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Edit: I probably don't know what I'm talking about so I shouldn't act like I do. Deleted my post. I'll leave the last sentence up: The concept of co-signing for a house scares me, though. ssb fucked around with this message at 05:43 on Jun 11, 2014 |
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Jun 11, 2014 05:39
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gtkor posted:Keep in mind fha loans do not factor for acclerated payments. Per your math, it will be on there for over 70 months, because that is the natural schedule. I'm reading this sentence over and over and I'm not completely sure what you mean. I'm pretty sure I am allowed to make extra payments on my current FHA loan if I want to pay it down faster, which would let me discharge the MIP sooner, but maybe that's not what you're saying I can't do? My notes only show the scenario of making a $20k payment in nov. 2016, or not making any extra payments at all, but obviously a third option is to make some payments and bring down the loan a little faster. Right? quote:In your very specific case id strongly consider something like a 10/1 arm. The ten year fixed period may already be long enough for your likely life of the home, but even if it is not, you could considerably hammer down the principal over the next decade with no mip. ARMs scare the poo poo out of me, so I'm really leery about doing that. In ten years my wife and I will be 49 years old and maybe having medical problems or career problems or something could be going on that would make me not want to sell... and who knows what interest rates will be like then. I know they don't instantly jump to the going rate, but if I stayed for another ten years past that point I could see it becoming very expensive. I guess I should do the math on that and decide what the risk really is. I am using a good broker, he specializes in FHA loans but does conventional ones too of course. I am comfortable bringing up to $5k for escrows and prepaid interest, although my broker says escrow at this point would be voluntary. I told him on Saturday that I'm willing to tread water and watch for a good rate/cost package to pop up. That's what we did last time, the first quote he sent me back in 2011 was for like 3.5% with $3k or so, but after three weeks we caught a day where there was some kind of crazy deal from a lender available and that's how I got 3.25% with so little money due at closing that my up front premium refund covered it entirely. I'm not expecting to get that kind of deal again of course, but I'm hopeful that the typical rate volatility and his ability to find good deals will combine to get me something well under the average. The national average was only 4.14 on June 5th so I was hoping to get a little under that.
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Jun 11, 2014 06:18
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So I finally got the HOA rules and regulations (after three loving weeks) and I'm still waiting for the financials. Can someone tell me what I should be looking for in regards to rules? Is it just seeing if what they require is to my satisfaction, or are there other things I should be keeping an eye out for?
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Jun 11, 2014 15:31
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|Ziggy| posted:"get approved for reals." The answer is indeed "it depends". Lenders get to choose their market. Shop a few more. You didn't give much info about the finances - a house price that's 5x your annual salary is pretty high though, what's the mortgage payment relative to your monthly salary for instance? Oh, and yeah, don't cosign, holy poo poo
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Jun 11, 2014 15:49
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The mortgage payment would be less than 1/3rd of my monthly income before taxes. With insurance and tax on house, it would be right at 1/3 or slightly over.
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Jun 11, 2014 16:07
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|Ziggy| posted:The first page kind of glosses over "get approved for reals." I was preapproved by 1 lender, went looking at houses, and have an offer out right now. I was speaking with another lender that looks much better, but they basically said that I wouldn't qualify putting 10% down or even 20%, that I'd need 25% down. It must be based on annual income which I make ~18.5% of estimated home value (home value estimate is above what I offered to pay or would pay but what I asked for in loan). A lender requires a fee for a mortgage application? Ridiculous. Tell them to get lost. We applied at 4 different lenders and paid nothing until we picked a lender to go with, and even then, it was a deposit on our closing costs, not a fee.
