topic Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!? in Mortgage Loans

* spitting out my coffee * my mortgage rate is WHAT?!?!!?

IOBA — Wed, 22 Feb 2017 21:44:13 GMT

Yeah, if I had been drinking coffee when I opened the email, I would have spit it out in surprise.

With all the health & family issues that we have been dealing with lately, we started looking for another place. We lucked out with a buyer for our place. Things are settling down and we thought we had found another place. Our lender quoted us...

1/1 ARM: 4.33% Rate; 3.50% Margin

3/3 ARM: 4.45% Rate; 3.75% Margin

5/5 ARM: 4.99% Rate; 3.75% Margin

Closing costs (bank fees)...

Processing Fee: $750

Credit Report Fee: $11.50

Appraisal Fee: $575

Flood Certification: $13

Homeowners Insurance: not included

Real Estate Taxes for 6 Months: not included

Attorney/Closing Agent: $900

Lenders Title Insurance: $945

Owners Title Insurance: $630

Recording Cost: $50

Now that you know all that....credit score of low of 784 and high of 815. (The 784 is the LOWEST of all scores.)

No baddies.

No debt. At most, a small balance may appear on a credit card - under $30.

Long term employed (same employer since the 70's).

Putting 25% down on the property (maybe more, once we pay the medical bills).

Conventional loan. No PMI. No escrow.

ARM loan.

The DTI would be low. With mortgage at 5% interest rate, taxes, insurance....21.3%

The interest rates seem too high. Way too high. Their website quotes lower interest rates on 10-30 year fixed loans. I know the lender can play with the interest rates some. (He made the mistake once of hemming and hawing when I asked for specific information. So I asked him if he had control over some of the things. He said yes, he did. Like the processing fee. Sometimes he charges $750 and sometimes he charges as much as $1100. Just depends.)

Does anyone else feel like the interest rates are too high for an ARM? We are expecting extra income to be coming our way soon, which of course, will be vigorously applied to the mortgage. We plan to pay off the mortgage as quickly as possible, so we can an ARM versus a fixed rate mortgage.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

H-B — Wed, 22 Feb 2017 21:52:29 GMT

Yes, rates are high but you haven't share the other information, like purchase price, type of property, state and county.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

IOBA — Wed, 22 Feb 2017 22:12:41 GMT

I asked for an interest quote on a 300k loan. He turned it around and said it was a 300k purchase price with 15% down - so loan would be 255k.

Single family home. No HOA.

The lender does not consider county to affect rates.

He's a local banker in the area that I have worked with before. The other main lender in town was willing to sell me a property it owned, no appraisal, 100% financing, guaranteed if I woudl pay the asking price. I won't touch them with a 10' pole! Two other potential lenders in nearby towns seem to have problems understanding deadlines and completing closings on time. So I wasn't interested in working with them. (I asked realtors what lenders they would recommend and why. They always end up telling me who to avoid and why! Even my realtor thought the rates I was quoted was too high. He said the other guys were much better rates, but slow to close.)

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

IOBA — Wed, 22 Feb 2017 22:17:35 GMT

Fixed Rates
30 Year Fixed Rate
Rate	APR	Points
4.375%	4.424%	0.000%
20 Year Fixed Rate
Rate	APR	Points
4.125%	4.192%	0.000%
15 Year Fixed Rate
Rate	APR	Points
3.625%	3.709%	0.000%

These are the fixed rate mortgages that are listed on the website. Lower than the ARM rates I was quoted!

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

H-B — Wed, 22 Feb 2017 22:42:40 GMT

We do need State and county information but i did calculate according to IL. Please see rates below:-

10 year arm 3.625% Home Ready product apr 3.75%

5 /7 year arm 2.875% apr 3%

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

kc0039 — Wed, 22 Feb 2017 22:48:29 GMT

ARM because it's a lower rate? or ARM because you're moving in 5 years?

5/1 ARM no points 3.5%

7/1ARM no points is 4%

No 10 yr ARM on my end. I'd take the guy above me if he has no points in those ARM rates

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

IOBA — Thu, 23 Feb 2017 18:28:21 GMT

ARM because I am severely allergic to debt and will throw every penny at it. With an ARM loan, the extra principle payments affect the next month's payment. The payment stays the same, but the division of funds between interest and principle is reset.

ARM because we are expecting a chunk of money to come in soon. I would rather pay it towards principle ONLY and have the end result be that I pay less interest up front on the mortgage. It galls me -- although I understand the fixed rate product and the value of the fixed rate product -- that extra principle payments are credited at the very back end of the loan, on the very last payment, until the principle has been paid on the last payment. I dont' want to pay an extra $1200 towards principle only to save a $1 in interest. I would rather pay an extra $1200 in principle and have it immediately save me on interest.

