New Changes by Fannie Mae and Freddie Mac
Mortgage rates are low, but expect to pay more fees for a mortgage today.
Fannie Mae and Freddie Mac are adjusting their pricing grids and fees will be increasing. Mortgage lenders which are based on Fannie Mae and Freddie Mac platform must also increase their price adjustments. As a result your actual rate or closing costs could be higher. For example: Rates for refinancing condo will be higher than single family residence rates because lenders impose the condo adjustment. “It has created a different pricing scenario from one consumer to the next,” said Rick Allen, vice president of MortgageMarvel.com. “What you see in the Sunday paper could be perfectly close for one borrower. The guy next door could be 1% higher.”
Relationship between closing costs/points you pay and rate is also changed. Paying up-front closing costs/points gets borrowers a bigger discount these days. Historically, 1 point in fee (1% of the loan amount) gets borrower a rate that’s about 0.25% lower. Now 1 point gets the rate about 0.625% to 0.875% lower.
Please note the following important changes:
The adjustment summarized above will apply to all loans locked on or after February 17th, 2009. In addition, the new fees will apply to all loans that need a rate lock extension on or after this date.
Read New Rules and Guidelines for conforming and super conforming (Jumbo up to $625,500) loans.
Fixed Rate vs. Adjustable Rate
-Fixed Rate Mortgage Programs (40, 30, 20, 15, 10 years) – The interest rate and your mortgage monthly payments remain fixed for the period of the loan. The shorter the term of a loan, the payment is higher because the principal amount of debt is amortized over the shorter period of time. The payments on fixed rate fully amortizing loans are calculated so that at the end of the term the mortgage loan is paid in full. During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. If you are going to keep your property more than 5-7 years, you should consider getting fixed rate program. You will be protected if rates go up, and can refinance your mortgage if rates go down. Usually, fixed programs have an interest rate higher than adjustable rate programs. The higher rate, the higher monthly payment. If you are planning to stay in your property less than 5-7 years, you should consider adjustable programs. But on December, 2008 fixed rates are lower than adjustable rates. We can not explain this phenomenon.
–Adjustable Rate Mortgage Programs (ARM) – Frequencies of payment/rate adjustments dictate how often the rate can change. How the interest rate can change is a function of the index added to the margin. The index of an ARM is the basis of future interest rate changes. The Index is regularly published in a source accessible to the public. The margin is set by the lender and is the amount above the index that the interest rate can adjust at the time of adjustment. The result of the index plus margin formula is the new interest rate. Rates and payments may go down if rates improve, but it is more risky because it is potential for high payments if rates go up. This program can be good for a short period of time. The better choice will be combined mortgage programs.
–Combined Mortgage Programs (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM) – A combination of fixed and ARM loans with 30-year amortization period. With such type of loans homeowners can enjoy from three to ten years of fixed payments before the initial interest rate change. At the end of the fixed period, the interest rate will adjust annually. The advantage of these loans is that the interest rate is usually lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time.
-Fixed (30 years) or Combined Programs with Interest Only Option (I/O) – A loan that doesn’t require a set payment each month up to 15 years. You get two payment options to choose from each month: your lender sends you a monthly statement offering an interest-only payment (1) and 30-year amortized payment – principal and interest (2). If you are going to pay off your mortgage during 10 years making large prepayment of principal, your actual rate can be decreased from 6-7% to 2-3% by using this program. For our customers we make special plan with math calculations how to save money with I/O 30-year amortized program instead of 10-year amortized fixed program.
–First Position Home Equity Line of Credit (HELOC) – When you don’t have the 1st mortgage, you can obtain Equity Line up to 75% of the property value and up to $350K limit amount. Current HELOC rate is lower than the 1st mortgage rates and it is based on the prime rate that is 3.25% on today’s market. HELOC rate is always adjustable. With HELOC you can enjoy interest-only payments.
Availability of specific programs, Loan-To-Value ratios, Interest Rate depend on middle FICO credit score, type of documentation provided, type of occupancy, type of financed property and type of transaction.
Property Types:
SFR, 2-4 Family Houses
Condominiums, PUDs, Cooperatives
Credit:
From Excellent to Problematic
FICO Credit Scores from 620+
Documentation Type:
Full Income Full Assets (full docs)
Stated Income Full Assets
Stated Income Stated Assets
Occupancy:
Owner Occupied Properties
Second Homes
Investment Properties
Transactions:
Purchase
Rate & Term Refinance
Cash Out Refinance
Mortgage Structure:
First Mortgage Only
First & Second Mortgage
First Mortgage & HELOC
Second Mortgage Only
HELOC Only
MortgageLens 