Who WOULDN’T want a shorter mortgage? Here’s how…

No one wants to spend longer making mortgage payments than they have to. The obvious way to pay off a mortgage faster is to get a shorter-term loan, like a 15-year instead of a 30-year. But on a $300,000 home purchase with 10 percent down, you’ll pay about $620 more per month on a 15-year loan than on a 30-year loan (including mortgage insurance), which might be too expensive for you.

So how do you fix your budget with a loan you can afford, yet still pay it off early if you have extra money? Here’s a look at four common approaches.

Refinance, then reinvest savings

It’s always prudent to evaluate refinancing when rates drop, but unless you refinance from a 30-year loan to a 15-year loan, refinancing doesn’t automatically shave years off your mortgage.

If you bought a home for $300,000 with 10 percent down five years ago, the rate on your 30-year fixed loan of $270,000 was about 4.875 percent, giving you a payment of $1,429 (plus mortgage insurance). With today’s refinance rates of about 3.625 percent on your remaining $247,494 balance, your new payment would be $1,129, saving you $300 per month.

It’s a huge savings, but you’re resetting your payoff clock from 25 years back to 30 years. However, if you take the extra step of applying the $300 savings toward your new loan each month, you’ll shave 9.5 years off your new mortgage, giving you a shorter term for the same budget.

Make biweekly payments

A biweekly payment plan is the simplest way to shorten your mortgage without a material budget increase. This plan shaves about four years off your mortgage by paying half your payment every other week.

Doing so means you’re making 26 biweekly payments per year, which is the equivalent of 13 monthly mortgage payments per year instead of 12. Your budget can usually absorb this because you’re simply chopping your mortgage payment in half and paying each half every other week.

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Do you know your mortgage docs?

It’s no secret that there’s a lot of paperwork involved in buying a home. After you select a mortgage lender to pre-approve you, you’ll be asked to provide all your most private financial documents, detail your income and residence history, and sign a stack of disclosures to get your loan approved. Then you’ll sign yet another stack of documents at closing.

The process can be confusing, but it helps if you go into it with a full understanding of the three most important closing documents you’ll be signing.

The settlement statement (aka “the HUD”)

Your settlement statement shows you the final versions of all line items you’re paying on your financed home purchase.

This document goes by many names, including estimated settlement statement, U.S. Department of Housing & Urban Development settlement statement, the “HUD,” or “HUD-1.”

Early in the loan process, you’ll see fees in disclosures lenders are required by law to give you, such as the Good Faith Estimate (GFE). However, the GFE doesn’t provide line-item detail.

Conversely, the HUD shows each individual fee clearly, starting with your total transaction summary on the left side of page one, then line-item fees on page two. These fees are broken down into the following categories:

  • Real estate agent fees, which are commissions you might pay to the real estate agent as the buyer.
  • Lender fees, including origination fees or “points;” any fees or credits for the rate you chose; and appraisal, credit report and other loan processing fees.
  • Prorated items like loan interest from the loan funding day to the end of that funding month, prepaying one year of homeowners insurance (which is required by lenders), and any required prepaid mortgage insurance.
  • Reserves deposited with the lender, which are only required if you’re setting up an “escrow” or “impound” account from which your lender will pay your insurance and property taxes. This is optional, and if you decline it, you won’t have to prepay these reserves at closing.
  • Title fees, which are assessed by the title/escrow company serving as settlement agent for your transaction. This section also includes the title insurance you’re required to purchase to protect yourself and your lender from any unwarranted third-party claims on your property.
  • Additional fees like contractors or pest inspections, or homeowners association move-in/move-out fees.

Critically, page three of your HUD shows how close or far your initial Good Faith Estimate was from your HUD, so you know if your closing terms match what your lender originally quoted to you.

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Mortgage modifications come to many…

Thousands of Borrowers to Get Mortgage Payments Reduced

 CNNMoney  | Posted Jul 1st 2013  | link

mortgage loan modification application with reading glassesBy Les Christie

Starting this week, hundreds of thousands of struggling borrowers could be in for a pleasant surprise: a quick and easy way to get their mortgage payments back on track — and save considerable money.

