Scott's Blog

I spend a lot of time on the phone educating people and answering their questions. Lately, more and more of these questions are coming from people whose mortgage person is no longer in business or if they are, they can’t find them.  I now refer to these people as “mortgage orphans.”

I got one of these calls a few weeks ago from a couple who was frantic about how something they heard on the news would impact their mortgage. They spent the whole weekend worrying about it, as their mortgage was being serviced by that lender that was in "in the news." Their old mortgage person’s number was disconnected and they had nobody to call. It literally ruined their weekend because they have a great mortgage and were worried they would have to refinance.

And it got me thinking that there are a lot of people out there who have gnawing questions, but don’t have anyone to ask them to – let alone someone who knows what they’re doing.

So, if you are a mortgage orphan or know of one, give me a call (or have them call me) and I'll do my best to answer your questions.

Unless you're living in a cave, you've undoubtedly heard that the "government" is going to lower our interest rates to 4.5%  But will it actually happen?  Well, I have no idea, and neither does anyone else for that matter.  There are no details available, and by all accounts it is but one plan being considered to get us out of this mess we are in.

What we DO know is that this plan, if enacted, would likely only be available to people that were buying homes, not people simply wanting to refinance to lower their rate.  And that's good news, actually, because we need to move some of these homes.

If you own a home already, you don't need to be left out, however.  The simple fact is that rates are at historic lows RIGHT NOW, and we are within 0.50% of that magical 4.5% rate already.  To wait any further to consider refinancing could ultimately prove very costly.  For example, if you have a $200,000 loan and are going to make six more mortgage payments while waiting for rates to get lower, it will takle you TEN YEARS to make up the cost of those six mortgage payments - and that is again, IF they drop.  The biggest mistake people make is avoiding the cash side of the equation as they trip over themselves tryting to time the market so they can brag about their low rate.

Don't fall into the trap.  Simply dropping your rate, whether it be to 4.5% or 7% is not enough.  You need to make sure that it makes financial sense, both short term and long term.  Don't work with an "order taker."  Rather, give me a call and I will help you determine if and when refinancing makes financial sense.  The you start bragging about the extra money in your pocket instead of your low rate.

If you haven't heard the "we'll pay your closing cost" mortgage ads on the radio, you must be living in a cave. I hear one ad in particular every day on the way to work, and again on the way home.  What's scary about that is that I rarely go to and leave work at the same time each day - so these ads have to be running constantly.  Sounds like a great deal, right?  Not so fast.  Here is what you need to know about "no closing cost" loans:

1. Closing costs don't magically go away.  Title fees, recording fees, loan procesing fees, etc. are a real expense in completing a mortgage loan.  Funds also need to be deposited into escrow for your insurance and property taxes.  So, you ask - how can they offer to pay these for me?   The answer is simple....

2. They don't pay the costs - YOU do!  Whoa -what do you mean?  The ad said that THEY paid the closing costs - what gives?  The answer is that the phrase "No closing cost" loan is extremely misleading.  Nobody does loans for free.  It should be probably be called "a different way to pay your closing costs so we look like the good guys" loan.  So how exactly how are you paying for the costs then?

3. Three words - Yield Spread Premium.  Banks pay brokers a fee called "yield spread premium" based on the interest rate you have locked in at.    The "no closing cost" brokers out there simply give you a loan at a higher rate than you would normally get.  The bank will then pay them a higher premium for your loan, and they take that extra fee and in turn use it to pay your loan fees.  So really, YOU wind up paying for the closing costs every month you are in that loan.  On a $200,000 loan, that difference (typically 0.375% to 0.875% in higher interest rate) could cost you a bundle - anywhere from $50 - $115 PER MONTH, each and every month!  Still sound like a bargain?

4.  I get it, but still like the idea of being able to refinance without fees if rates drop.   That's the biggest hook in these "no closing cost" ads... "After your no-closing cost refinance is done, we'll just sit back and when the rates drop, we'll do it again.  Sounds great - if rates were always dropping, but we know that is not true.  Rates are at all-time lows right now...do you think it's more likely they will go up or down? What if you did a no closing cost loan and rates went up?  Yup, you guessed it - you are now stuck with your higher interest rate, and may wind up paying much, much more than you would have, if you had paid the closing costs and gotten the prevailing market interest rate in the first place.  And all of this completely ignores the fact, that if rates did keep dropping and you did keep refinancing, that you would always be getting a lower rate, but would likely never pay your house off, as you'd be getting a brand new 30-year loan each and every time.

5. So what does this all mean to me?  Well, it depends.  Seriously - it really does.  If any one loan program was applicable to everybody, we'd only have one type of loan.  The reality is that everyone's situation is different, and what makes sense for your neighbor might not make ANY sense for you.  What you need is someone who gets that, not someone who tries to cram everyone into the same loan program.   Usually it boild down to a math problem, and sometimes "no closing cost" loans actually do make sense. 

Don't fall for the smooth-talking radio guy.  Give me a call, and I can work up a personalized solution for you and your family.

Well here I am, blogging.  Who would have thought!  Well, probably nobody since this is my first post, and I haven't told any about my new site yet.  That will change soon, though.  My goal is not to dedicate this space to peddling the latest hot mortgage product or constantly telling you that you need to refinance.  I'll leave that to others.  rather, I plan on:

1.  Discussing mortgage related topics that I encounter frequently in my day to day work as a mortgage banker, and "telling it like it is."

2. Answering specific questions that people have emailed to me relating to mortgage financing, buying a home, or repairing your credit profile.

3. Mixing in a few non-mortgage related topics, to keep it light.  I do have a life outside of mortgage banking, after all.

My hope is to have the most fun with #3.  Not that mortgage "stuff" isn't light, but for many people, the mortgage business isn't as fun as exciting as I find it to be.