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Jun 11, 2014 16:30
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Sataere posted:So I finally got the HOA rules and regulations (after three loving weeks) and I'm still waiting for the financials. Can someone tell me what I should be looking for in regards to rules? Is it just seeing if what they require is to my satisfaction, or are there other things I should be keeping an eye out for? Pretty much make sure it's not full of poo poo you can't abide by. My friend is in one that has rules about visitors - they can't park in the driveway or on the street. They need to park in a parking lot about 5 blocks away and walk. You're also not allowed to have outdoor parties with more than 4 guests. You aren't allowed to do any maintenance on your car that's visible from the street, so it needs to be garage-door closed stuff. You can bring your car into the driveway for washing, but that's it - it needs to be in the garage otherwise. He made the mistake of not reading it before he moved in, and now he can't sell. That one's pretty loving obnoxious but a lot of them are full of poo poo like that.
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Jun 11, 2014 16:31
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|Ziggy| posted:The mortgage payment would be less than 1/3rd of my monthly income before taxes. With insurance and tax on house, it would be right at 1/3 or slightly over. It's too much house. You can probably find someone to do it if you shop around, but prime, conforming loans want your PITI to be no more than 28% of gross. What other debts do you have and what's their minimum payments as a % of gross monthly?
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Jun 11, 2014 16:36
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SlapActionJackson posted:It's too much house. You can probably find someone to do it if you shop around, but prime, conforming loans want your PITI to be no more than 28% of gross. What other debts do you have and what's their minimum payments as a % of gross monthly? Our mortgage alone on the house we're getting is 13 percent of my gross annual income (pretax, pre-deductions.) With property taxes and insurance added to the mortgage, and taxes deducted from my paycheck, it's sitting at about 33% of my monthly net income goes to housing. That's about as much as we felt safe with, and we didn't factor my wife's upcoming income with this (because what if the job doesn't work out? mine's pretty stable) and we still aren't saving all that much of my income each month after a car payment and some student loan payments. If you're floating around 33-35% of your gross income, that seems a bit risky to me. But I'm really paranoid and don't ever want to risk losing the house.
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Jun 11, 2014 16:44
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Monthly P&I 8% of gross salary FTW my goal was to be able to lose my job and cover my housing payment with a job at Best Buy if necessary.
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Jun 11, 2014 16:54
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|Ziggy| posted:The mortgage payment would be less than 1/3rd of my monthly income before taxes. With insurance and tax on house, it would be right at 1/3 or slightly over. Jealous Cow posted:Monthly P&I 8% of gross salary FTW
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Jun 11, 2014 17:18
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Sataere posted:So I finally got the HOA rules and regulations (after three loving weeks) and I'm still waiting for the financials. Can someone tell me what I should be looking for in regards to rules? Is it just seeing if what they require is to my satisfaction, or are there other things I should be keeping an eye out for? The finances are tremendously important, but in the meantime pay attention about how grievances are brought and how the community is governed. Is the board elected every 4 years, and is a quorum required at a physical meeting in order for an election to happen? poo poo like this is a big warning sign, because people generally don't go to meetings so the board never changes. If the elections can be done by mail/proxy then that is better. Pay attention to how long the members have been on the board if you can find that out. Also ask for the minutes of the last few board meetings. This may or not be required to be included in the disclosure packet in your state. This will offer good insight to what is going on, what kind of controversy/feuding there is and what kind of complaints crop up. See if the POA has a website and get what you can off that.
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Jun 11, 2014 18:13
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Dijkstra posted:The finances are tremendously important, but in the meantime pay attention about how grievances are brought and how the community is governed. Is it normal to have to pay insurance on the exterior structure of a townhouse?
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Jun 11, 2014 19:13
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The house price to salary ratio depends on where you live though  It's not uncommmon in the SF area to buy an expensive house. Our house was 6x+ our annual salary, and everyone I know buy houses 5x-6x their salary. But we have a good base of investments and my mom basically bankrolled us, plus we were living with roommates for the previous several years (saving money and have fun together) and one of the roommates moved in with us so we are going to have some rental income. You want to give a hard look at your finances, and consider your salary as well as your reserves and other assets. Would you be able to afford your house if you lost your job for a year? Calculate all living expenses, including house maintenance, utilities, property taxes, etc. Do you have a fallback plan? Also, houses mean that you will be stuck there--Is it a place you want to live for the next 5-10 years (the farther end if your house is expensive)? Do you project good growth in that area so you can sell it if your job relocates? I think for most people in their 20s, there is no need to buy houses since their careers are just starting and there is a real need for flexibility. Don't buy a house for the pure reason of "you're throwing your money away." Houses cost way too damned much and have too many hidden costs.
