Refi Into A 15 Year Mortgage?

Refinancing to a 15-year mortgage is an option many homeowners consider when interest rates drop. This type of refinance allows you to pay off your mortgage faster, potentially saving on long-term interest costs. While the appeal of faster equity-building and reduced interest is strong, refinancing to a shorter term does come with trade-offs. Here’s what to consider if you’re thinking about making the switch.

Before making the leap, it’s essential to assess several key factors. First, check if you’ve held your current mortgage long enough to refinance; lenders often require a set period before allowing this, known as “seasoning.” Another critical aspect is your financial comfort with the potential increase in monthly payments. Refinancing to a 15-year loan from a 30-year loan can significantly raise your monthly payment, even if you secure a lower interest rate. Additionally, consider how long you plan to stay in your home, as closing costs can offset potential savings if you sell too soon.

One of the primary reasons to refinance into a 15-year mortgage is the opportunity to lock in a lower interest rate and save on total interest payments. With a shorter repayment period, you can build equity faster, potentially giving you access to more financial flexibility through options like home equity lines of credit (HELOCs) in the future. However, keep in mind that monthly payments on 15-year loans are higher, which may affect your ability to meet other financial goals, like saving for retirement or maintaining an emergency fund.

Refinancing isn’t a one-size-fits-all decision, and it’s wise to weigh the pros and cons carefully. If your income is stable, you’re financially prepared for the higher payments, and reducing your mortgage term aligns with your long-term plans, then a 15-year refinance could be a smart move. But for those who might prefer lower monthly obligations or who have other high-priority savings goals, sticking with a longer-term mortgage or making additional payments on the current loan could be a better approach.

What Is A Zombie Mortgage?

A zombie mortgage is a haunting financial surprise that can emerge years after a homeowner thought their mortgage was fully paid off or discharged. This second mortgage, often linked to loans from the early 2000s housing bubble, resurfaces with demands for repayment, even though the borrower believed it was settled. Many of these loans were part of “piggyback” financing, where a borrower took out a first mortgage for 80% of their home’s value and a second mortgage for the remaining 20%. Over time, confusion around modifications and loan terms has led some homeowners to mistakenly believe the second mortgage was forgiven or discharged, only for it to rise again—hence the term “zombie mortgage.”

Zombie mortgages tend to resurface when market conditions improve, and investors seek to collect on old debts. These mortgages can sometimes balloon in size due to accumulated interest over the years, catching homeowners off guard. According to experts, many borrowers are now seeing substantial increases in what they owe—sometimes turning a $95,000 loan into a $400,000 debt. While these loans seemed forgotten during the financial downturn of 2008, rising home prices during the COVID-19 pandemic have given new life to zombie mortgages, as lenders and investors see an opportunity to recover their money.

If you find yourself facing a zombie mortgage, it’s crucial not to ignore the situation. Reaching out to a HUD housing counselor or real estate attorney with experience in zombie mortgages should be your first step. They can help determine the validity of the claim and work with you to explore options for resolution. Additionally, checking loan documents and contacting your county recorder’s office to verify if the mortgage was officially discharged may provide further clarity. Some states also have laws protecting homeowners from unfair debt collection practices, and it’s important to know your rights under the Fair Debt Collection Practices Act.

Homeowners today who are considering taking out a home equity line of credit (HELOC) should be mindful of the risks that might arise in the future. While lenders may not push for foreclosure now, these second mortgages could resurface as zombie mortgages years down the line when housing prices rise again. Whether you are currently facing a zombie mortgage or planning for the future, staying informed and seeking professional advice is key to avoiding this unsettling financial trap.

How The Fed Affects Mortgage Rates

When it comes to mortgage rates, the Federal Reserve plays an influential but indirect role. The Fed doesn’t set mortgage rates directly, but its decisions around interest rates significantly impact the financial landscape, including the cost of borrowing to buy a home. Understanding the Fed’s role in monetary policy is key to grasping how mortgage rates fluctuate and what might drive up or lower the rate on your home loan.

