Adjustable Rate Mortgage Loans – The Good, The Bad & The Ugly.

The Zero Money Down Doctor Mortgage Loan offers both fixed and adjustable rate mortgages. So which is the best choice for you?

Recently there has been a lot of negative news surrounding adjustable rate mortgages, so why would anyone even consider these evil loans? In reality, an adjustable rate mortgage may be your best option. Let’s take a quick look at what an adjustable rate mortgage (ARM) really is, and its positives and negatives.

An ARM is a two-phased mortgage loan. During the initial phase of the loan term the interest rate and monthly payment are fixed. Usually at a lower rate than a traditional 30yr fixed. During the second phase, the interest rate becomes adjustable for the remaining term of the loan…thus causing the payment to adjust as well.

So what does this mean? Basically, my recommendation is that you only consider an ARM if you are certain that you will either refinance or sell your home before the initial fixed term expires. For instance, if you are considering a 5 year ARM, then you should be confident that you will either refinance or sell your home within the next 4-5 years.

Here are a few good reasons to consider an ARM:

1. The initial fixed interest rate is usually much lower than a traditional 30yr fixed.
2. If your rate is lower, then you will have a lower payment and pay less interest over the initial fixed term.
3. If you are planning on upgrading your home before the ARM expires, you can take advantage of a lower rate during the time you live in your current home.
4. If you anticipate refinancing for any reason before the initial term expires, then you can enjoy a lower interest rate in the meantime.

The reason why a high-income earner might consider an ARM is because they are much more likely to refinance or purchase a new home every few years. Another reason is because high-income earners usually do not have problems qualifying for a refinance before the ARM adjusts. This leads me to the reasons why ARM’s are getting such a bad rap.

The primary reason why adjustable rate mortgages appear to be such a bad option is because too many borrowers opted for ARMS, who really shouldn’t have. This was due to bad advice from their loan officer, a lack of knowledge or maybe the temptation of a lower rate and payment.

When it comes time for these borrowers ARM’s to adjust, they may find themselves in a different financial position than they were three or five years ago, or the high credit risk programs that they used to purchase their home may no longer exist. Some of these borrowers are also struggling to make their house payment each month and likely do not have much cash reserves.

Couple this with decreasing home values, and they become stuck. They can’t sell their home because they owe more than it’s worth and they can’t qualify for a refinance to get out of their ARM. Then when their ARM goes into the adjustable phase, both their interest rate and their payment increase...sometimes by a lot. For someone who is already on a tight budget, this increase can sometimes break their bank. This is when we see foreclosures and further declining house values.

So is an ARM the right choice for you? It’s really not a good idea for me to make a generalized recommendation, since everyone’s individual circumstances are unique. There are many factors to take into consideration and questions that I would need answers to in order to make a qualified recommendation about which type of loan you should choose. If you’d like to discuss your options, feel free to contact me directly. I can ask you a just a few questions to determine which type of loan would be best for your unique situation, and I can also get you pre-qualified in about 15 minutes.

Enjoy your day!

Jeff

Does your employer offer an Employee Housing Assistance Program? - No Money Down Doctor Loan

Many medical organizations offer their employees an Employee Housing Assistance Program (EHAP) to assist with closing costs, down payment and other home purchase expenses. If you are looking into purchasing a home, I would strongly recommend that you inquire with your Human Resources department about the availability of these types of programs at your organization.

Why? In my experience, the terms for these programs are often hard to pass up. For instance, one of the doctors that I am currently assisting with the purchase of his home is using his companies EHAP to get a 10% down payment. This loan requires no payments and charges no interest for ten years. Considering the fact that most homeowners don’t stay in the same home for nearly this long, he is able to utilize these funds for free!

Can you use your company’s EHAP with The Zero Money Down Doctor Mortgage Loan? The Zero Money Down Doctor Mortgage Loan does accept many EHAP’s. The bank requires a review of each program submitted and must approve the terms and conditions of the loan. In addition, this loan must be subordinate to the first mortgage.

If your organization does not offer an EHAP, don’t fret. Most doctors that I assist do not have such a program, or some simply choose not to use it. The doctor loan provides 100% financing with no private mortgage insurance, so there is no down payment required. Also, the terms of your EHAP may not be as desirable as the doctor loan, so it may not make sense to use your Employee Housing Assistance Program in some circumstances.

For questions about the No Money Down Doctor Loan, to find out if your EHAP is worth considering or for a loan consultation, you can contact me directly at 1.866.663.5461.

Have a good weekend!
Jeff

What does a Fed rate cut mean for mortgage interest rates? - No Money Down Doctor Loan

When the Fed cuts the short term fed funds rate, as it has done with great frequency lately, my phone begins to ring off of the hook. Some calls are from clients who locked in their interest rate days or weeks prior, and are worried that they're going to miss out on lower rates. And the rest of the calls are mostly from those looking to refinance...because the Fed cut rates, so mortgage rates are going to plummet now, right?

The short answer is: Probably not.

Mortgage interest rates are primarily determined by long-term bond yields, which are driven by the broader capital market. So whether or not a Fed rate cut will have an affect mortgage interest rates really depends on how the market reacts.

In addition, this action is a cut on short-term rates, which are very loosely tied to the long-term rates of mortgage loans.

Lastly, if a Fed rate cut is going to have any affect at all on mortgage rates, it is usually anticipated and already reflected in the pricing, before the cut occurs.

There are many articles out there that explain how a Fed rate cut does or does not affect mortgage rates, but there really isn't a stead-fast rule or formula that allows us to measure this affect. One article that I recently read actually showed a correlation between a Fed rate cut and mortgage interest rates that illustrated an inverse relationship. When the Fed cuts short term rates, the long term rates have often increased.

Currently interest rates on fixed rate mortgages are still historically low. Feel free to contact me if you have questions or would like to get prequalified for the No Money Down Doctor Loan!

Jeff

If you're interested, here are some links to a few articles about the relationship between a fed rate cut and mortgage interest rates:

http://www.bankrate.com/bosre/news/mortgages/20070920_rate_cut_affect_mortgages_a1.asp http://biz.yahoo.com/cnbc/080122/22783168.html?.v=1&.pf=loans
http://www.getrichslowly.org/blog/2008/01/31/are-mortgage-rates-tied-to-the-federal-funds-rate/