ARM because we are expecting a second stream of income to start soon. I want that extra stream of income to go towards the principle of the mortgage and count significantly in reducing my interest paid.

ARM because we - me - expect to have the mortgage paid in full within a year or two.

ARM because the interest rates are LOWER than fixed rate mortgages.

I've done ARM's on the last 6 mortgages/HELOCs. I have always been able to pay off the mortgage in full (with some very hard work and some creativity) before the rate change.

ARM loans are not for most people. I know that. I have only had 4 fixed rates ever - my first 4 loans, when I was way younger. I think that was the only product available back then. No matter how much money I threw at it, I could never feel like I made a dent in reducing the mortgage term or principle. I always applied at least $100 extra every month towards principle.

I was introduced to ARM's when a lender told me that was the only way I could qualify for a mortgage. The rate increase scared the shingings out of me! I was petrified of my mortgage going up by several hundred a month. I was so scared I would lose my house because I couldn't afford the new payment. Fear can be a great financial motivator.

Although we have had some major bumps in the road lately, it appears that things are going better and an ARM would work for us.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

iv — Sun, 26 Feb 2017 06:20:28 GMT

@IOBA wrote:
ARM because I am severely allergic to debt and will throw every penny at it. With an ARM loan, the extra principle payments affect the next month's payment. The payment stays the same, but the division of funds between interest and principle is reset.

ARM because we are expecting a chunk of money to come in soon. I would rather pay it towards principle ONLY and have the end result be that I pay less interest up front on the mortgage. It galls me -- although I understand the fixed rate product and the value of the fixed rate product -- that extra principle payments are credited at the very back end of the loan, on the very last payment, until the principle has been paid on the last payment. I dont' want to pay an extra $1200 towards principle only to save a $1 in interest. I would rather pay an extra $1200 in principle and have it immediately save me on interest.

What...?

I'm not sure why you think that paying extra towards principal works differently on an ARM vs a fixed-rate loan.

If your extra payments are correctly applied to principal-only, they will reduce your interest and accelerate your payoff in just the same way on a fixed-rate as an ARM. Did you have a bad experience with a lender that was applying extra payments as pre-payments to future months, rather than actually to principal?

I fully get the accelerated-payoff thing - done that myself on three loans so far, working on the next two. But an ARM doesn't do anything special there.

Except for usually having a lower rate... but right now, with 15-year fixed and 5/1 ARM rates being frequently the same or inverted (you should be able to easily get a 3.5% no-points rate or less on either today), why carry the extra risk of the ARM (in case your plans are forced to change)?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

IOBA — Tue, 28 Feb 2017 02:18:45 GMT

Some lenders understand the difference between a fixed rate loan and an ARM loan. Many do not. My Realtor did not and he does a lot of investment properties. He argued with me and I asked him to ask his contacts. He did and came back and said I was correct.

With a fixed rate loan, if you make an extra principle payment, they go to the very last payment due at the back end of the loan (payment #360 which is literally like a $1 in interest and the rest is principle, say $999.) They apply the extra principle payments to the that last payment. After making 10 extra payments of $100 each, you will have paid an extra $999 in principle and wiped it off the back/last payment #360. Since the principle is gone, the interest of $1 is automatically wiped off.

Then the extra $1 towards principle is applied to payment #359. Payment #359 is like $2 interest, $998 in principle. So it will take another 10 payments of $100 for principle only to pay off payment #359.

So far, you have spent 20 months - almost 2 years of extra principle only payments and only knocked off 2 pymts.

With an ARM, they amortize it out, as though it were a 30 year loan. The principle and the interest are calculated just the same. If I make an extra $100 on the principle, say on the 1st of the month, then the bank has to readjust the interest amount for the next payment. The payment stays the same. But what is applied to principle and to interest changes. More on principle, less on interest. When I make an extra $10k payment on principle only, the payment stays the same for the following month, but they have to recalculate how much of the following month's payment will be for interest and how much goes towards principle. Each and every month I do an extra principle payment on an ARM loan, they take it off the FRONT of the loan and recalibrate the loan.

So if you compared apples to apples, the extra principle comes off the back of the loan for fixed rate, but off the front of the loan for an ARM. You could compare the amortization tables for each product side by side. They'd look identical in the beginning. When I make that extra $10k loan on the front of an ARM, you go down the chart and see what the payment matches the new principle amount and that will be the break down of the next month's payment.

