of income, assets, and employment, a credit pull, and possibly a home appraisal as well.

Conversely, a rate modification might be as easy as filling out a form while skipping the document collection and appraisal.

In addition, you won’t have to worry about all the closing costs associated with a refinance, including title and escrow fees, lender fees (other than the modification fee), and so on.

However, a rate modification isn’t available on all types of loans, and may be limited to owner-occupied homes only.

There’s also a good chance you’ll only be able to qualify for one rate modification per year, and you might need to make a minimum number of payments before you’re eligible.

You’ll also need money to complete the modification, whereas it’s possible to apply for a no cost refinance where no money is required out-of-pocket.

Another limitation with rate modifications is you can’t pay discount points to get an even lower rate.

So you’ll just be able to get the market rate and nothing better, assuming you wanted to buy down your rate.

And lastly, a traditional refinance may allow you to skip a payment (or two), which can be beneficial to those who need some major payment relief.

Mortgage Rate Modification Pros and Cons

The Pros

  • You can lower your rate without refinancing
  • Obtain a cheaper monthly payment with the same loan term
  • Doesn’t reset the clock so you’ll stay on track paying down the loan
  • May be able to switch loan programs (ARM to fixed-rate loan)
  • Doesn’t require an appraisal or formal loan application
  • Process is typically very fast and relatively easy (2 weeks or less)
  • No closing costs other than the modification fee (which varies by bank/lender)

The Cons

  • You must pay a fee for the modification (either flat fee or % fee)
  • Can’t roll the fee into the loan amount (must pay out-of-pocket)
  • Rate improvement limited to market rate at time of application
  • May be limited to owner-occupied properties only
  • Might be limited to one modification annually
  • May require a minimum number of monthly payments before you’re eligible
  • No cash out allowed

Keep reading: How to lower your mortgage rate without refinancing.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

If you’ve got a home equity line of credit (HELOC), payment relief may finally be here.

The Fed is expected to “pivot” today, meaning they’ll shift from a tightening monetary policy to a loosening policy.

In other words, they’re going to start cutting rates instead of raising them!

While this won’t have a direct impact on long-term mortgage rates, it directly affects loans tied to the prime rate, including HELOCs.

This means your HELOC rate will go down by whatever the Fed cuts. So if they cut 25 basis points today, your HELOC rate will be adjusted down 0.25%.

Though one cut isn’t likely to provide major relief, there are expectations that this is the first cut of many, with possibly 200+ bps of cuts penciled in over the next 12 months.

So if you’ve been given the option to “lock your HELOC rate,” it’s probably best to give it a hard pass.

How HELOC Rates Are Determined

As a quick refresher, HELOCs are variable-rate loans, meaning they can adjust each month based on the prime rate.

To come with your HELOC rate, you combine the HELOC’s margin, which is fixed, and the prevailing prime rate, which moves in lockstep with the fed funds rate.

Whenever the Fed decides to raise or lower its own fed funds rate (FFF), the prime rate will also go up or down by the same amount.

Since early 2022, the Fed has raised the FFF 11 times, from near-zero to a range of 5.25% to 5.50%.

Today, they are expected to lower the FFF either 25 or 50 bps. This means banks will lower the prime rate by the same amount shortly after.

Quick note: The Fed does not control long-term mortgage rates, so their action today won’t directly impact the 30-year fixed. If they cut the 30-year fixed could actually rise today!

Anyway, let’s assume you have a margin of 2% and prime is currently 8.50%. That’s a 10.50% HELOC rate. Ouch!

But if the Fed cuts 25 bps or 50 bps today, that rate will fall to 10.25% or 10%. Okay, we’re getting somewhere.

Still not a low rate, though it’s finally not going up and in fact is coming down.

Now factor in another 200 bps of cuts and the rate is down to 8%. Sweet, that could actually result in some decent interest savings and a lower monthly payment!

What Is Locking Your HELOC Anyway?

That brings us to “locking your HELOC.” As noted, HELOCs are variable-rate loans.

But the banks will sometimes give you the opportunity to lock the interest rate in for the remainder of the loan term. This happened to my friend, who asked today if he should lock in his rate.

This only happens once you’ve had the HELOC open for a period of time and made draws on it. Not upfront, otherwise that’d simply be a fixed-rate home equity loan.

So Bank X might say hey, we know rates have been rising and there’s a lot of uncertainty out there.

If you don’t want to deal with any further adjustments, you can lock in the rate you currently have.

For those not paying attention to the Fed, this might sound like a decent idea. After all, many homeowners are risk-averse, which is why they also don’t tend to go with adjustable-rate mortgages.

And many borrowers may not have actually known that their HELOC was variable to begin with.

They could jump at the offer to lock in the rate and stop worrying. But this could actually be a terrible time to do that.