The Federal Reserve primarily influences short-term borrowing costs by setting the federal funds rate, which is the interest rate banks charge each other for overnight loans. When the Fed raises or lowers this rate, it affects the broader economy by influencing rates on credit cards, car loans, and home equity lines of credit. While fixed mortgage rates aren’t directly tied to the federal funds rate, the ripple effects of the Fed’s decisions can still be felt. Notably, in 2022 and 2023, the Fed raised rates to combat inflation, leading to higher borrowing costs across the board, including for homebuyers.

Fixed-rate mortgages, which are popular among homeowners, are more closely tied to the 10-year Treasury yield. When the yield rises or falls, fixed mortgage rates tend to follow suit. However, mortgage rates aren’t an exact match to Treasury yields; they typically have a gap of 1.5 to 2 percentage points. Recently, this gap has widened, making mortgages more expensive. Other factors such as inflation, supply and demand in the mortgage market, and investor activity in the secondary mortgage market also influence fixed-rate mortgage costs.

For those with adjustable-rate mortgages (ARMs), the Fed’s rate decisions have a more direct impact. ARMs are often tied to the Secured Overnight Financing Rate (SOFR), which moves in response to changes in the federal funds rate. When the Fed raises its rate, the SOFR tends to increase, causing ARM rates to rise during their next adjustment period. In conclusion, while the Fed doesn’t set mortgage rates outright, its policies shape the economic conditions that drive both fixed and adjustable-rate mortgages, affecting how much you’ll pay for your home loan.

Thinking About Refinancing?

Mortgage rates have dropped once again, offering a unique opportunity for both homebuyers and current homeowners, with rates at their lowest rate in over 18 months. For homeowners, this may be the perfect time to consider refinancing—replacing their existing mortgage with one that has a lower interest rate. If you’ve been holding off on refinancing due to high rates, now could be your chance to lock in savings.
In recent years, refinancing activity plummeted as rates surged from 3 percent during the pandemic to as high as 8 percent in late 2023. However, with rates starting to dip, some homeowners who took out mortgages during the rate hike may find it beneficial to refinance now. For homeowners with adjustable-rate mortgages or those locked into higher rates, the current market conditions could make refinancing a smart move.
However, refinancing isn’t as simple as getting a better rate. It’s important to weigh the costs involved, including closing fees, which typically range from 2 to 5 percent of the loan amount. You’ll need to factor in expenses like credit checks, appraisal fees, and title insurance. Some states even impose additional taxes on mortgage refinances. Experts suggest that homeowners should aim for at least a 1.5 percentage point drop in their interest rate to make refinancing worthwhile.
If you’re thinking about refinancing or wondering what else is on the horizon got to our calendar on our website and schedule an evaluation.

Retiring with a Mortgage: What You Need to Know

While it’s true that mortgage debt can feel like a burden in retirement, it’s important to remember that your home remains a valuable asset. According to a recent study from the Michigan Retirement and Disability Research Center, many retirees with mortgages still have the potential to thrive financially—it just requires some thoughtful planning. For those who find their mortgage payments manageable, there’s no need to worry. If you love your home and your mortgage fits within your retirement budget, there’s no reason to change a thing.

The idea of paying off your mortgage before retirement has long been a goal, but times are changing. Today, many people are buying homes later in life or taking advantage of low interest rates to refinance. This means more retirees are entering their golden years with a mortgage, but that doesn’t have to be a bad thing. With careful planning, even a 30-year mortgage taken out at age 65 can be part of a successful retirement strategy. Plus, staying in your home allows you to continue building equity and enjoying the stability of homeownership.

If you’re retired and find your mortgage payments challenging, there are options to explore. Downsizing to a smaller, more affordable home might be one solution, especially if you’re ready for a change of scenery. Alternatively, a reverse mortgage could offer a way to tap into your home’s equity while staying put. While these options might seem daunting, they can be smart moves with the right advice. Of course schedule a consultation on our website and we can help guide you through your specific situation.

Market Watch – Rates Dropping Below 7?

This week marks a positive shift for prospective homebuyers, as mortgage rates have stayed below the 7 percent threshold. This is the first time since February that the average 30-year fixed rate has dipped into the sub-7 range. The catalyst for this decrease is the growing optimism that the Federal Reserve might cut rates in the near future, providing a glimmer of hope for those looking to secure a mortgage.

