Friday, September 12, 2014

Should I get a 30 year fixed rate loan or an ARM???

"Always get a 30 year fixed rate loan!" or "Don't pay the higher interest rate on a loan that you will refinance later" or "You will sell that home when you need more space so why get a 30 year loan" - Have any of these advices been offered to you when considering which loan term to choose?

Those three suggestions are wise and unwise depending on your situation now and what you plan to do in the future. Can you predict the future? The answer is no and yet,  you can give probabilities to the future to help your decision.

First some facts:  The average home in the US is owned for approx 7-10 years. The average condo is owned for less than that. So - that may rule out the 30 year fixed rate loan immediately, A 30 year fixed rate loan today may have a 4.5% interest. A 7 year fixed rate loan today would be around 4%. So, if you are keeping the home for a shorter period of time, why pay approximately $500 extra per year for each $100,000 that you borrow? (I am sure somebody reading this is thinking what is $500 over 1 year - that is worth the comfort of a fully fixed rate loan)

Most shorter term fixed rate loans today are fixed for 3, 5, 7 or 10 years, amortized over 30 years and typically become annual adjustable rate loans after the fixed rate period.  There are different structures with other ARMs (adjustable rate mortgages) but this structure is very common.  The comfort of knowing exactly what your payment will be is either 3, 5, 7, 10 or 30 years depending on which fixed term you choose. The amount of interest rate that you pay rises typically from the shortest term to the longest term. It would be safe to say that you can get a mid 2% rate in the 3 year range and a 4.5% rate in the 30 year range. That difference may be significant depending on  your current and future plans for the property.

Let's say you are buying a small starter home with plans to want a larger home in 3 years. If you plan to sell the home in 3 years, then a 3 or 5 year fixed rate loan may be perfect. But... what if you decide to buy a larger home in a few years as planned and keep this first home as a rental property? Now, you have a loan which will start adjusting every year (or monthly) which fluctuates your cash flow.Future hindsight may tell you that a 7 or 10 year fixed rate would be better. It's sad that we cannot rely on future hindsight now!

Now take my mom as an example (sorry Mom!). She is retiring in the next few years. A 30 year fixed rate loan may be the best choice for her. Refinancing or dealing with an adjustable rate payment when going into retirement (fixed income) is not ideal. Solid, secure financing makes sense then.

Where are you in this spectrum of home ownership? Let's talk and flush out the best plan for you.

See my website at www.HomeLoans.LA or call my cell Mario Pinedo 415-269-6249

Tuesday, March 11, 2014

Why Choose an Interest-Only Loan?

A good argument for choosing an interest only loan: #realestate #loans #Realtor Most people will make a decision to trade up their current house based on equity appreciation through sales prices going up. It is rare that the equity appreciation is based on their amortization of their 30 year fixed rate loan. That takes far longer. Therefore, if you are considering trading up, why not save the monthly outlay of the principle payments? On a $500,000 loan, the difference is over $600 per month!

Friday, November 15, 2013

Loans After All Cash Purchases

Many investors or home buyers are paying all cash to buy a property in order to win multiple offer situations, foreclosures or short sales. Placing a loan on the property after close of escrow may be a good way to recoup funds for use elsewhere. If a loan to pull money out of the property is done within 6 month of acquisition, then standard refinance rules apply. This method avoids the more costly cash-out loans.  Let's talk about this strategy in detail before your time frame is up.

Wednesday, November 6, 2013

Economic Opportunity Program Loans in Los Angeles and Orange County

There are very attractive low down payment loans in Los Angeles and Orange County (and throughout California) if you qualify in Census Tracts or Income Limits.
For a loan with 5% down payment with no Mortgage Insurance, the EOM loans are very attractive. This loan program is available to you if you have gross income below the Los Angeles county cap of $74,280 or in Orange County $100,920 and a FICO score of 620+. The alternate way to qualify is if you are buying a property in the various Census Tracts that qualify in each county. These census tracts qualify if they have 80% of Median County Income averages. Please email me for a detailed list of these tracts.
This loan program is a very attractive alternative to the FHA loans which incur a significant mortgage insurance cost.

Monday, October 21, 2013

Which Bank has the Best Loan Rates?

Today we have 5 different banks which we lend through that have the best rates in different loan categories. If I worked for one specific bank, then I would only be the market leader on 20% of the market. It's good to be well connected!
And why is it that different banks will jockey for the best rates at different times? The answer is usually a balancing of their overall loan portfolio. A bank wants to have a pre-determined spread of loan types to hedge their interest rate risk. So when too many 30 year fixed rate loans are booked into their portfolio, a bank will raise rates on that category to ease demand of that loan type. They may lower rates on a shorter term loan to boost takers on that loan type. This continual price manipulation yields a good overall spread in their loan portfolio. Hopefully this makes the bank's financial stability solid.
What does that mean for a home loan borrower? That the coincidence that your local bank branch lender will have the best rate for you when you need it is just that, coincidence. Find a lender that can shop the market for you and give you the best loan for you now.