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Mortgage chat with Holden Lewis

September 11, 2008
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About Our Guest
Holden Lewis, senior mortgage reporter for Bankrate.com and author of the Mortgage Matters blog,chatted about the current mortgage market with Boston.com readers.
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Katis: Do you think now is the time for a first-time buyer to jump in?

Holden Lewis: Maybe. Here's the deal. If you're a first-time buyer, AND you expect to live in the house for several years (at least five), AND you have a good-size down payment (at least 10 percent and preferably 20), then maybe it makes sense to buy.

Brix: Where do you think 30-year fixed mortgage rates will be in 3 to 6 months?

Holden Lewis: Your guess is as good as mine. My guess is that they'll be about the same and maybe higher. Why do I think that? Simply because rates are low right now. Most of my life, they've been substantially higher than 6 percent. Now they're about 6 percent. So I think they'll end up above that.

loanquestion: Hi Holden, I just read your story about how the bailouts might not create a refi boom. I have a 30-year fixed mortgage at 6.25 percent. I've had it for almost two years. I'm wondering if it's worth refinancing. How much time do you think I have to decide? In other words, do you think this is short-term decline in rates?

Holden Lewis: Well, a lot of it depends on how long you plan to live in the house, and how much equity you have. If you will live in the place for a long time, perhaps it makes financial sense to shave a few dollars off the monthly payment in exchange for shelling out the closing costs. But if your down payment was greater than 20 percent, and now you owe more than 80 percent, you might have to get mortgage insurance. That would probably cost more than the monthly savings from a modest decrease in the interest rate.

Holden Lewis: Why would you owe more than 80 percent? That would happen if the value of the house went down enough. Let's say you bought a $100,000 house with 20 percent down. Then the value of the house declined $10,000. Now you owe about $80,000 on a house worth $90,000, so you owe more than 80 percent of the value.

jeskimo: What if you don't have between 10 percent and 20 percent down? Should you try for an FHA loan?

Holden Lewis: If you have less than 10 percent down, you'll probably be steered toward an FHA-insured mortgage. It would be cheaper, in most cases.

bill_from_MI: Do you think bailout will help free up money in troubled markets like MIchigan, or are lenders going to wait untill they are more sure we are at a bottom?

Holden Lewis: There are two types of troubled markets. There is the Michigan type and the Florida type.

Holden Lewis: In the Michigan type of market, loss of manufacturing employment is causing a drop in real estate prices. Basically, people are moving away from the region, or they're staying but they can't keep their houses.

Holden Lewis: So I think lenders are going to be finely attuned to credit history and job history and job prospects in such markets. I think that if you have, say, a secure union job (perhaps with a local government), you'll have an easier time getting a loan than someone whose job prospects aren't as secure.

Holden Lewis: Basically, it's more a question of individual credit quality.

Holden Lewis: Not so in places like Florida, where the concern is a huge glut of empty houses that won't be filled anytime soon.

first_time_buyer: Hi Holden -- my wife and I just got preapproved at 6.5 percent 2 weeks ago, but since the takeover the bank's rates have only dropped to 6.25. There are much better rates at other banks now, but how will our preapproval from the first bank affect our ability to get approved by another? Basically, how many preapprovals can we get before it significantly damages our credit score?

Holden Lewis: If you've been preapproved but haven't locked a rate, you can still shop around. Shopping different mortgage deals within a few weeks shouldn't do much damage to the credit score.

I_H8_Bankrate: The losses in home values still seem dwarfed by the run up that preceded it. Do you think that the housing market is nearing a bottom?

Holden Lewis: Hi, h8ter! I don't think we're near the bottom in California, South Florida, Phoenix or Las Vegas. Other places -- maybe they'll bottom out in 2009.

jose: Do you think the recent decrease in rates following the Fanny/Freddie buyout news will hold or is it excessive optimisim by investors?

Holden Lewis: This is nothing but a hunch, really. I think rates will be higher at the end of the year than they are now. As I said before, I simply find a 30-year rate at 6 percent to be anomalous. That's not much of a reason. Empiricists could poke a lot of holes in it. But that's my prediction. I'm right about one-third of the time!

CCA: Does the same hold true on refinancing a 1 year old 15 year note @ 6.5% for whcih the downpayment was well over 20%?

Holden Lewis: In Boston, you can probably get a 15-year fixed at around 5.75 or 5.875 percent. With substantial equity, that looks like a good refi opportunity.

wj: Hello: I just closed on a house and got a 30 yr @ 6.5%. It seems I could get lower now. Should I just refi or will the bank negociate with me? thx

Holden Lewis: Argh! The loan is closed and they're not going to renegotiate it. Just for grins, I think you should talk to the loan officer or broker who did the loan and ask if you should refi. See what they say.

first_time_buyer: Is now the time to lock in a loan rate if we're looking? and how do we do this ... do most banks and credit unions offer rate locks, or only mortgage brokers?

