What are Points?

Points are up-front fees paid to obtain a better interest rate on a loan. One point equals one percent of the loan amount. A lower interest rate may result in a lower monthly payment, but it is important to consider how long you intend to be in the loan, and to compare current rates to historical market trends.

If you take out a $200,000 mortgage and decide to pay one point, this translates into an up-front closing cost of $2,000. Paying a point up front saves $100 a month but it will take 30 months to recuperate the cost of that point. If you decide to refinance or sell the home before the 30-month mark, your money is lost. In this case, you would benefit financially by remaining in the home longer than the 30 months.

Rates run in cycles. When rates are at historical lows, it is sensible to pay points if you plan to live in the home for an extended period of time. It is unlikely that rates will go down; hence, there will be no need to refinance.

When rates are up, there is a strong likelihood that they will come down. This is no time to pay points. The chances of refinancing in the future are extremely high, and you will likely not be in the loan long enough to recuperate the cost of the points.

Proposed Changes to Mortgage Process by HUD

Within days, the federal department of Housing and Urban Development plans to unveil sweeping proposed changes to the American mortgage application process and real estate settlement system.

The rule changes are the end-product of HUD’s five-year effort to streamline mortgage disclosures, promote comparison shopping by loan applicants, and to stamp out eleventh-hour surprises at closings — where fees come in hundreds or thousands of dollars higher than initial estimates.

Realty Times obtained a point by point summary of the proposals in advance of their official release by HUD. The changes are designed to radically overhaul the current, much-criticized “Good Faith Estimates” (or GFE) disclosures and the “HUD-1″ closing procedures.

Among the key changes in the 250-page HUD proposal:

1. Transformation of the GFE into a consumer education and shopping tool. The GFE will now explain in detail to an applicant how a particular loan works, how high monthly payments could rise, disclose any potential fees such as prepayment penalties, and provide information about escrow items.

2. New, strict limits on how much settlement charges can depart from the Good Faith Estimate stage — within three days of the loan application — to the HUD-1 closing stage. Total settlement charges could not be more than 10 percent above the initial estimates, absent tightly-defined “unforeseen circumstances” limited to acts of God, war and disasters, among others.

3. The Good Faith Estimate and the HUD-1 forms are aligned with each for easy comparison, with similar categories and graphic displays of loan origination charges and settlement cost items on both.

4. All fees paid to mortgage brokers by a lender in connection with the interest rate charged to the consumer must now be disclosed and listed on the Good Faith Estimate as a “credit to the borrower.” Brokers are likely to oppose this strenuously, arguing that competing loan originators — such as retail bank personnel — are not required to disclose fees they receive in connection with higher note rates.

5. All settlement agents will now be required to “read aloud” a new “closing script” to mortgage borrowers. The script walks consumers through the various charges on the revised HUD-1, and whether and why they differ from earlier estimates. Finally, the script requires the settlement agent to explain the loan terms and mechanics as stated in the mortgage note itself.

The proposals will have a 60 day period for industry and consumer comment, after which HUD is expected to issue them in final form with a period of months set aside to allow lenders, title companies and attorneys to gear up for the new forms and procedures.

How to Stop Foreclosure!

Make no mistake…. to Stop Foreclosure you must act quickly and decisively. Your home will be sold unless you take the correct steps to satisfy the Mortgage Company and get your loan caught up.

Foreclosure is something that can happen when you get behind on your Mortgage Loan. Your lender won’t automatically put you into a program to bring your loan up-to-date. You must put the plan into motion and provide the lender with the documentation they require to analyze your financial situation to stop the Foreclosure action. Although lenders do not want to foreclose if it can be avoided, they do want to make sure you can follow-through on any promises you make to bring your account current.

Mediation is the key to Stopping the Foreclosure. As we stated before, the Mortgage Company does not want to Foreclose and is usually willing to agree to terms to Stop Foreclosure. These terms are negotiable and it is to your advantage to develop a plan of action before contacting them. This plan needs to be thoroughly analyzed before presenting it to them as it becomes very difficult to adjust it. We have extensive experience in this area and we can develop a winning strategy or plan for you to Stop the Foreclosure that is proven successful.

Proven Plan for Stopping Foreclosure

1. You need to come up with some amount of money to apply to the deficiency. We typically refer to this as the “Contribution Figure” or a “Good Faith Payment”. This will usually be somewhere between 35% – 50% of the total amount that is required to bring the loan completely current. With the clients we help, we typically see this number between 25%-30%. The Mortgage Companies always require this money as a down payment for a number of reasons:

• To bring the loan current quicker
• To prove to the lender that your are sincere in wanting to get the loan caught up. They also need to use this as a penalty to getting behind. If they didn’t they would have a lot more people missing payments without legitimate reasons.

2. You need to document your current financial situation to show that you can afford the Monthly payments. This is very tricky… you need to be accurate and honest as they may not accept changes once it is submitted. We develop a Personal Financial Portfolio for each of our clients. This shows your income versus your expenses in a form that is easy to understand and highlights your ability to repay the loan.

3. The last step is to develop a letter that explains why you fell behind. This letter is referred to as the “Hardship Letter.” We have many examples of letters that the Mortgage Company is looking for. This letter must be honest and appeal to them to show that you want to stop the foreclosure and that you deserve another chance.We roll all of these items into what we call a “Work-out Package”. This package is then presented to the Mortgage Company in a format they can easily understand which allows them to make a decision quickly and responsibly.

Types of Mortgages (Fixed VS. ARM)

Decide what type of loan is right for you

Before you even start looking for a lender, you have to know what type of loan you are looking for. There are two basic types: fixed-rate and adjustable-rate mortgages, known as ARMs.With a fixed-rate loan, the basic monthly payment — interest and principal, not counting taxes, insurance or any assessments — stays the same for as long as you have the loan. With an ARM, the interest rate can change. When and how it changes will depend upon the type and length of the ARM you have. There are one-year ARMs, where the interest rate stays the same for the first year, and then changes based on where the index rate is on the date it changes. There are three-year ARMs, five-year ARMs and so on.The charm of an ARM is that the initial interest rate is usually lower than a 30-year loan.In general terms, one of the main factors you should think about when looking at a mortgage is how long you can reasonably expect to stay in a house. If you know you will be transferred in two years, then a two- or three-year ARM makes sense, since you’ll be buying a new home at whatever the interest rate will be at that point, no matter what interest rate you pay now. If you plan on being there for the long haul, a fixed-rate loan is your best bet.There are a couple of mortgages that deserve special attention because they can be very dangerous … which, in mortgage terms, means expensive. You should stay away from:Option ARMs. Buying a loan with four different payment options seems like a great idea. But if you make the “minimum payment” every month — which many borrowers do — you’ll actually be adding to your debt, not paying it down.

2/28 or 3/27 adjustable-rate mortgages. The dangerous and expensive loans forced many subprime borrowers into default or foreclosure and are too costly to work.

And think hard, before taking out a:

Forty- or 50-year loan. By spreading the loan over four or five decades you’ll pay tens of thousands of dollars in additional interest, build equity very slowly, and lower your monthly payments surprisingly little.

Interest-only loan. These also appear “cheaper” because all you are paying is the interest. The interest, in many cases, however, can fluctuate from month-to-month. And regardless of what it does, you are not reducing the principal unless you have the discipline and income to make extra payments.

Jumbo loan. Before borrowing $417,000 or more you should ask yourself if you can really afford to pay $3,000 or more, month after month, for a house. If you become ill or lose your job, do you have enough money saved to keep up with the payments? Did we mention that you’ll pay a higher interest rate for a jumbo loan, too?

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