Some excellent questions have come in from my previous post:
is it a fixed rate for the life of the loan or does it float?
I’m only looking at fixed rate loans.
What are the fees (this includes fees that are rolled into the loan amount, not just out of pocket costs)?
This is a good question, I don’t know.
Will they sell your loan?
These guys say they won’t – they did say they would include a clause to not sell the loan to Citi. All of my mortgages to date have been sold.
What will servicing be like (I know you’ve had customer service trouble with mortgages in the past)?
I don’t know if there is really a way to find out before-hand.
Is there a pre-payment penalty?
I should have asked this – definitely don’t want a pre-payment penalty. I guess this could affect the rate.
Does their mortgage product have an ‘interest only’ option?
I’m not sure what this means…
If so, what is the yield based on? Published mortgage rates, Libor, MTA?
I’m not sure what this means either…
Where are the ‘points’ accounted for? Most lenders make money off the spread, and even those that promise no points account for their spread somewhere.
I clearly need to learn the jargon better. 🙂
It sounds like it’s worth spending the time to investigate refinancing. The comments are open for your thoughts/questions/etc.
Alex:
Interest-only loans have recently become popular in the ARM world. They’re typically 30-year ARMs with the APR fixed for the first 5-10 years; that fixed-rate early on is met with the option of only paying the interest portion of the mortgage payment, ignoring any principal payments. That’s a *heavily* risky bet, as it’s really betting that you’ll be making more money in 10 years, after adjustments for cost-of-living, than you are now, essentially betting that you’ll be able to afford more house then than you do now *and* that you’ll want to stay in that house. I personally think of it as financial Russian roulette.
The question about the yield is also related to ARM mortgages, wondering what the adjustible rates are tied to. Since you’ve stated that you’re going for a fixed-rate mortgage, you have nothing to worry about.
Spend some time with Bankrate.com while considering your re-financing options.
Yes, Geof added a good comment. The interest only Option can be a risky endeavor. The worst of these is the Option ARM that is real estate’s version of buying stocks on margin. RE is being leveraged withwith this type of product because prices are so high in many areas that properties will not cash flow. In the end, stocks are a function of the earnings and RE is a function of the rents. The moral of the story is that RE is a great long term investment and my advice to anyone who is financing RE is to be sure they can budget the monthly payment. No one should put themslef in a position that they are forced to sell their house because they could not afford the ARM increases.
Interest only mortgages can be a great product for the person who understands them and how they can be used well.
For example, let’s say somebody wants to buy a house, fix it up and then sell it on again fairly quickly for a profit. An interest only mortgage can be a great way of keeping some cash free for the repairs.
I also completely agree that they are dangerous for somebody who just uses it to finance a house that they can’t really afford.
Fixed rate loans are the way to go for me too as for investigating well i can’t live without it… It’s just that i can’t be 100% safe if a person tells me god knows what until i see it on paper. Maybe it’s just me but that’s how i see the whole thing.
A mortgage is “interest only†if the scheduled monthly mortgage payment – the payment the borrower is required to make –consists of interest only. The option to pay interest only lasts for a specified period, usually 5 to 10 years. Borrowers have the right to pay more than interest if they want to.
If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged.