Arizona Mortgage Guru

Refinancing an Adjutable Rate Mortgage (ARM) May Not Make Sense

Aimee Ghimire — Fri, 02 Jan 2009 19:04:36 +0000

A friend recently called asking for advice on what to do with his Adjustable Rate Mortgage (ARM). His ARM is scheduled to reset in June of 2009. He has some time to think about this and I commend him for his foresight.

Now my friend can chose to gear up for a refinance into a fixed rate mortgage or he can just sit and wait to see how his rate adjusts later this year. While the refinance option may seem the most logical and safe choice - given the fall in home prices over the past few years, and the cost of a refinance - it may not be the most financially sound decision. On the other hand just sitting and waiting may be the more prudent choice at this point - because the rate may actually fall when the rate adjusts.

The most important thing to understand about an ARM is how the interest rate is derived as it resets. For most adjustable rate mortgage the final interest rate charged to the borrower is the sum of the index value plus the margin charged by the bank (Interest Rate = Index + Margin). In most cases the margin banks charge is fixed for the life of the loan. The number should be on one of the ARM disclosures in the closing packet you received when you closed on the mortgage. So, the variable which influences the final interest rate at the time of reset is the index.

There are many indexes upon which ARM’s are based. The more common ones are the 1-month LIBOR, the 6-month LIBOR and, the 1-year Constant Maturity Treasury Rate (CMT). Again, the exact index used for your ARM is found in the disclosures you signed at the time of close. Once you know the margin and your index you can then very easily get an idea for how your rate could behave at the time of adjustment. Let me show you how.

For argument sake, lets say the margin on your ARM is 3.25% (fair to assume), and the index used is the 1-month LIBOR (a pretty common index). Which means if you obtained a 5 year ARM back in January 2004 when the 1-month LIBOR was 1.0982% (see chart below) your rate would have been 4.35%.

Now in January of 2009 the rate could be 0.58%. Which means instead of your ARM adjusting upwards you’ll actually see a fall in rate to 3.83%. This is a pretty big fall in rate (more than 0.50%). So your monthly payment is reduced without any closing cost expense and despite any loss in equity you may have recently experienced.

One word of caution is you need to know how often your rate can adjust. Some adjust monthly, others annually. In a time of falling index rates I personally do not see any cause for concern for at least the next 12-18 months. However, you have to be willing to stomach the uncertainty. Look at it this way, as home prices bottom out and start to rise again, this may be your best way to avoid extra costs and ride out the market until things are on the upswing again.

For those interested in some hard core analysis on this topic, Mike Shedlock recently wrote about how the ARM reset problem has vanished into thin air. Its a great read with a lot more analysis and thoughts on different indexes out there.

Copyright Notice: © 2007-2008 Aimee & Shailesh Ghimire (Arizona Mortgage Guru). This Feed is for personal non-commercial use only. If you are not reading this material in your news aggregator, the site you are looking at is guilty of copyright infringement. Please contact sghimire@gmail.com so we can take legal action immediately.

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Happy New Year 2009

Aimee Ghimire — Wed, 31 Dec 2008 21:03:50 +0000

To all our readers I’d like to wish you a very happy New Year 2009. May this coming year bring you much peace and prosperity!

photo credit: sweethaa

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New Years Resolution: Get Organized

Shailesh Ghimire — Mon, 29 Dec 2008 21:44:46 +0000

Another year is in the books and it’s that time again. You know… that time when you start making resolutions for the New Year. Yep, it’s that time again. If you’re like me and continually don’t live up to resolutions this is not a good time. However, hopefully this time it will be a lot different. I really mean that. That is why I’m passing along something I received recently.

My good friend Jennifer Furrier is organizing a seminar in January on being organized. Sometimes the only thing standing in the way between resolutions and results is a plan. It looks like Jennifer’s seminar could go a long ways towards helping develop a solid plan. In this seminar she says she “will provide simple and effective solutions to become better organized and more efficient with time management.”

Here is a little introduction she sent me about the upcoming seminar:

Do you plan on working another 365 days of your life? What’s that you say? Oh, more than that! Then WHY continue putting up with the stress and angst that comes with disorganization? How about working those upcoming years being more organized, efficient, productive and effective than ever before? These days, maximizing the way you spend your time is more important than ever! Take your business to the next level by attending a one-of-a-kind, info-packed seminar that guarantees you’ll walk away with tools you can immediately implement to start 2009 off on the right foot.

She’s offering a $30 discount if you register before January 1st. Otherwise its $79 for this one day event. Download the PDF for details and registration information. Her website is EssentialOrganizing.Com if you’d like to learn more about her company.

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Streamlined Loan Modification Now Available

Aimee Ghimire — Tue, 23 Dec 2008 23:21:03 +0000

Last week Fannie Mae announced that the Streamlined Modification Program (SMP) would now be available to borrowers. This program is part of an ongoing effort by the GSE to prevent foreclosures. Borrowers of course need to meet certain requirements to participate in the program.

Tammy over at the Arizona Mortgage Team blog has done a nice job putting all the relevant information in one place for borrowers:

Under the Streamlined Loan Modification Program, your mortgage and escrow payments can be cut to 38 percent or less of an eligible borrower’s gross monthly income by some combination of:

reducing mortgage rates

extending the mortgage term up to 40 years

forbearing on a part of the principal amount until the loan is paid off, then a balloon payment is required

Streamlined Loan Modification Program Eligibility Requirements

You must own and occupy the property as your primary residence

You must have missed at least three mortgage payments

You cannot have filed for bankruptcy

Head on over to her blog to read more.

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Sign of the Times: Divorce Rate Drops

Aimee Ghimire — Mon, 22 Dec 2008 17:24:16 +0000

Marketwatch had an interesting story on how divorce rates have fallen during this economic recession. The article appeared this weekend and quotes a Phoenix area family law attorney Bonnie Booden:

Hitched to the economy
Divorce rates drop as couples realize it’s cheaper to stay together
By Marty Orgel

SAN FRANCISCO (MarketWatch) — The recession and economic turmoil is creating a new class of casualties: Married couples who can’t afford to get divorced. In these tough times many people are finding it’s cheaper to stay together, even when they can’t stand each other.

“The reason that the economy has such an enormous impact on divorce is that most people in the middle-income brackets are getting by on whatever income they have. They’re just getting by,” said Bonnie Booden, a family law and divorce attorney in Phoenix.

A major factor in the divorce downturn, Booden said, is divorced couples have to establish two separate households with current funds — a prohibitive factor when you’re looking at divorce in tough economic times.

Booden said one out of every two clients is seeking consultations because they can’t afford to get divorced. They want to know what other options they might have.

“I tell them about the process, about the cost, and what a reasonable outcome might be. And once they hear the cost, and especially how you have to duplicate two households on the same money that currently funds one household, they try to think about some other options,” she said.

Who knows maybe something good will come out, as couples stick “around” and weather the storm together.

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Christmas Eve Service in Gilbert, Arizona

Aimee Ghimire — Sun, 21 Dec 2008 05:30:21 +0000

In case you’re looking for a Christmas eve service in the Gilbert area this year, Two Rivers Church is having candle light service at the new location. Two Rivers is a great church and I can say that because it’s our church :-).

Two Rivers is meets at 645 N Gilbert Rd (corner of Gilbert and Guadalupe Rd). The church office number is (480) 892-2435 just so you have it.

If you decide to come, don’t forget to say hi, we’ll be in attendance.

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Green Alternatives to Asbestos

Aimee Ghimire — Wed, 17 Dec 2008 20:28:36 +0000

Last week Jesse Herman, Awareness Coordinator at the Mesothelioma Cancer Center contacted me to see if I would post a public service announcement regarding asbestos. After reviewing the information I feel it is something our readers could benefit from. Hence, I am posting the information he sent below as is - with only few edits and reformatting.

—

Asbestos Removal and Green Alternatives – Path to a Healthy Home

by Jesse Herman, Awareness Coordinator, Mesothelioma Cancer Center

When remodeling, foreclosing or purchasing an older home, there are many things to consider. Used for more than a century as a form of building insulation and piping, homes built before 1980 have the strong potential of containing asbestos.

With increasing awareness and technology, there are a variety of insulation alternatives and building materials which easily replace the need for asbestos. Potential and current homeowners should be aware that exposure to asbestos fibers becomes a health concern when high levels are inhaled over a long period of time.

Used in millions of homes, asbestos insulation can be a real problem for homeowners due to causing a variety of lung ailments, such as malignant mesothelioma and peritoneal mesothelioma. Recent studies indicate that over 2,000 to 3,000 cases are diagnosed every year in the United States alone. Workers and real estate’s-man all over the world are now receiving the proper indications and information towards the risks they face.

The United Nations Environmental Program states that the use of recycled building materials such as cotton fiber insulation can reduce energy use by 25 to 35 percent. The numbers continue to improve as more eco-friendly options become available. These kinds of figures have attracted those who were unaware of eco-friendly construction.

Asbestos removal in public facilities, homes and workplaces must be undertaken by a licensed asbestos abatement contractor if the National Emissions Standards for Hazardous Air Pollutants (NESHAP) are not violated. Once the removal is complete, green insulation options should be given serious consideration, such as: Cellulose, Cotton Fiber and Lcynene. These asbestos alternatives will not only reduce energy costs, but allow for a clean, healthy home, free of health damaging materials.