It's complicated, but easy. An ARM saves a LOT of money in interest, if your bank will apply the payments correctly.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

tacpoly — Tue, 28 Feb 2017 02:58:11 GMT

When did they change this? Because when I had a 30-year fixed-rate mortgage and was making extra payment toward the principal, the interest is recalculated based on the new balance each time. This is why people have always been advised to make one extra mortgage payment per year towards principal because if they do, they will pay off a 30-year mortgage in 22 years (i.e. 8 years early).

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

IOBA — Thu, 02 Mar 2017 02:37:19 GMT

I don't think it has ever changed.

I use to ask for a new amoritzation print out each month I made an extra principle payment on a fixed loan and an ARM loan. That's when I noticed the difference in how payments were applied.

They do say if you make the equilivant of an extra mortgage payment each year, it does reduce the mortgage term from 30 years to 22 years. But the extra funds are applied on the back end of the loan, where there is the least amount of interest. You do save interest. And each payment that is knocked off the back end of the loan means you save a bit more in interest that you are not paying.

If you currently have a mortgage, and online access, you can usually click on a button or something to see the amorization table each month. Look at it closely. Payments are removed from the back end of the loan.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Anonymous — Thu, 02 Mar 2017 05:45:08 GMT

Paying extra principal is just that--a payment that knocks down your principal. There isn't a front or back end. If your principal balance is $20k and you pay $500 towards it, your principal is now $19.5k. Interest is then recalculated on the new $19.5k balance. Perhaps your bank was just applying it as an extra payment?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

StartingOver10 — Thu, 02 Mar 2017 17:04:49 GMT

^^^Agree. The biggest difference is that with a principal payment the payment adjusts immediately if the OP has an ARM but not if the rate and term are fixed. The OP would see a shorter term with the principal payment on a fixed 30-year type mortgage but lower payments with the ARM each and every time a principal payment is made to the mortgage.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

tacpoly — Thu, 02 Mar 2017 20:15:20 GMT

@StartingOver10 wrote:
^^^Agree. The biggest difference is that with a principal payment the payment adjusts immediately if the OP has an ARM but not if the rate and term are fixed. The OP would see a shorter term with the principal payment on a fixed 30-year type mortgage but lower payments with the ARM each and every time a principal payment is made to the mortgage.

Isn't that six of one, half a dozen of the other? If you break down the fixed term mortgage payment after paying extra towards the principal, you'll see that the fraction of that payment going towards interest is less than if you did not pay extra towards the principal. So sure, your monthly payment remains the same, but you pay less in interest in total -- just as you would with an ARM.

The question is: if two people each take out a mortgage for $100,000 with one in a 5/1 ARM at 5% initial rate and another at 15 year fixed term mortgage at 5%. If they pay their mortgage off in 5 years, will the total amount (interest and principal) paid in the end be the same?

IOBA says no, total payments will be lower with the ARM. I, and a couple others, disagree. I'd love to know because if I'm wrong, this can change my real estate strategy.

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

kc0039 — Thu, 02 Mar 2017 21:45:56 GMT

@tacpoly wrote:
@StartingOver10 wrote:
^^^Agree. The biggest difference is that with a principal payment the payment adjusts immediately if the OP has an ARM but not if the rate and term are fixed. The OP would see a shorter term with the principal payment on a fixed 30-year type mortgage but lower payments with the ARM each and every time a principal payment is made to the mortgage.
Isn't that six of one, half a dozen of the other? If you break down the fixed term mortgage payment after paying extra towards the principal, you'll see that the fraction of that payment going towards interest is less than if you did not pay extra towards the principal. So sure, your monthly payment remains the same, but you pay less in interest in total -- just as you would with an ARM.

The question is: if two people each take out a mortgage for $100,000 with one in a 5/1 ARM at 5% initial rate and another at 15 year fixed term mortgage at 5%. If they pay their mortgage off in 5 years, will the total amount (interest and principal) paid in the end be the same?

IOBA says no, total payments will be lower with the ARM. I, and a couple others, disagree. I'd love to know because if I'm wrong, this can change my real estate strategy.

Amortization schedule to the rescue? Since you're paying both loans off in 5 years, the different between a 5/1 ARM and a 15 year fixed is $110.00 in interest if my math is correct. The 15 year fixed, you pay an extra $2,200 per month and the ARM you pay an extra $2,725 per month. I used $200,000 as my loan amount (habit) and 5% as the interest rate. Unfortunately, ARM rates and fixed rates vary a lot

topic Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!? in Mortgage Loans

*** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

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Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

Re: *** spitting out my coffee *** my mortgage rate is WHAT?!?!!?

topic Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!? in Mortgage Loans

* spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

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Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

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Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?

Re: * spitting out my coffee * my mortgage rate is WHAT?!?!!?