Through a new effort called the Streamlined Modification Initiative, borrowers with mortgages backed by Fannie Mae and Freddie Mac who are at least 90 days behind on payments will start receiving offers from lenders to lower their mortgage payments.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, won’t say how many delinquent homeowners will receive the modifications, but the Mortgage Bankers Association reported in May that about 1.1 million borrowers are behind on their loans by three payments or more. Not all of those mortgage holders have Fannie or Freddie loans, however.

The FHFA claims to have helped 2.7 million borrowers keep their homes through its other foreclosure prevention efforts, such as the Home Affordable Modification Program which was launched in March, 2009.

Unlike those previous efforts, however, the Streamlined Modification Initiative won’t require borrowers to file any financial paperwork. Instead, they just need to make the new payments for a trial period of three months and then the modification becomes permanent.

The FHFA said the extensive paperwork and procedures that other foreclosure prevention initiatives require has been a major obstacle in getting people the help they need. Paperwork gets lost, borrowers are asked to provide documents over and over again, and evaluating a borrower’s eligibility can be time consuming.

“This is a no-brainer and should have been done years ago,” said David Berenbaum, who coordinates fair housing and fair lending compliance initiatives for the National Community Reinvestment Coalition, a nonprofit focused on fighting foreclosures. Read more…

Mortgage prepayments picking up speed…

Lower Credit Borrowers and Older Loans Buoy Prepayment Speeds

Jann Swanson | Mortgage News Daily | Jun 6 2013, 11:32AM | link

Among the areas of focus in the most recent edition of Lender Processing Service’s (LPS) Mortgage Monitor are the metrics surrounding the market for refinancing. In the report, which covers data for April which precedes the recent interest rate increases, LPS first looked at prepayment speeds which it calls a good historic indicator of refinance activity. It found that these speeds, while down from recent highs, remained elevated, particularly among older loan vintages and lower credit borrowers.  This is consistent with the view that lenders–having tightened guideline overlays shutting less qualified borrowers out of the market when rates bottomed–would eventually “move on” to loan files that weren’t considered low-hanging fruit until rates began rising in 2013.  The relatively hotter purchase market has also resulted in prepayments from move-up buyers selling their previous homes.

 

Post 2009 loans are showing signs of potential burnout meaning borrowers have already taken maximum advantage of the current rate environment. The remaining loans are not eligible for HARP which is limited to pre-2009 loans, and would not have had time to build up sufficient equity cushions to protect them from 2009-2012 price declines.

 

Prepayment speeds for lower credit borrowers have also been increasing. Borrowers with credit scores under 720 paid their loans off at a rate that increased by 20 to 30 percent on a year-over basis compared to 7 percent among borrowers with scores over 720.

 

Despite all of the refinancing activity, LPS finds there are still significant numbers of loans that could benefit from refinancing. About 18 percent of outstanding loans appear to have “refinanceable” characteristics.

 

The Monitor also found that the rate of foreclosure sales in judicial process states hit the highest point since 2010 and their are signs that the foreclosure inventories are beginning to decrease in those states. But the amount of time the property remains in the foreclosure inventory continues to grow as does the disparity in timelines between judicial and non-judicial states.

As was reported earlier in the LPS “First Look” release last month, the U.S. delinquency rate fel by 5.81 percent between March and April to 6.21 percent and the pre-sale foreclosure inventory rate was down by an almost equal amount – 5.83 percent to 3.17 percent. LPS points out that the December to April seasonal decline in delinquencies – 13.4 percent – was the largest since 2004 and the deterioration ratio, i.e. loans getting worse vs. better, has been below 1.0 for 9 of the last 10 months.

 

However, while delinquencies are resolving, foreclosure inventories are still significantly higher than pre-crisis across all products, in most cases stunningly so.