How low can we go? 30 yr fixed at 3.75% with no fees...
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usctrojancpa
Well-known member
Yes, and those are those folks that should get the fixed rate but I find that most people opt for the 30-year fixed rate because they don't fully understand how the ARM loans work (as well as the pros and cons). Like I said, the ARM loans are not for everyone but a great tool if used properly.eyephone said:
Irvinehomeseeker
Active member
With an ARM, how do you keep yourself in peace when the market is in an increasing rate trend like what happened in early 2018?
usctrojancpa
Well-known member
Well, I don't even think about it until I'm a few years before the rate expires. My 7-year ARM loan (2.625%) still has another 3 years and I'll probably end up refi'ing later on this year into a new 7-year ARM loan I take the savings and invest it and have the financial capacity to pay down the loan to bring the monthly payment down if rates were to spike. But as we have seen, rates are going to stay low for a long, long time. I still remember I had folks telling me that we were going to 6% when rates kissed 5% back in late 2018 and I told them that we'd go back to the 3%'s before we hit 6%. I think of it this way, in a 7 year period (using a 7-year ARM) there will be plenty of opportunities to refi into a new ARM loan to restart to another lower rate. I've been using ARM loans since 2003 with great success and have saved tens of thousands of dollars in interest costs and have paid the loan balance down faster versus having 30-year fixed rate loans.Irvinehomeseeker said:
irvinehomeowner
Well-known member
qwerty said:
#armconvert
#qwarm
qwerty
Well-known member
Just checked lenderfi.com the 15 year conforming loan is at 2.625 with a lender credit of about 1900 that covers all closing costs.
May pull the trigger on this today. The extra money I send now every month is close to what the 15 year payment so may as well lock in the rate for 15 years vs the remaining four at 2.625
May pull the trigger on this today. The extra money I send now every month is close to what the 15 year payment so may as well lock in the rate for 15 years vs the remaining four at 2.625
irvinehomeowner
Well-known member
qwerty said:
That was our plan, do two 7/1 arms and then at year 14-15 get into a 15 fixed... but again, you can just ARM all over again to save more.
qwerty
Well-known member
irvinehomeowner said:
The 7/1 arm on lenderfi was at 2.875 with a lender credit of 1500. The same 2.625 for a 7/1 arm would require paying 3000 on top of closing costs. However, with the 7/1 arm you are amortizing over 30 years so you can have the flexibility to pay less vs a 15 year fixed of ones financial situation changes.
irvinehomeowner
Well-known member
Lallo said:
15 or 30?
Wait... this has to be 30. This is crazy.
sgip
Well-known member
Some notes written to a specific audience regarding this current refinance environment.
I'm getting plenty of calls that go like this:
Customer: "Wow! Rates are low. I want a 15 year fixed rate at 2.75 percent"
Me: "OK. Seems to be the average market. Let's get started."
Customer: "Great! This will really save me money on interest. I want to do this right away before I go house shopping for my new, larger home"
Me: "Hmmm. We need to think about this.... What are you going to do with this home you're refinancing"
Customer: "With this low rate I've got, I'm going to keep my home and buy a new one!"
Me: "Hmmmm indeed...."
Anyone considering a new purchase within the next 2-3 years AND keeping their current home as a rental might not want to close on that "low rate" 15 year fixed loan. The odds are - not in every case - but the odds really are pretty strong that by taking the 15 year refinance you may cripple your opportunity to purchase another home.
Why? The low rate but very high payment departure residence expense will likely be added to your debt to income ratios perhaps without any offsetting rent. Today you might be a 30/43 Debt To Income Ratio but possibly a 45/60+ DTI tomorrow, extinguishing your chances to move up. Yes, there are cases today where you can avoid that payment in your DTI, but these windows of opportunity are very, very narrow. Guidelines change all the time. One might be able to qualify for two properties now, but what if things change - which, as we know, does happen from time to time! What if property values stall - as we also know does happen from time to time - DTI ratios will tighten even further as property value risk averse lenders pull back. Knowing 3.x rates are not sustainable, when you do get in a position to buy will your purchase loan rate be as low as they are today? See how many outside factors can influence ones ability to move up?
To reiterate, not everyone falls into this situation. Not everyone might get stuck like this. Not every reader is thinking of moving in the next 2-3 years and even then they may sell their home to buy the new one. I'm not anti 15 year loans. I'm 100% pro information first and foremost. There are 20 plus families I'm working today trying to run this very scenario through right now - refinancing while thinking through a new purchase in 2-3 years - which means many of you reading this may find it applicable to your situation.