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Jun 11, 2014 19:31
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I would buy less house. It is the best way to go. You are really stretching it IMO. We got a loan at 1.59x of gross salary and PITI monthly payment is 11.5% of gross, 20% of net. It is nice to be able to have a huge cushion and money to save up and make cash improvements to your house.
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Jun 11, 2014 19:34
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Three variables decide loan amount possible: 1. Down payment 2. Income Ratio (the ratio of your gross monthly income for loan recipients that goes to the mortgage payment) 3. Debt to income ration (the ratio of your gross income that goes towards your debt PLUS the mortgage payment). The cut off spot for the debt to income is larger than just income, and your statement seems to imply he's telling you that income ratio is your bottleneck. Three ways to solve that: -get a higher income (not real advice) -increase down payment (less loan amount diminishes the ratio required) -improve credit score (higher credit scores change the cut off ratios in your favor. Not by a lot on the margin. Don't improve your credit score if it's good if you could use the money towards a down payment, generally) Different banks/financiers use different ratios. It's what controls the risk they take on. It could be person dependant or it could be that you're generally too low and need to compensate for one of those three bottlenecks.
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Jun 11, 2014 20:04
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Sataere posted:Is it normal to have to pay insurance on the exterior structure of a townhouse? Not sure, I have never owned one. Do you mean like separate from your homeowners?
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Jun 11, 2014 20:14
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So I'm trying to buy a house in Dfw and the market is insane. There's a house I like at 130k, and I've put in an offer for 137k + title fees. My realtor suggests considering upping it to 142k but I don't want to put in so much that I can't sell it again down the road if/when the market cools down. I'm not even sure it will appraise for that much, the comps I've seen put it at less than 140k. I just don't know what to do. Someone give me sage advice. 
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Jun 11, 2014 22:53
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SpartanIV posted:So I'm trying to buy a house in Dfw and the market is insane. There's a house I like at 130k, and I've put in an offer for 137k + title fees. My realtor suggests considering upping it to 142k but I don't want to put in so much that I can't sell it again down the road if/when the market cools down. I'm not even sure it will appraise for that much, the comps I've seen put it at less than 140k. Maybe I don't understand something here - do you know if there are already offers on the house? What we did for the one we're buying was offer exactly the asking price, but only made it valid for 48 hours. They can't refuse an offer that's the asking price without paying all the commissions unless they have a higher offer in hand before the expiration of the offer for asking price (at least in our state, I'm told - don't know about MI.) I guess I don't know why you would start higher than the asking price unless you knew there were other offers on the table already.
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Jun 11, 2014 23:11
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Leperflesh posted:I'm reading this sentence over and over and I'm not completely sure what you mean. I'm pretty sure I am allowed to make extra payments on my current FHA loan if I want to pay it down faster, which would let me discharge the MIP sooner, but maybe that's not what you're saying I can't do? My notes only show the scenario of making a $20k payment in nov. 2016, or not making any extra payments at all, but obviously a third option is to make some payments and bring down the loan a little faster. Right? I havent found anything independent through hud to corroborate, but our head of capital markets (at a top 5 mortgage orignator) said you cannot prepay to speed up removal of fha mip. Windex may know more, but our company documentation at this point says acclerated payments do not speed up mip removal, so do not explain it to a client as a benefit. Fair enough on arms, they are not for everyone. The reason they are in vogue now is no preypament penalties (so you can refi if you decide you are staying) but you new payment in year 11 is based on that loan amount at that point in time. So if you take your monthly savings and apply it to principal, you mitigate your risk by a large amount. You do have the equity to avoid bringing escrows by adding it to the principal, but since you will get an escrow refund check back and skip a payment after you close, you recoop that money quickly, so it usually makes more sense than financing a higher loan amount.
