Refinanced
The funds just kicked in today. We went from a 5.125% 5/1 ARM (P+I) to a 5% 5/1 ARM (P+I). Now the question some might ask is why refinance with only a 0.125% reduction? Why not wait for a better rate? Well, it's hard to predict mortgage rates. Despite what some might think, market forces determine mortgage rates and not the Feds.
Our area has been soft for some time now. We had two years left of our original 5/1 ARM. I've been wanting to get a lock into a lower rate asap in the event that it doesn't make sense to sell our house within the next 2 years. Despite putting 20% down from the get go - our home value has dropped such that our current loan to value ratio (LTV) is barely 0.8. Maybe even lower. But in our case and as I hinted above, it's not just a simple matter of waiting for a lower rate. As I kinda sensed in March of last year, I'm expecting things to get worse before they get better in terms of home values. The new reality today is that credit is simply harder to get. If your home value is below the price you paid, you simply cannot just shop for the lowest rate and lock in. The home value + how much you originally put down become key variables. Going through this experience I learned that the alarms sound off if your LTV is > 0.8 and pretty much all lenders at that point will ask for more money down until the LTV is equal or less than 0.8 to mitigate their risk. I don't even know if it takes more effort today to obtain a second supplemental loan or to do PMI. Well, whatever the case I did not even want to pursue those latter options. I did some shopping and because of the softness in our area a mortgage broker requested I put more money down and it got me a little concerned. We ended up using the same lender from our first loan. Turns out there were perks to this - minimal checks (they had our info from 2005), we were able to skip a formal appraisal, no additional out of pocket principle payment was required (I felt this was the key benefit), 0 points, and the closing costs which I was able to lump into the new loan will be made back in less than two years with the interest reduction! The out of pocket expense was very minmal. Just a $275 deposit to lock in the rate. It was a pretty fast and painless transaction.
At my work we have an investing news group. The discussion today around a DQNews article about Bay Area median pricing falling 8.5% got pretty heated. The "renters" were proclaiming the sky is falling while the "homeowners" felt pretty justified with their home purchases despite the drop in values. Viks asked me today if knowing in 2005 what we know today, would our decision to buy a home change? Maybe. The thing is, we really do love our house. It really is a place of happiness for us. And we knew the risks going in and what it could mean. I think as long as one understands the risks going in and can accept the potential consequences then no one should ever criticize you for your decision. But even then, it's your own business anyway.
Our area has been soft for some time now. We had two years left of our original 5/1 ARM. I've been wanting to get a lock into a lower rate asap in the event that it doesn't make sense to sell our house within the next 2 years. Despite putting 20% down from the get go - our home value has dropped such that our current loan to value ratio (LTV) is barely 0.8. Maybe even lower. But in our case and as I hinted above, it's not just a simple matter of waiting for a lower rate. As I kinda sensed in March of last year, I'm expecting things to get worse before they get better in terms of home values. The new reality today is that credit is simply harder to get. If your home value is below the price you paid, you simply cannot just shop for the lowest rate and lock in. The home value + how much you originally put down become key variables. Going through this experience I learned that the alarms sound off if your LTV is > 0.8 and pretty much all lenders at that point will ask for more money down until the LTV is equal or less than 0.8 to mitigate their risk. I don't even know if it takes more effort today to obtain a second supplemental loan or to do PMI. Well, whatever the case I did not even want to pursue those latter options. I did some shopping and because of the softness in our area a mortgage broker requested I put more money down and it got me a little concerned. We ended up using the same lender from our first loan. Turns out there were perks to this - minimal checks (they had our info from 2005), we were able to skip a formal appraisal, no additional out of pocket principle payment was required (I felt this was the key benefit), 0 points, and the closing costs which I was able to lump into the new loan will be made back in less than two years with the interest reduction! The out of pocket expense was very minmal. Just a $275 deposit to lock in the rate. It was a pretty fast and painless transaction.
At my work we have an investing news group. The discussion today around a DQNews article about Bay Area median pricing falling 8.5% got pretty heated. The "renters" were proclaiming the sky is falling while the "homeowners" felt pretty justified with their home purchases despite the drop in values. Viks asked me today if knowing in 2005 what we know today, would our decision to buy a home change? Maybe. The thing is, we really do love our house. It really is a place of happiness for us. And we knew the risks going in and what it could mean. I think as long as one understands the risks going in and can accept the potential consequences then no one should ever criticize you for your decision. But even then, it's your own business anyway.
posted by baconandeggs at 12:06 AM
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