If one has a 3.5 or higher rate on any type of loan, and they think they may have trouble "laddering up" to a new home, forego the 15 or 20 year loan. Get a 3.25 or lower 30 year mortgage. Voluntarily pay this loan like a 15 year note since an early payoff is the goal for many refinance borrowers. When DTI is calculated on the new home you may be in great shape to go forward with this new purchase. The .50 rate spread between a 30 and a 15 year loan may seem expensive today, but if you're marooned in your home tomorrow because of qualifying problems, this refinance choice has become for you even more expensive than hoped.
A little advance planning today, playing out all of the "just possible" scenarios until you find the best way forward, is IMHO better than trying to bag the lowest rate no matter the down stream consequences.
To paraphrase a Pasteur quote: "Chance favors the prepared mind".
My .02c
I'm getting plenty of calls that go like this:
Customer: "Wow! Rates are low. I want a 15 year fixed rate at 2.75 percent"
Me: "OK. Seems to be the average market. Let's get started."
Customer: "Great! This will really save me money on interest. I want to do this right away before I go house shopping for my new, larger home"
Me: "Hmmm. We need to think about this.... What are you going to do with this home you're refinancing"
Customer: "With this low rate I've got, I'm going to keep my home and buy a new one!"
Me: "Hmmmm indeed...."
Anyone considering a new purchase within the next 2-3 years AND keeping their current home as a rental might not want to close on that "low rate" 15 year fixed loan. The odds are - not in every case - but the odds really are pretty strong that by taking the 15 year refinance you may cripple your opportunity to purchase another home.
Why? The low rate but very high payment departure residence expense will likely be added to your debt to income ratios perhaps without any offsetting rent. Today you might be a 30/43 Debt To Income Ratio but possibly a 45/60+ DTI tomorrow, extinguishing your chances to move up. Yes, there are cases today where you can avoid that payment in your DTI, but these windows of opportunity are very, very narrow. Guidelines change all the time. One might be able to qualify for two properties now, but what if things change - which, as we know, does happen from time to time! What if property values stall - as we also know does happen from time to time - DTI ratios will tighten even further as property value risk averse lenders pull back. Knowing 3.x rates are not sustainable, when you do get in a position to buy will your purchase loan rate be as low as they are today? See how many outside factors can influence ones ability to move up?
To reiterate, not everyone falls into this situation. Not everyone might get stuck like this. Not every reader is thinking of moving in the next 2-3 years and even then they may sell their home to buy the new one. I'm not anti 15 year loans. I'm 100% pro information first and foremost. There are 20 plus families I'm working today trying to run this very scenario through right now - refinancing while thinking through a new purchase in 2-3 years - which means many of you reading this may find it applicable to your situation.
If one has a 3.5 or higher rate on any type of loan, and they think they may have trouble "laddering up" to a new home, forego the 15 or 20 year loan. Get a 3.25 or lower 30 year mortgage. Voluntarily pay this loan like a 15 year note since an early payoff is the goal for many refinance borrowers. When DTI is calculated on the new home you may be in great shape to go forward with this new purchase. The .50 rate spread between a 30 and a 15 year loan may seem expensive today, but if you're marooned in your home tomorrow because of qualifying problems, this refinance choice has become for you even more expensive than hoped.
A little advance planning today, playing out all of the "just possible" scenarios until you find the best way forward, is IMHO better than trying to bag the lowest rate no matter the down stream consequences.
To paraphrase a Pasteur quote: "Chance favors the prepared mind".
My .02c
usctrojancpa
Well-known member
People can sometimes get too caught up on the headline interest rate and not think about the increased monthly payment going from a 30-year amortizing loan to a 15-year amortizing loan.
irvinebullhousing
Well-known member
The other thought would be, it?s always better to have a lower payments and add a little bit longer in years, since the intention is to lease it out and your tenants is really the one making the payment for your property, so who cares. 
qwerty
Well-known member
i ended up locking the rate at 2.625 for 15 years with zero closing costs yesterday but haven?t paid for the appraisal for these exact reasons that you guys have been mentioning. I hate having debt so part of me just wants to pay off the house, then i have to remind myself how low the interest rate is. I have already been making extra payments close to what the 15 year payment is so it was just to lock in the rate at 2.625 for a longer period of time. I have the 2.625 for a little over four years. So I figured I?d take the weekend to decide if I?m going to move forward with the 15 year loan or just continue to pay as if it was a 15 year loan. I?m guessing I don?t move forward with the 15 year there is a decent chance I can refinance in the last two years into another ARM. Or when it resets I can enter into the 15 year then. TBD
usctrojancpa
Well-known member
qwerty said:
Rates may be lower next week so you time is on your side.
sgip
Well-known member
Rates could go lower.... but that's a pretty big bet.