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Jun 11, 2014 23:27
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shortspecialbus posted:Maybe I don't understand something here - do you know if there are already offers on the house? What we did for the one we're buying was offer exactly the asking price, but only made it valid for 48 hours. They can't refuse an offer that's the asking price without paying all the commissions unless they have a higher offer in hand before the expiration of the offer for asking price (at least in our state, I'm told - don't know about MI.) I guess I don't know why you would start higher than the asking price unless you knew there were other offers on the table already. That sounds like a crazy law. Also DFW is in Texas.
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Jun 11, 2014 23:28
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shortspecialbus posted:I guess I don't know why you would start higher than the asking price unless you knew there were other offers on the table already. I'm in Austin, but I looked at one house that was on the market for 2 days before it sold for over asking price with multiple offers on the table. I assume the right area in any city is like that.
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Jun 11, 2014 23:45
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During our inspection period some issues came up and rather than requesting the sellers to fix the issues we got estimates and requested that amount as a credit at closing. For some reason our realtor didn't write that the credit was for repairs, and instead wrote "Seller to credit Buyer $6,000 towards closing costs, prepaid expenses, and inspections in lieu of any repairs." Reading it now, it feels like if we have less than $6,000 of closing costs we won't get the remainder refunded to us. Are we overthinking this? Are closing cost credits due in full regardless of actual expenses? Thanks goons, and remember: do always fire your realtor.
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Jun 12, 2014 00:21
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pragan4 posted:During our inspection period some issues came up and rather than requesting the sellers to fix the issues we got estimates and requested that amount as a credit at closing. For some reason our realtor didn't write that the credit was for repairs, and instead wrote "Seller to credit Buyer $6,000 towards closing costs, prepaid expenses, and inspections in lieu of any repairs." You won't get the extra, in fact your lender may end up telling you that the seller can't pay that much for you and that you need to bring a larger share of funds to closing. Underwriters get really antsy it seems when the buyer is off the hook for large chunks of required funds.
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Jun 12, 2014 00:26
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pragan4 posted:During our inspection period some issues came up and rather than requesting the sellers to fix the issues we got estimates and requested that amount as a credit at closing. For some reason our realtor didn't write that the credit was for repairs, and instead wrote "Seller to credit Buyer $6,000 towards closing costs, prepaid expenses, and inspections in lieu of any repairs." I think it depends on your state laws. Check with your loan officer and find out your options. In Oregon, closing cost credits can only be used for closing costs and you would hypothetically forfeit any leftovers. I don't think you can put 100% of the blame on your realtor. Didn't you have to sign that particular addendum?
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Jun 12, 2014 00:30
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gtkor posted:Fair enough on arms, they are not for everyone. The reason they are in vogue now is no preypament penalties (so you can refi if you decide you are staying) but you new payment in year 11 is based on that loan amount at that point in time. So if you take your monthly savings and apply it to principal, you mitigate your risk by a large amount. In most cases in June 2014, ARMs are not a good idea. Interest rates are near their historical lows, and while there is a possibility they will go down, the more likely direction is up. So when you refi, rates will be higher. ARMs only make sense when interest rates are high and you expect them to go down. Banks would love to avoid being locked into a 30 year mortgage at these low rates. So that's why banks are pushing ARMs. Yeah, they make sense in some cases, but edge cases shouldn't be considered for the average buyer.
