Rates are rising, but you can beat payment hikes with alternative loans


As a continuation from last week’s column, here are some out-of-the-box ideas and current trends I’m seeing about making your purchase or refinance mortgage more affordable.

More or less, local fixed rates are one-half point higher than they were on the Nov. 8 election day.

Consider making that payment more affordable with a no-cost seven-year ARM instead of a 30-year fixed.

The ARM is about one-half percent lower than the fixed at 3.75 percent versus 4.25 percent. And is has a lower credit qualifying paymenht.

On a $424,150 loan, the ARM principal and interest payment is $1,964, and the fixed rate payment is $2,087. That’s a savings of $123 a month and $10,332 over the first seven years.

I know. I know. You might not be able to sleep at night because your dad always told you to get a fixed. Well, that was before the advent of the no-cost loans.

Assuming you are still in that home and assuming you don’t need to do other financing (like a cash-out refinance) in the interim, you have seven years until the rate and payment adjusts on the ARM. Don’t assume the rate will adjust upwardly. Plenty of borrowers have told me their ARMS adjusted downward over the last 10 years or so.

You can always move over to a no-cost fixed if and when the no-cost fixed drops to 3.75 percent or lower.

If you are at least 62 years old and you have a 40 percent down payment. In high-cost Orange County, you may be able to kiss your house payments goodbye forever with a reverse mortgage. Maximum loan amount is $636,150. You will still have to cover property taxes, fire insurance, association fees, utilities and upkeep, but no payment.

Piggy-back, 30-year fixed-rate seconds up to $250,000 in combination with a first trust deed can help you to avoid more expensive conventional high balance (loans over $424,150) or jumbo rates (over $636,150) and/or avoid mortgage insurance, so long as you have at least 10 percent down.

On the credit side, consider Freddie Mac instead of Fannie Mae when it comes to qualifying if school loans are showing up on your credit report. Freddie uses the minimum payment reported from the credit report. Fannie hits you for at least 1 percent of the loan balance if the student loan payment is not amortizing.

And, loan officers may have a lot better luck with Freddie over Fannie in not requiring higher balanced charge-offs and collections to be paid as a condition of loan approval.

Lastly, lenders may be running daily loan and rate specials as their loan pipelines have slowed down due to the recent rise in rates and seasonality. Always shop around.

And, check with the national mortgage licensing system to be sure your loan officer is licensed and the company hasn’t had any regulatory slap downs for nefarious activity.

If you have questions or comments, please contact Jeff Lazerson by clicking here.

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Jeff Lazerson - Mortgage Columnist since 2011