Vail Daily column: Get an expert to guide you on the new mortgage rules
When I get the question of “what do you do for a living?” these days, I get a gamut of responses when I say I am a mortgage broker. Some people seem to think I personally must have caused the entire mortgage crisis, others offer heartfelt condolences and some actually ask my advice on how to best manage their largest obligation.
As to those who think mortgage brokers caused the crisis, I suspect they probably blame auto salesmen for runaway Priuses and exploding Ford Pintos (oops, just gave away how old I am). No mortgage broker ever approved a loan application, but companies such as Chase, BofA and Lehman Brothers made billions by offering loan programs for mortgage brokers to sell and approving those loans to anybody who could fog a mirror.
And for those who offer condolences, thanks, we all need a kind word in difficult times, but I am doing OK, but I really do appreciate their concern. I just hope those who are concerned about my well-being never voted for Barney Frank or Chris Dodd, or if they did at least regret doing so.
When someone asks me for advice about how to manage their mortgage in these wild times, I delight in that I have met a person who I can perhaps assist in having a little bit easier life, a little more secure future and show them how to benefit from the whirlwind of perplexing changes that have fundamentally changed how Americans should look at their mortgage. The changes are in what it takes to qualify for a mortgage, and many changes in considering if one should take a fixed rate or an adjustable rate loan.
I have been thinking day and night for nearly 19 years about how to get my clients the best deal and as nobody has the same abilities, expectations or issues, one size never fits all. Also, many people have their preconceived “rules of thumb” about when to refi or how much down payment to put down that were quite valid three or four years ago but are not relevant today. The changes in mortgage programs have been dizzying the past few years.
Among the changes few people realize is that closing costs on a loan are far different than they were a few years ago. Back then it was pretty simple — you could pay a onetime fee of 1 percent of the loan amount (called an origination point) and get about a quarter point lower mortgage rate. In addition, borrowers often expected to pay $2,000 to $3,000 in hard fixed closing costs involving the title, underwriting, appraisal and filing fees.
Nowadays, the origination fee is figured in to the rate from the start (if you deal with a broker, banks still charge origination fees and often charge the same rate as a broker). Borrowers can pay a discount point (1 percent of the loan amount) to get a lower rate, but seldom does it make sense. The borrower will usually be offered a range of rates reflecting differing credits to offset the fixed hard closing costs mentioned above. Generally the math works out pretty well to take a slightly higher rate (usually 1⁄8th of a percentage of the loan amount and take a credit large enough to cover the closing costs.
In some cases, the credit will exceed the fixed closing costs. In this case, the excess funds are credited toward opening tax and escrows accounts, so the effect is tax-free cash to the borrower in the form of funds deposited in the escrow account toward future tax and insurance premium payments.
Many people believe that unless they can lower their mortgage rate by a point or more it is not worth refinancing. This used to be true, but now is an old wives’ tale given the new structure of offering credits to cover closing costs. If you can lower your rate and not have any closing costs, then you are most likely to save money. The exception to this rule is probably if you have had your current 30-year loan for many years and are looking at starting over on a new 30-year amortization. Loans pay down quicker the longer you have them.
There are also hundreds of pages of “new rules” as far as how to count income and calculate debt to income ratios, which is crucial to many people in getting approved. We often find that we have to remind an underwriter (the person that approves the loan) of the latest version if it benefits our client.
A good mortgage expert can run the numbers for you and show you exactly where you will be in, say, five or seven years and tell you down to the penny how much you can save, even if you just lower your rate 0.25 percent.
Also, this is my 500th column (and probably somewhere around 350,000 words) I have written for the Vail Daily since 1998, and want to thank all the folks at the Daily for putting up with my sometimes late submissions, and occasionally running over my suggested number of words all these years. More than once I have posed highly unscientific theories and predictions, but overall I’ve been right in the predicted outcome more than I have been wrong. It’s been a great run, guys — let’s keep it going!
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.