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Jun 12, 2014 00:47
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pragan4 posted:Reading it now, it feels like if we have less than $6,000 of closing costs we won't get the remainder refunded to us. Are we overthinking this? Are closing cost credits due in full regardless of actual expenses? Credits for repairs are generally treated as sales concessions whereas credits for pre-paids and closing costs are financing concessions. One key difference between a sales concession and financing concession is that sales concessions are required to be deducted from the purchase price for underwriting purposes and can result in a reduction in your allowed loan amount which then causes you to have to bring more money down. Hypothetically, your purchase price and appraisal are both $100,000. If your realtor had set it up as a repair credit then the bank would effectively treat your purchase price as $94,000 instead of $100,000 for purposes of determining the loan amount they can lend. If you were planning to do 20% down to avoid MI, this changes your loan amount from $80,000 to $75,200, but you still have to pay $100,000 to buy the property. You'll end up bringing an extra $4,800 to close that you wouldn't ordinarily. If they do it as a credit towards pre-paids and closing costs instead (financing concession), then the bank doesn't have to do this to your loan amount as long as the actual credit received doesn't exceed the interested party contribution limit (depends on program type, LTV, and occupancy but is usually fairly generous on owner occupied stuff) or the actual pre-paids and closing costs. If the credit does exceed the actual pre-paids then the bank may either require the credit to be reduced or they will treat the excess amount of the credit the same as in the above example (as the excess is a sales concession per agency guidelines) and reduce your maximum allowed loan amount. One thing to note is that discount points are considered to be a closing cost/pre-paid, so if the seller credit does end up exceeding your actual pre-paids and closing costs your lender may be able to get you a slightly lower interest rate and you can roll the cost of the discount into the seller credit. In this case it's probably the best way he can handle it. Depending on the lender it may have been the only option - my old bank had an overlay where we flat out did not permit sales concessions so any ineligible credit was required to be removed from the contract or we'd deny the loan. Edit: The above is specifically regarding conventional loans, but it's my understanding that FHA/VA do it more or less the same Captain Windex fucked around with this message at 02:17 on Jun 12, 2014 |
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Jun 12, 2014 02:13
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What he said.
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Jun 12, 2014 02:50
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Leperflesh posted:With my first refi, I went from %5 to %3.25 interest rate, but MIP actually went up. It was still a significant net savings per month, and in terms of the cash cost of the refi, it was effectively free. We also received a partial refund of the up-front mortgage insurance premium (because what had happened, was FHA had raised the MIP while lowering the up-front) and that cash was part of why the refi was free. Obviously we have different definitions of the word 'free'. Mine is defined by opportunity cost, and yours is defined by what you currently pay.
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Jun 12, 2014 03:49
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Bloody Queef posted:In most cases in June 2014, ARMs are not a good idea. Interest rates are near their historical lows, and while there is a possibility they will go down, the more likely direction is up. So when you refi, rates will be higher. This isnt necessarily true. For a borrower like leperflesh, who at least has an idea he may upgrade in the future, the 30 year fix is essentially taken at above par rate, insuring his or her payment cannot rise in the future. If he does not need tha security, the spread in interest rates is better in his or her pocket than a bank.
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Jun 12, 2014 05:00
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gtkor posted:I havent found anything independent through hud to corroborate, but our head of capital markets (at a top 5 mortgage orignator) said you cannot prepay to speed up removal of fha mip. Windex may know more, but our company documentation at this point says acclerated payments do not speed up mip removal, so do not explain it to a client as a benefit. That's my understanding as well, though that's just from general conversation with coworkers who underwrite FHA since I've only done conventional and portfolio. quote:Fair enough on arms, they are not for everyone. The reason they are in vogue now is no preypament penalties (so you can refi if you decide you are staying) but you new payment in year 11 is based on that loan amount at that point in time. So if you take your monthly savings and apply it to principal, you mitigate your risk by a large amount. Prepay penalties are still around? Between the GSEs not allowing them and subprime imploding I kinda figured those would have gone away.
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Jun 12, 2014 05:19
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gtkor posted:This isnt necessarily true. For a borrower like leperflesh, who at least has an idea he may upgrade in the future, the 30 year fix is essentially taken at above par rate, insuring his or her payment cannot rise in the future. If he does not need tha security, the spread in interest rates is better in his or her pocket than a bank. Please see the last sentence in my post.