Currently, the average rate for a 30-year fixed mortgage is 6.90%, slightly down from 7.02% four weeks ago and 6.98% a year ago. For those considering a shorter-term commitment, the 15-year fixed mortgage stands at 6.24%, and the 30-year jumbo mortgage is at 6.97%. These rates include an average total of 0.28 discount and origination points, which are fees paid to reduce your mortgage rate and cover the lender’s costs to process the loan.

When translating these rates into monthly payments, consider the national median family income for 2024, which is $97,800. With the median price of an existing home at $426,900, a 20 percent down payment, and a 6.9 percent mortgage rate, the monthly mortgage payment would be approximately $2,249. This payment constitutes about 28 percent of a typical family’s monthly income, illustrating the financial commitment required for homeownership in the current market.

Looking ahead, the trajectory of mortgage rates will largely depend on the broader economic landscape. While a strong job market and persistent inflation suggest rates might not plummet, there is cautious optimism for a slight dip due to potential Federal Reserve rate cuts. Mortgage rates, influenced by the demand for 10-year Treasury bonds, are likely to fluctuate. If you are in the market for a mortgage and want to stay informed and be prepared for possible changes in rates signup for our rate advisor on our website.

Down Payments in 2024

The landscape of home buying has evolved significantly, and this is particularly evident when examining down payment trends in 2024. The median down payment on a home in the U.S. during the first quarter of 2024 was $26,700, which represents about 8% of the median home purchase price at that time. This figure highlights a shift from the traditional 20% down payment that many prospective homeowners believe is necessary. The minimum down payment required for a mortgage can vary greatly, depending on the home’s cost and the type of mortgage.
Despite the belief that a 20% down payment is standard, many mortgages today allow for much smaller initial investments. Some loans require as little as 3% or 3.5%, and certain loans, like VA and USDA loans, have no minimum down payment requirements at all. As of May 2024, the median down payment rose to $60,202, which is about 15.6% of the median home sales price of $384,375 for that month. These variations underscore the importance of understanding the different mortgage options and their respective down payment requirements.
The funding for down payments often comes from a variety of sources. Common methods include personal savings, financial gifts or assistance from family, borrowing from retirement accounts, or selling investments. It’s also important to consider that down payment amounts can vary significantly based on location and the buyer’s age group. For instance, younger buyers, typically aged 25-33, tend to make smaller down payments, averaging around 10%, whereas older buyers aged 59-68 may put down as much as 22%.
While a larger down payment can reduce the amount you need to borrow and potentially lower your interest rates, it’s not always feasible or necessary to aim for the traditional 20%. Smaller down payments can still facilitate homeownership and help buyers avoid the ongoing costs of renting. Moreover, putting down less and entering the housing market sooner allows buyers to start building equity and enjoying the benefits of homeownership earlier. Every situation is unique so please complete our home purchase qualifier on our website and we help you choose the down payment strategy that best fits your needs and goals.

What Is A Convertible ARM?

For first-time homebuyers considering their mortgage options, a convertible adjustable-rate mortgage (ARM) offers a compelling combination of lower initial interest rates and monthly payments, along with the flexibility to switch to a fixed-rate mortgage later. This option can be particularly attractive for those seeking initial affordability. However, understanding the specifics of a convertible ARM is crucial to determine if it aligns with your financial needs.
A convertible ARM is an adjustable-rate mortgage that includes a conversion clause, allowing borrowers to switch from an adjustable rate to a fixed rate without refinancing. This option usually becomes available after an initial fixed-rate period of five, seven, or ten years. While there is a small fee associated with this conversion, it can result in more stable and predictable monthly payments for the remainder of the loan term. This stability is advantageous for those who benefit from lower initial rates but prefer the certainty of fixed payments over time.
The operation of a convertible ARM involves an initial fixed-rate period, followed by adjustments at predetermined intervals based on market rates. Unlike a traditional ARM, where the interest rate can fluctuate significantly, a convertible ARM offers the option to lock in a fixed rate upon conversion, typically higher than the initial adjustable rate. This conversion can be a strategic move to avoid the potential risks of rising interest rates and increased monthly payments associated with traditional ARMs.
Ultimately, the choice to opt for a convertible ARM depends on your financial goals and your ability to manage potential rate changes. While the initial lower rates and payments provide an immediate benefit, the flexibility to convert to a fixed-rate mortgage without refinancing offers long-term stability, we recommend that you schedule a consultation with us on our website and we can see what loan program fits your needs.