Holden Lewis: My philosophy about rate locks is that you should lock when the rate is where you're comfortable at. Allow me to express my humility here: I surely don't have the right answer all the time. On this question, you're dealing with uncertainty. If the uncertainty makes you feel anxious, you can get rid of the anxiety by locking the rate if it's a rate you can live with. Some people are more comfortable taking risks; they don't stay up at night worrying about whether they're making a mistake by not locking a rate.

Holden Lewis: Really, the answer to that question is: Are you a risk-taker, or are you risk averse? I'm risk averse, so my advice is more conservative than the advice that other people might give. And at least half the time, they're gonna be right.

mjc: Ideally, i would like to wait a couple of months before i refinance. Do you think these decreased rates with remain at their current levels through the end of the year? Or should I jump at these low rates now?

Holden Lewis: People are jumping in and out, and not necessarily seeing the answers that I posted earlier, so if you've been here since noon, bear with me as I ask the same question multiple times. This question is on top of everyone's mind.

Holden Lewis: I meant to say, as I ANSWER the same question multiple times.

Holden Lewis: Anyway, I think rates will be higher at the end of the year than they are now. Hang on a sec ... I'm going to look at my rate prediction in early June, 3 1/2 months ago....

Holden Lewis: On June 4, the average rate on a 30-year fixed was 6.22 percent and I predicted that rates would rise over the next 35 to 45 days. I was right. They did. But on Aug. 6, when the 30-year fixed averaged 6.74 percent, I predicted that rates would rise, and they've fallen three-quarters of a percentage point in the five weeks since.

kar: I an adjustable rate which will mature in June 2009. Do you think its a good idea to refinance now or wait?

Holden Lewis: Even though it looks like we're in a recession, I worry about inflation. I worry that interest rates will rise. I would seriously consider refinancing. But I urge you to ask your banker or broker for an opinion, too. Your banker or broker knows more about your financial situation, and above all, what your index and margin are.

upanddown: Do you think alot of brokers have gotten rich off this rate dive after maybe locking in people at higher rates and raking in the difference?

Holden Lewis: They might be less poor. Brokers have been through bad times recently.

king: I live in Michigan and I am closing on my home on Sept. 24th. I have a current rate of 5.875 on a 15-year fixed with the option of locking in a lower rate one time. The current rate through my lender is down to 5.5% Should I float or lock in?

Holden Lewis: You're not going to take my word as Gospel, right? You'll ask more people than me -- including the lender, right? If it was me, I would lock. 5.5 percent is very low, by historical standards. Maybe it'll fall more. If you lock now, and the rate falls even lower, you still have a 15-year fixed at 5.5 percent.

buyer2: where do you see 30 year fixed rates going over the next month?

Holden Lewis: Over the next four weeks or so, I think they'll stay about the same or edge upward.

Victorian: How much difference in interest over the life of a loan does a 25 and 20 year mortgage save over a 30 year? Say, for example, a 300k mortgage at 6%

Holden Lewis: Bankrate's mortgage calculator is at http://www.bankrate.com/brm/mortgage-calculator.asp

Holden Lewis: It lets you plug in whatever mortgage term you want -- 30 years, 20 years, 25 years. Each time you plug in a new number, click "Show/Recalculate Amortization Table" and it will give you total interest and principal paid at the end of the term.

fence: I know mortgage brokers generally offer lower rates, but have more fees. Also, some or, lets just say, untrustworthy. Without any good references for brokers, should I just go straight to my credit union for a loan?

Holden Lewis: Me likes credit unions. I like brokers, too. There are some good ones out there. In the absence of a referral to a trustworthy broker, yes, go forth to your credit union. A side benefit is that some credit unions will give you some leeway on mortgage insurance.

Joe_I: I am in the process of refinancing a construction loan (5 yr Int only ARM - 2+ years till reset), when I appled at my CU, the rate was 6.0% w/ NO Orig fee. I purchased a "relock" option that will allow me lock in in a lower rate one time (the 6.0% quoted at applic. time is still in effect). Thanks to the Fed's take-over of Fannie & Freddie, the "current" rate has dropped to 5.75% - Settlement / closing on this refi is tentatively scheduled for 29 September. How long should I hold out until I relock? I know this is "gambling", but my sense is that the Fed will NOT raise rates at its next meeting, but with everything else going on in the financial markets, anticipating an even lower rate seems to be a "crap-shoot" - absolute worst case is that I will close @ 6.00 - so my concern is where will 30 yr fixed conforming rates be at the end of THIS month?

Holden Lewis: If 6 percent is a perfectly acceptable rate for you, why not gamble a little? Decide right now at what level you would lock -- 5 5/8 or 5 1/2 or whatever. Then, if the rate hits that level, hit the lock button.

rate_collector: Yeah but Holden, you couldn't have predicted a government bailout ... if fannie and freddie weren't taken over your prediction of higher rates likely would have held. Give youself more credit!

