CLIENT:
ok wanting your advice on this . We have the house up there in MI that we have an ARM on and we are so upside down that its ridiculouse , then we have the house down here in [out west] that we bought at the bottom of the market and are ( hopefully ) going to make money on . We are going to sell the house in MI as soon as is financially profitable to do so , and i was thinking of re financing the one up there . I don’t know how the market is up there and i havn’t the time ( work commitments and all ) to work this out , so i would appreciate some in[ut from you guys .

Due to the distance involved we would really like you guys to handle everything if a re fi is the way to go . I’m not looking long term on this ( like 20 years ) we just need to sell and make a few, and call it a right off if needs be

MY RESPONSE:
Hey, great to hear from you – hows the weather out west!?

Send me your mortgage statement and I will confirm my thoughts with it, but as I recall, your loan rate is currently less than or around 3% right?  Your payment has got to be quite low as a result and even if you made the lowest payment option you are given each month you would be reducing your principle balance considerably over the course of a year.

In addition, the Feds just came out with a statement that they would like to keep short term interest rates “very low for a very long time”.  They are using the year 2012 as the first date they will be moving their rate.  This is never a sure thing but I certainly like the sound of this more than the sound of hyper inflationary rising rates!

My advice for anyone in an ARM type mortgage who will be holding onto their home for just the next 3 to 5 years is to NOT refinance.  Fear on the one side will cause us to move toward the certainty of a 30 year mortgage and incur whatever expense it takes to get it.  On the other side, some are in a low rate ARM mortgage and are making their decision based on greed.  As long as greed is the motivator, they will likely wait too long trying to hold onto the relatively small amount of savings and then in a year or two they will end up in a higher fixed rate for the next two decades as a result.

In your case, you don’t have a long term outlook on this home or mortgage.  The level headed approach is to sit tight and make your payments.

That said, you don’t have an option to refinance right now anyway because your home is worth less than you owe on it and neither Fannie Mae nor Freddie Mac are the current paper holder on your mortgage.  None of their open access programs will apply.  Enjoy 3% it will likely be around a little while.

Thinking back, when we wrote this loan for you a few years ago, we said that this could be the last mortgage you write on a home in Michigan.  At that time we did not know you would be moving West (we thought East) but we DID like the fact that you would not be spending money on closing costs again here.

I wrote a post a while back called YOUR economy vs. THE economy.  I think YOUR economy is fairing quite well in THIS ecomomy.  Lets add it up:

1.  You were able to secure a VERY low price on a home out west that you will be in for a longer period of time.
2.  On the home you can’t sell right now you have both a very low mortgage rate and a tenant making your payment.

It looks to me as though you are landing right on your feet!

Your thoughts?
evan

home mortgage

Client:

I received your email and have had time to review it.

Your mortgage adjustment letter and your note don’t match up, the letter they sent you gives you results that are better than the note you have from them.  Based on your note, your rate should be 3.625% and they are going a full quarter lower than that.  ???  In addition to that, they are saying that your “margin” is 2.75% and your note shows it to be 3.0%.  That will be slightly beneficial for you in years to come.

You have a couple of options:

1. Try to refinance quickly while you are employed – 5.0 to 5.25% is what you can expect if your credit scores are good – you may qualify for the new “open access” terms that waive the negative results of a low appraisal.

2. Ride this out in the ARM and enjoy the lower rates while they are with us.  The Fed just said that they would like to keep rates on ARMs very low for the next 30 months.  At the same time though, they said that long term rates would need to rise as a result.

If you said that you would be selling this home in the next 5 years, I’d say, the ARM is not that great a risk -think about sticking with it.  If you wanted this to be your “forever home”, then refinance it if you can because long term rates will never be this low again.

Feel free to call me when you can and we can go over details of this.  I’ll archive this data and stay in close contact with you as you have questions or concerns.

With respect to payment, if you don’t refinance with us, I’ll bill you as we discussed.   That said, if I didn’t get payment from you for a long time, that would be okay (and I’ll never call you for it) I just need to be consistent with clients on the front end.

I trust that the LORD will see you and I through all of our challenges, including the big ones.  I know you know this, but even the strongest among us need the reminders.

Best,

Evan