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Jun 12, 2014 11:10
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spwrozek posted:That sounds like a crazy law. Also DFW is in Texas. Yes I know DFW is in Texas and I simply read it as DTW. Whoops. As far as the law, I don't know it specifically - my realtor alluded to it. Apparently the reasoning behind it is if you list your price for $250,000 and someone offers you $250,000 and you say "no" without a higher offer in hand, the idea is you hosed your realtor over because they did their job and sold the house at the price *you* set, and if you refuse to take that price, then you basically lied to everyone, and you have to pay commission to at least the selling realtor. Maybe the buying realtor too? I don't know? I'm in Wisconsin, and I haven't looked it up.
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Jun 12, 2014 14:20
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I have heard of similar rules to what you are describing, but my impression was that it was not law, but rather written into the agreement between the sellers and the listing agent.
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Jun 12, 2014 14:57
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emocrat posted:I have heard of similar rules to what you are describing, but my impression was that it was not law, but rather written into the agreement between the sellers and the listing agent. Maybe that's what it was. That would make sense, I suppose. I probably just misunderstood my realtor.
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Jun 12, 2014 15:41
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Captain Windex posted:Hypothetically, your purchase price and appraisal are both $100,000. If your realtor had set it up as a repair credit then the bank would effectively treat your purchase price as $94,000 instead of $100,000 for purposes of determining the loan amount they can lend. If you were planning to do 20% down to avoid MI, this changes your loan amount from $80,000 to $75,200, but you still have to pay $100,000 to buy the property. You'll end up bringing an extra $4,800 to close that you wouldn't ordinarily. I prefer the cynical reading of this that if it had been a sales concession, then the realtor commission would have been reduced, but I suppose it seems like it'll all work out. Thanks for the detailed explanation... I'll trust that we're not getting screwed.
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Jun 12, 2014 15:47
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The actual purchase price remains the same either way, so no change in their commission. But yeah, a healthy dose of cynicism regarding agent commissions is probably not a bad idea.
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Jun 12, 2014 16:07
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Jealous Cow posted:Uh oh Foundation guy came out today. No problems with foundation, damage to slab is purely cosmetic, it's only sunk a little bit and is probably fine. Only $250 to repair before flooring goes in. Whew.
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Jun 12, 2014 18:11
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We had all our inspections today. We had a general inspector, pest, foundation and sewer. Although I was worried before that the foundation may be the biggest issue, it turns out that it is totally fine. The pest, general and sewer guys, however, found:
Improper linoleum installation in both bathrooms that led to some rot on the sub-floor next to the shower in the master bath and the tub in the other bath Related to improper linoleum installation in the master, there is some rot on one panel outside that sits directly beneath the master bath as an overhang The (likely) original furnace from when the house was built in the 1970s is still in use, though it did look like it was recently serviced Drainage on one side of the house was apparently leaking some water into the crawl space of the foundation Subterranean termites in the crawl space but no signs that there are termites destroying any wood (everything sits at least 3 feet off the ground) Evidence of wood boring beetles Three sections of the sewer pipe that have been damaged The pests were a surprise because the house was inspected by pest inspectors (different ones) in both April and May this year based on the disclosures the seller gave to us, and none of them reported termites or beetles. There were reports of rot from fungus, but it was supposedly fixed. I guess that job needed a little more attention though because there was still plenty of evidence of it. If the original pest inspectors missed the termites and beetles, they will be on the hook for fumigating and taking care of this according to my realtor. The sewer pipe damage looks very bad though. It drains downhill, and the three spots are: directly underneath the backyard balcony, directly behind a retaining wall, and underneath a large tree, which may not even be on the house's property. The inspector suggested getting a quote for pipe bursting to repair everything since trenching would likely be a nightmare with the tree. Once we have all the written reports, we are going to try and negotiate that at a minimum the sewer pipe is fixed and the pests are taken care of. We may try to negotiate a credit for the drainage pipe fix and the bathroom floors since the drainage is just replacing the current pipe and making sure it drains past the retaining wall and we would rather have the bathroom floors redone by a person we pick and finished the way we want.