First, some context. Yes, some of the underlying indexes used to manufacture mortgage loans are falling. MBS's, Cost of Funds, etc are all dropping. Wanna know what isn't? The cost to originate, process, fund, package, and service these loans. If money costs are zero, and cost to produce is 1 percent, if we are in a 2 percent inflation environment, the value of these loans is approaching nil. If Owning makes a 3.25 30 fixed refinance on Tuesday, and Lenderfi refinances that loan a week later at 3.00, the accelerated prepayments on these loans destroy any remaining value to the investor. This is why many of these companies will say "you can't refinance for 90 days" as many may have heard. Some are saying it's 6 months. The real timeline is zero. You can refinance before you make your first payment to your old lender! The issue however is that all of this refinance churning makes the manufacturing and servicing mortgage loans a losing proposition. No, Banks cannot make this up on volume, or fees, or reselling to Agencies 30 day lifespan mortgages.
With this in mind, where will rates go if the volume of Coronavirus deaths plateau? Infection rates are one thing. That's what's panicking everyone today, but if the death toll is below SARS or other pandemics, will we be at a 2.75% 30 year fixed rate market? I doubt it. A recession is inevitable for travel, leisure, movies, restaurants, and other "group events". That much is baked in now through 2020. The Fed will likely cut rates - but these rates do not impact mortgage loans! It will be a good time to get a HELOC, but not much more than that when it comes to long term real estate financing.
It may be wise to pay some fees today and lock down a sub 3% 30 year fixed rate. The math is tricky for a 15 year loan, but it may work out if the numbers are worked through. If this is one of those bottoms, and since 30 year mortgage rates may not go much lower due to production costs, I'd grab what's possible - even with some cash invested to blow the rate below 3.0%, and rest assured that your next refinance will likely be "never again".
My .02c
First, some context. Yes, some of the underlying indexes used to manufacture mortgage loans are falling. MBS's, Cost of Funds, etc are all dropping. Wanna know what isn't? The cost to originate, process, fund, package, and service these loans. If money costs are zero, and cost to produce is 1 percent, if we are in a 2 percent inflation environment, the value of these loans is approaching nil. If Owning makes a 3.25 30 fixed refinance on Tuesday, and Lenderfi refinances that loan a week later at 3.00, the accelerated prepayments on these loans destroy any remaining value to the investor. This is why many of these companies will say "you can't refinance for 90 days" as many may have heard. Some are saying it's 6 months. The real timeline is zero. You can refinance before you make your first payment to your old lender! The issue however is that all of this refinance churning makes the manufacturing and servicing mortgage loans a losing proposition. No, Banks cannot make this up on volume, or fees, or reselling to Agencies 30 day lifespan mortgages.
With this in mind, where will rates go if the volume of Coronavirus deaths plateau? Infection rates are one thing. That's what's panicking everyone today, but if the death toll is below SARS or other pandemics, will we be at a 2.75% 30 year fixed rate market? I doubt it. A recession is inevitable for travel, leisure, movies, restaurants, and other "group events". That much is baked in now through 2020. The Fed will likely cut rates - but these rates do not impact mortgage loans! It will be a good time to get a HELOC, but not much more than that when it comes to long term real estate financing.
It may be wise to pay some fees today and lock down a sub 3% 30 year fixed rate. The math is tricky for a 15 year loan, but it may work out if the numbers are worked through. If this is one of those bottoms, and since 30 year mortgage rates may not go much lower due to production costs, I'd grab what's possible - even with some cash invested to blow the rate below 3.0%, and rest assured that your next refinance will likely be "never again".
My .02c
irvinehomeowner
Well-known member
The caveat here on going for an ARM vs a fixed rate depends on a few factors.
In qwertarm's case, a 15 year fixed rate is close to the same rate (or lower than) a 5/1. So since he was paying a 15-year payment anyways, it makes sense for him to lock into a 15-year fixed.
But if you are financing for 30 years, the ARM rates are lower, even up to 10/1, which gives you the flexibility to control cash flow.
The ARM advantage isn't as big as it used to be because fixed rates are so low but it could help financially.
Again, this all depends on your situation but it's not as risky as some people think and there are quite a few TI'ers who understand how this math works.
In qwertarm's case, a 15 year fixed rate is close to the same rate (or lower than) a 5/1. So since he was paying a 15-year payment anyways, it makes sense for him to lock into a 15-year fixed.
But if you are financing for 30 years, the ARM rates are lower, even up to 10/1, which gives you the flexibility to control cash flow.
The ARM advantage isn't as big as it used to be because fixed rates are so low but it could help financially.
Again, this all depends on your situation but it's not as risky as some people think and there are quite a few TI'ers who understand how this math works.