Market Watch: Rates Trending Down

Mortgage rates have seen a decline across the board this week, providing a glimmer of hope for prospective homebuyers. According to the latest data, rates for 30-year fixed, 15-year fixed, 5/1 adjustable-rate mortgages (ARMs), and jumbo loans have all dropped. This slight decrease offers some relief amidst the continuing challenges of high prices and elevated interest rates. Despite inflation cooling somewhat, homebuyers still face significant hurdles in the current market environment.

The Federal Reserve’s recent decision to hold off on changing interest rates at their June 12 meeting highlights the ongoing uncertainty in economic policy. The Fed’s stance of maintaining higher interest rates for an extended period appears increasingly untenable as consumer spending pulls back and economic indicators suggest potential rising unemployment. As the economic landscape evolves, there is speculation that a rate cut could be on the horizon, potentially as soon as later this year. This anticipation adds another layer of complexity for those trying to navigate the housing market.

Deciding to buy a home often transcends economic conditions and is deeply personal. For some, taking on a higher mortgage rate now with plans to refinance later might be a strategic move. This approach allows buyers to start building equity immediately rather than waiting for a potentially more favorable market. While today’s 30-year mortgage rate at 7.05% is slightly lower than last week’s 7.06%, it still means higher monthly payments. However, locking in a rate and starting the journey toward homeownership could outweigh the uncertainties of future market conditions.

Jumbo vs. Conventional Loans

If you’re seeking financing for a home over a million dollars, chances are you have heard these options: jumbo loans and conventional loans. A conventional loan, typically offered by private lenders, is what most people think of when considering a mortgage — a fixed interest rate loan covering most of a home’s purchase price. While a jumbo loan technically falls under the conventional loan category, it is distinct in several key ways, particularly in the amount of money it allows you to borrow.

What Defines Jumbo and Conventional Loans?

A conventional loan is not backed by the federal government but instead originated, financed, and guaranteed by private lenders. These loans can be either conforming or nonconforming. Conforming loans meet the Federal Housing Finance Agency (FHFA) requirements, including loan size limits that vary by state and county. For 2024, the conforming loan limit is $766,550 in most areas, rising to $1,149,825 in high-cost areas. Conforming loans can be bought by Fannie Mae and Freddie Mac, reducing lenders’ risk. Jumbo loans, on the other hand, are nonconforming due to their size. They are necessary for purchasing high-priced homes exceeding conforming loan limits, allowing borrowers to secure larger amounts — often up to $3 million or more.

Comparing Jumbo and Conforming Loans

Though both jumbo and conforming loans are conventional, they have significant differences. Jumbo loans require a higher credit score (minimum 700) compared to conforming loans (minimum 620). The down payment for jumbo loans is also larger, typically 20-25%, while conforming loans may require as little as 3-5%. Debt-to-income (DTI) ratios for jumbo loans are stricter, and borrowers need substantial cash reserves, sometimes up to 12 months’ worth. Interest rates on jumbo loans are generally higher due to the increased risk to lenders, although competitive rates are still available, influenced by broader economic factors and individual financial profiles.

Choosing the Right Loan for You

Deciding between a jumbo and a conventional loan depends on your financial situation and home-buying goals. Jumbo loans are ideal for purchasing luxury homes or properties in high-cost areas, especially if you have a high income, excellent credit, and can afford a significant down payment. Conforming loans are better suited for moderate-priced homes within local loan limits, particularly if you have a lower income, less savings, and need a smaller down payment. Of course feel free to schedule a consultation with us on our website and we can help review the differences and requirements of each loan type will help you make an informed decision tailored to your specific needs.