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Jun 13, 2014 00:26
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gtkor posted:I havent found anything independent through hud to corroborate, but our head of capital markets (at a top 5 mortgage orignator) said you cannot prepay to speed up removal of fha mip. I wonder if this is only referring to current FHA loans? I know that within the last couple of years, the FHA MIP was changed once again... now it's for the life of the loan and you cannot get rid of it (which is a loving horrible deal). But my mortgage is not under those rules. I am required to pay for a minimum of 60 months, and until I have hit 22% equity (78% LTV), whichever comes second. Obvoiusly I cannot get rid of MIP prior to the 60 month mark by prepaying, but I am free to prepay my loan in any way I want. Hence in my notes I have noted that I would need to pay down my balance by about $20k in order to actually get rid of MIP at the 60-month mark - I could pay that over time or all at once. quote:Fair enough on arms, they are not for everyone. The reason they are in vogue now is no preypament penalties (so you can refi if you decide you are staying) but you new payment in year 11 is based on that loan amount at that point in time. So if you take your monthly savings and apply it to principal, you mitigate your risk by a large amount. I would never sign a mortgage that disallowed prepayments, and I don't think anyone else should either. Or any other kind of loan, for that matter. So I don't see this as an added benefit of an ARM. What does affect the math is if I use the savings provided by the lower APR of the ARM to prepay during the fixed period. But as others have pointed out, if I don't wind up selling, higher rates after the arm goes adjustable could easily consume whatever interest savings I created by prepaying. quote:You do have the equity to avoid bringing escrows by adding it to the principal, but since you will get an escrow refund check back and skip a payment after you close, you recoop that money quickly, so it usually makes more sense than financing a higher loan amount. I don't understand what you mean. Adding what to the principal? My broker said I would not be required to do escrow. Are you saying I'd save money if I did do escrow? Because I'm OK with doing escrow, I actually find it convenient. Dik Hz posted:You're confusing interest rates dropping with free refinances. If interest rates drop, you can definitely save money on your monthly rate (especially by rolling the closing costs into the loan and resetting the term.) But, the fact of the matter is that banks don't work for free. They engage in transactions that net them money. If interest rates drop, you're still paying the banks more than it costs them, i.e. not free money. I don't think I'm making any such confusion. A refinance is a payoff of an old loan and origination of a new loan. The "cost", under my definition (and I think everyone elses), is the fees involved in originating the new loan. My broker was able to find a loan offer that involved very low origination fees, and those fees were effectively counterbalanced by my partial FHA mortgate insurance up-front premium refund. So, I got rid of my old loan (at 5%), got a new loan (at 3.25%), and paid zero dollars out of pocket to make that happen. That's what I call "free." The bank offering the new loan makes money because they get to collect the interest on the loan, and they did charge a small fee (some of which they paid to my broker). The old bank got paid the balance owed on the loan. FHA had to give me back some money, but gets to collect a higher MIP (but the sum of my principal, interest, and MIP was still lower than for my old loan, because of the drop in interest rate). What was the opportunity cost to me? gtkor posted:This isnt necessarily true. For a borrower like leperflesh, who at least has an idea he may upgrade in the future, the 30 year fix is essentially taken at above par rate, insuring his or her payment cannot rise in the future. If he does not need tha security, the spread in interest rates is better in his or her pocket than a bank. This is a fancy way of pointing out that a short-term borrower benefits from the lower fixed rate, but as everyone in America discovered in 2009, there's no guarantee that you can sell your home before your ARM adjusts. So the cost of pocketing the interest rate spread is paid for by a certain amount of interest rate risk in the future. I personally don't feel the money is worth the risk, particularly since I'm already bearing all the risk of the property's underlying value (and it's by far the biggest single asset I own, so merely buying a house massively concentrates my overall portfolio towards a single asset class). One option would be to take the ARM and use the extra money to help diversify, by investing in other asset classes. But I could still do that with a fixed loan by borrowing against my equity, if I decide that's really necessary.
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Jun 13, 2014 02:32
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