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Mortgage rates improve to best in two weeks


Mortgage rates improved Thursday, February 27th and are now getting close to early February's levels, which were the lowest since November 2013.  Much of the positivity may owe itself to temporary factors including geopolitical turmoil and month-end trading dynamics in the bond markets that most directly inform mortgage rates.  After moving down to 4.375% yesterday, today's most-prevalently quoted rate for the best scenarios remains unchanged, but closing costs will be slightly lower.  When adjusted for changes in closing cost, rates would be down 0.03% on average.

If you are in the market for a purchase or refinance, now might be the time to lock in and take advantage of these pricing opportunities. 


Fannie Mae guidelines to tighten December 12th


The mortgage lending guidelines will tighten once again on December 12, 2009 making it more difficult for some borrowers to obtain a purchase loan or refinance their existing mortgage.

Fannie Mae announced it will limit the maximum debt-to-income ratio to 45% of a borrower's gross income.  Previously, a borrower could qualify up to 50-55% debt ratios.  Fannie Mae did mention that they will consider debt-ratios up to 50% assuming the borrower can provide "strong compensating factors".  This would include high credit scores, low loan-to-values (LTV's) and/or significant cash reserves.

In addition to debt ratios, Fannie Mae will also require a minimum credit score of 620, previously the minimum was 580.  Fannie Mae believes raising the minimum credit scores and tightening the debt ratios will support prudent risk management and better ensure sustainable homeownership.  One can argue that this is an effort to crackdown on the loose lending standards that led to the mortgage crisis that started in 2008.  Industry professionals are concerned the new requirements may offset the initiatives introduced by the government to provide more liquidity in the secondary lending market.

Current mortgage rates are at an all-time low right now, so act now and avoid these stringent guidelines.  Please call a HomeQuest Mortgage representative for more details at 866-839-1117.





Refinancing into a loan with PMI

As more and more borrowers realize that mortgage rates in Massachusetts and all of New England are at historic lows, they are inquiring about the possibility of refinancing into a lower interest rate.   Once they find out they have the credit scores and income to qualify the next obstacle is home values.   To get the lowest interest rate and avoid paying Private Mortgage Insurance (PMI) you need the loan amount to be 80% of the home appraised value.   Given the current state of the housing market, many borrowers are discovering that they no longer have the required 20% equity, even if they did just a few months ago.  

This is when PMI comes into play.   A lot of people immediately think of PMI as a bad thing.  It adds to the monthly mortgage payment without helping to pay down the balance of the mortgage.  A lot of people don't realize that going from a loan with no PMI to a loan with PMI might still be a good move.

One reason having PMI on your new loan could be a good option is that in some cases it may be used as a tax deduction.   You will have to consult a tax advisor to see if this deduction can be applied to your taxes.   If it can, it will help reduce the actual cost of the PMI.  

Another reason PMI is not as bad as it may initially seem is because it is not a permanent expense.  On conforming loans the PMI may be eliminated once you have 20% equity in the home.   Once it is removed you will be left with the original interest rate and no PMI payment.

Interest rates are at historic lows right now making it possible for many people to reduce their current mortgage payment, even if their new loan has PMI.   For example, say you bought a home 3 years ago for $400,000 with a 20% down payment.  You took out a loan for $320,000 and got a fixed at 6.375% with monthly principal and interest payments of $1,996.38.   Now that rates have come down, you have the option to refinance into a 30 year fixed loan amount of $315,000 at 5.00% with monthly principal and interest of $1,690.99 per month.  The only problem is that your home now appraises for $360,000 due to the weak housing market, leaving you with a little more than 10% equity in the home.   PMI is now required on the loan in order to get the lowest rates.  In this scenario you could expect to have to pay a PMI payment of about $130 per month.  

Even with the new PMI on the loan, your total payment would still be $175.39 less than you were currently paying.  And once you have 20% equity in the home again, the PMI would fall off and you would then be saving $305 per month compared to the loan you had with an interest rate of 6.375%.  Once you factor in potential tax savings from the PMI it becomes clear that it is worth it to refinance even if you no longer have the 20% equity in your home.  

To see if it makes sense for you to refinance given the historically low 30 year fixed rates that are currently available, give us a call at 508-839-1117 to talk with one of our loan officers.

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