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Fed Funds Rate is at Zero, Prime at 3 Percent

Aimee Ghimire — Tue, 16 Dec 2008 20:12:28 +0000

: Image via Wikipedia

Amazing. The Fed cut the target federal funds rate to between 0% and 0.25%. This is a significant event in many ways. Rates can not go further down. Which means the only leverage left for the Feds to influence US Monetary Policy will be through their balance sheets (buying/selling assets etc.).

Below is a snapshot of the Fed announcement. The complete statement from the Federal Open Markets Committee is available on Bloomberg.

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Read full statement.

Remember though that the federal funds rate is not the same as your home mortage interest rate. In fact at times they can go in opposite directions.

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Winter is Here in Gilbert, Arizona

Aimee Ghimire — Mon, 15 Dec 2008 23:26:39 +0000

It’s been a cold and overcast day here in Gilbert, Az but this is as bad as it gets here. However, that can not be said of the places where we have still have some family and friends:

No surprises here - a high of 4F in Madison today and 40F with rain forecast for Wednesday in Boston. Gilbert has the best weather of them all. Lots of houses here guys. Come on over!

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Renters May Not Have to Move When Landlords Foreclose on Property

Aimee Ghimire — Mon, 15 Dec 2008 19:36:16 +0000

Last week we sold a bunch of things on Craigslist. One person who came to purchase the last baby gate was one who had to move to a new house all of a sudden. This move was because the landlord was foreclosing and by default her life was going to have to change as well. The new place has stairs she said and she needed a good gate. She was not happy to have to move this close to Christmas, especially with having small kids. What also irked her was she was told to move within days.

Looks like Fannie Mae is about to change this. According to the WSJ:

Fannie Mae is finalizing a national policy that will allow tenants to remain in their homes even if their landlord goes into foreclosure — a landmark decision for tenants.

The policy will be in effect Jan. 9, Fannie Mae said Sunday, and reflects growing pressure on the mortgage company from a legal-aid group that threatened to sue over recent evictions. The company said it will also ensure its current holiday moratorium on new evictions is being followed until the new policy takes effect.

I’m sure this policy will not remain in the books forever, but in the future though, lenders should at the minimum inform the tenants within a reasonable time period that the landlord is facing foreclosure. The landlord gets to know the credit worthiness of the tenant so its only fair that the tenant has some foreknowledge of what may be coming.

What do you think? I know a lot of you have investment properties. What is a good way to make this situation a win-win for all in the future?

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Mortgage Interest Rates Continue to Fall

Aimee Ghimire — Thu, 11 Dec 2008 18:51:41 +0000

Home mortgage rates are trending downwards and presenting homeowners with an opportunity. Freddie Mac says rates are at their lowest levels since 2004 (from MarketWatch):

SAN FRANCISCO (MarketWatch) — Freddie Mac said Thursday that the 30-year fixed-rate mortgage average dropped from a week ago to a four-and-a-half year low as bond yields declined. The 30-year fixed-rate average was 5.47% with an average 0.7 point for the week ending Dec. 11, down from 5.53% a week ago. Last year the average was 6.11%. The 30-year average has not been lower since March 25, 2004, when it averaged 5.4%, Freddie Mac said.

This may be a good time to get a mortgage evaluation. It would be worthwhile to sit down with a lender and see if there is an oppportunity to take advantage of lower rates through a refinance.

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First-Time Home Buyer Tax Credit Website

Aimee Ghimire — Thu, 11 Dec 2008 03:56:48 +0000

The Federal government has been very busy this past year and half or so enacting all kinds of legislation. Many changes have been made to mortgage finance tax law. So many that it can be hard to keep track of everything, especially if you’re a first time homebuyer. Don’t despair though. I came across a website dedicated to helping consumers understand Federal Housing Tax Credit. It is geared mostly towards helping first time homeowners understand the tax benefits of their homes. With tax season fast approaching it’s always a good resource to have.

Just to remind you here is a summary of the recent changes to tax credit enacted earlier this year:

The maximum credit amount is $7,500.
The credit is available for homes purchased on or after April 9, 2008 and before July 1, 2009.
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
The tax credit works like an interest-free loan and must be repaid over a 15-year period.

Be sure to visit the Federal Housing Tax Credit website because they also have a great FAQ section. Where they answer questions to help you understand who is eliglbe for the tax credit, how the refund process works etc. If you’re a first time home buyer and need to learn I would highly recommend this website.

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Arizona Mortgage Guru

Refinancing an Adjutable Rate Mortgage (ARM) May Not Make Sense

Happy New Year 2009

New Years Resolution: Get Organized

Streamlined Loan Modification Now Available

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Sign of the Times: Divorce Rate Drops

Christmas Eve Service in Gilbert, Arizona

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Mortgage Interest Rates Continue to Fall

First-Time Home Buyer Tax Credit Website