You watched helplessly as your HELOC went up and up over the past couple years. And now you’re going to lock it in, when rates are finally slated to fall?

Probably not a good idea. This would just benefit the bank, who will make a lot less if you simply do nothing and let the rate fall as prime drifts lower and lower over the next 12 months.

If you’re curious where the prime rate is expected to go, keep an eye on the fed funds rate predictions. A good place to do that is the CME website.

They’re currently predicting a prime rate that is 2.25% lower by September 17th, 2025, as seen in the table above.

In other words, if you have a HELOC set at 10% today, it might be 7.75% in 12 months. Don’t lock in the 10% rate and miss out on those savings!

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

What a difference a year makes.

While the mortgage industry has been purchase loan-heavy for several years now, it could finally be starting to shift.

A new report from Optimal Blue revealed that rate and term refinance volume increased nearly 110% in August from a month earlier, and 310% from the year before.

Driving the emerging trend is cheaper mortgage rates, which have finally begun to accelerate lower in recent months.

Assuming they continue on their newfound trajectory, there’s a good chance refis will be back en vogue in 2025 and beyond.

Mortgage Refinance Share Highest Since Spring 2022

It has been a rough few years for loan officers and mortgage brokers, but it’s possible the worst is over.

As mortgage rates nearly tripled from sub-3% levels in early 2022 to over 8% last year, originators came up with the saying, “Survive ‘til 25.”

The idea was that if you could hang on and ride out the storm (of low lending volume) in 2024, you’d be rewarded in 2025.

And while that sometimes felt far-fetched, it looks like it could actually come to fruition, and perhaps even ahead of schedule.

The latest Market Advantage report from Optimal Blue found that mortgage refinances accounted for 26% of total home loan production, the highest share since March 2022.

At that time, you could still get a 30-year fixed in the 3% range. But rates ascended rapidly from there, basically wiping out all refinance activity in a matter of months.

So it’s pretty telling that refinance market share is now back to those levels and likely rising in coming months and years.

The 30-year fixed has fallen fairly dramatically after peaking at around 7.25% this May. It now stands at around 6% and looks poised to hit the 5s sooner rather than later.

Rates have a pretty strong tailwind right now with weakening economic data, higher unemployment, and a bunch of Fed rate cuts in the pipeline.

That could unleash millions of additional refinance candidates, including many of four million who took out a 6.5%+ rate mortgage since 2022.

The Only Way Is Up

While this is great news for the mortgage industry, and for recent home buyers, loan volume is still small potatoes relative to recent years.

If you look at the chart above, you’ll see the context of that 109% monthly increase and 310% annual surge.

The dark blue vertical line (rate and term refinance share) has gotten a lot wider, but is still just a tiny sliver of overall mortgage market volume.

But when you compare it to levels seen in 2021 and early 2022, it doesn’t take much to register big percentage gains.

When we include cash out refinances (orange line), which increased 8% on a monthly basis and over 20% annually, you get a respectable refinance share again.

And chances are this will only go up as more mortgages fall into the money for a refinance.

Lately, it’s mostly been VA loans that have benefited from a refinance because mortgage rates on such loans are the lowest.

But if rates continue on their merry may lower, you’ll start seeing more conforming loans benefit, which make up the lion’s share of the market.

It has been harder to make the math pencil on loans backed by Fannie Mae and Freddie Mac because of LLPAs (pricing adjustments). That could soon change.

Home Purchase Lending Has Fallen Flat Thus Far

While refis are finally having a moment, the same can’t be said of home purchase lending (light blue vertical line above).

Sure, it still holds a majority share of the mortgage market and likely will next year too, but it’s beginning to cede some of it back to refis.

And that’s troubling given the big drop in mortgage rates, which was supposed to get home buyers off the fence.

So far, the effect of lower mortgage rates has been muted, with purchase locks actually down 16% year-over-year and a staggering 45% since August 2019.

Optimal Blue blamed it on “continued affordability and inventory challenges,” with home prices out of reach for many despite the improvement.

Many expected home prices to surge when rates fell, but I’ve been arguing for a while that there’s no inverse relationship.

And in fact, home prices and mortgage rates can fall together if economic conditions warrant it.

Remember, there’s a reason the Fed is looking to cut its own fed funds rate more than 200 basis points (bps) over the next 12 months.

A slowing economy might be good news for mortgage rates, but not necessarily the housing market.

With home prices still at all-time highs nationally and affordability near all-time lows, it’s just not a great time to buy for many folks.

Sprinkle in uncertainty regarding the economy, the election, and even how they’ll pay real estate agent commission and it’s not so rosy anymore.

In other words, significantly lower mortgage rates might not amount to higher home prices, or a greater number of home sales just yet.

But given the timing of these lower rates (post peak home buying season), we won’t really know for sure until next spring.

That’s where the rubber meets the road.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com