Holden Lewis: People were telling me that a government bailout was inevitable. I just never asked the important follow-up question: What would happen to rates in such an event?

ableable: Hi, Holden; on the questions about refinancing now or later, you - and the chatters - are missing a key point. While rates are great now, is the property worth what it was when it was purchased or refinanced. Lenders now have rate adjustments based on credit and loan to value that didn't exist a year ago. So, the bigger question is will homeprices stop declining. If you need to refinance, the first question should be, is my house worth enough to refinance it.

Holden Lewis: That's exactly right. This is especially important in cases where people made down payments of 20 or 25 percent, and now the home's value has fallen, so they owe more than 80 percent of what the house is currently worth. There are rate adjustments, also called loan level price adustments, that are unfriendly to borrowers. Plus the possible requirement of mortgage insurance.

Colin: Where do you stand on overpaying your mortgage. Supposedly I could get a better return by investing the extra payment in the stock market. However I don't want to be paying my 30 year 5.5% mortgage when I'm retired. So I overpay enough to make it a 24 year mortgage. Any thoughts? Thanks.

Holden Lewis: Ask an accountant or a financial planner this question. The answer might differ from mine. My answer: If you want to retire without a mortgage, then pay it off in 24 years. I think it's a good plan.

smitty: I going to purchase a house and keep a condo that I own. What are banks going to look for regarding the fact this will be my second mortgage and will be renting my condo?

Holden Lewis: I was reading just yesterday that someone -- I can't remember if it was one lender, or if this was a new edict from Fannie and Freddie -- has decreed that, in a case such as yours, you can't count the condo's rent payments as income when you're trying to qualify for the mortgage on the house.

Holden Lewis: They'll want you to be able to pay for, insure, and maintain both dwellings.

CapeCosts: what is the current spread between 30 year conforming and jumbo mortgages?

Holden Lewis: In Bankrate's weekly survey, conducted yesterday, the 30-year conforming averaged 6.15 percent and the jumbo averaged 7.41 percent. That spread widened from the previous week, when it was 97 basis points.

mary: what are a persons chances of getting a mortgage with a 66% down payment but who is starting a new job after a 6 month layoff? I would like to putup 220,000 on a house, mortage $100,000 and still keep my 2 family which will be paid off in 5 yrs. and is fully rented. I think I have a very good credit score.

Holden Lewis: I'm guessing that the chances are pretty good. This is a case where I would recommend a trusted mortgage broker, instead of going to a bank, because the broker will more likely have relationships with lenders who will do a loan like that.

wanttoown: You mentioned that shopping around wouldn't hurt one's credit scores. It hurt ours and we last looked for a mortgage in 2006 and those inquiries are still on our reports and according to the reporting agencies the inquiries are still hurting our scores. I used lending tree and hometown banks.

Holden Lewis: The inquiries linger on the credit report that long? Dang... The way to minimize the damage is to cluster all the inquiries in a short period, like two or three weeks.

Confused: We need to lock in by the 19th -- are rates headed up or down next week?

Holden Lewis: Over the next week, my guess is they'll remain about the same.

taking_the_plunge: Holden -- my wife and I are looking for loans, and applying jointly. What they don't know, however, is that she is pregnant and will likely take a year off of work very soon. If a lender found out she was pregnant, could they deny us a loan?

Holden Lewis: It's not the pregnancy, it's the plan to probably take a year off from work. That's a material fact that you should probably disclose. You should come to a complete stop at every stop sign, too, and never remove tags from mattresses.

Scott: I want to get out of my Interest Only Mortgage and lock into a 30 Year Fixed. The principal is $420K and I don't think I can afford a fixed rate, unless it's in the low 5% area. I am worried that I won't be able to afford the payment when it adjusts in 2009. What can I do?

Holden Lewis: If you can't afford a fixed rate now, you'll have to wait, and hope rates turn in your favor before the I/O rate adjusts next year. In the meantime, start documenting your income and spending. Start scrimping and saving. Don't buy luxuries. Why? Because if you need to ask for a mortgage modification next year, the lender will ask for several months of pay stubs and bank statements. If you can show that you saw this storm coming, and you did your best to keep current on the mortgage, you're more likely to get a loan modification that will keep you in the house. And maybe rates WILL turn in your favor.

tom_arlington: I already own a home and thinking about purchasing a second home/rental property. Do you think the time is right to buy now ?

Holden Lewis: It depends so much on where you live. If you live in a place where there is a glut of rental housing, don't do it.

Bostondotcom: Chatters, we're at the end of Holden's time ... there were a bunch of questions we couldn't get to. Thanks for all the great questions.

Bostondotcom: And thanks, Holden for taking the time to chat during this busy week in mortgage land.

Holden Lewis: Thanks, Boston!

Holden Lewis: See y'all later!

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