Sunday, June 14, 2009

Should I Refinance ?

There are a lot of reasons to refinance your jumbo mortgage. While there may be some circumstances where refinancing would not be a wise decision, there are a many benefits which can be gained from refinancing out of an unfavorable situation. Some the benefits could include lowering your monthly payment, consolidating your debt or to utilizing the existing equity in their home. Homeowners who are thinking about refinancing ought to consider each of these options as it relates to their current financial situation to determine whether or not refinancing their jumbo mortgage makes sense.

Lower Your Monthly Payments

For almost every homeowner the prospect of a lower monthly payment is a very strong reason to refinance. Many homeowners find themselves living paycheck to paycheck and the thought of finding an opportunity to bolster their savings and have some investment capital could be a dream come true. Most homeowners that negotiate lower interest rates when they re-finance their jumbo loan will most likely see a lower monthly mortgage payments resulting from the refinance.

Every month homeowners make a mortgage payment. These payments usually are used to pay the interest and a portion of the principle on the mortgage. Homeowners who can refinance their jumbo loan to a lower interest rate can see a decrease in the total they're paying in both interest and principle. This is the result of a better interest rate in addition to a smaller balance. When a jumbo mortgage is re-financed, a second loan is secured to pay off the first jumbo. If the existing jumbo was already a couple of years old, it's probably safe to say the homeowner built up some equity in addition to paying off some of the previous balance. This allows the homeowner to take out a smaller loan when they re-finance their jumbo because they're paying back a smaller debt than when they purchased the property.

Consolidating Your Debt

Some homeowners are looking to refinancing their jumbo mortgage in order to consolidate high interest debt. This is particularly true for homeowners who have credit card debts. Debt consolidation loans allow the homeowner to use their existing equity in their home as collateral in order to get a low interest loan which is big enough to pay off their existing jumbo loan in addition to other debts like high interest credit card debt, car loans, s or any other debts the homeowner could have.

When considering refinancing a jumbo mortgage for debt consolidation purposes, realize you may not see an overall increase in savings. Homeowners that are consolidate their debts are more times than not struggling with making their monthly payments and are looking for an option which makes managing their monthly payments affordable.

In addition, debt consolidation can also make paying you bills easier as you only need to make one monthly payment as opposed to several. Even if the there is no worry about meeting your monthly obligations just the simple act of writing all those checks month in and month out and the time and effort required to do the same can be overwhelming for some people. For this reason, a lot of homeowners will refinance their jumbo mortgage just to simplify their life.

Using the Existing Equity in Your Home

Another valid purpose for refinancing you jumbo mortgage is to gain access to you equity in the home. Homeowners that have a lot of equity in their property might find they're able to take some cash out of the new jumbo loan for other purposes. This might include doing some home improvements, taking that vacation you always dreamed about, starting a business and being your own boss, or continuing your education. There is no limit on how or what you could use the equity in your home for home when you refinance your jumbo mortgage it could be used for any purpose you can imagine.

Regardless of the reason for refinancing your jumbo mortgage, now is the time to act. The lending environment is very unstable today and investigating your options when it comes to refinancing your jumbo is probably a wise decision.

Monday, June 8, 2009

No Doc Jumbo Loan

Today I just found myself reminiscing about the rock and roll mortgage days when no doc jumbo (reduced documentation) loans actually existed.  You know that  loan that only required the borrower to basically put his or her social security number on the 1003 form and sign their John Hancock.  Yep, it was that easy!  No bothersome questions like; how much do you make! Doesn’t matter at all because it’s a no doc jumbo.  What are your debts?  No need to list that on the 1003; it’s a no doc Jumbo loan.  

Sure, the credit report is going to list your obligations, but the only thing an underwriter is going to look at on a no doc jumbo is the score.  As a matter of fact, the only thing the underwriter was going to look for on entire application is the social security number and the signature.  That’s it.  This isn’t even a lie to me loan, this is a I don’t want to know anything about you loan.

  Looking back, it almost seems surreal, but believe it or not, there was a legitimate need and purpose for no doc jumbo loans  and  no doc loans in general. 

Think about how the economy has changed in the last 20 years, when the no doc jumbo first appeared.  

Americans were no longer working for a company where they would spend their entire lives or getting regular paychecks every Friday and putting in their 30 years then retiring.  No, Americans were changing jobs and  doing  jobs that didn't even exist 5 years earlier.  They were starting small businesses and availing themselves of sophisticated tax solutions. If someone were to look at their tax return, it would show an income of next to nothing.  Instead of wasting Mr. Bankers time applying for a $500,000.00 loan where his response might be "what are you doing here  you should be at the welfare office applying for food stamps and housing assistance". Everyone knew what was actually happening.  

These were good, credit worthy borrowers who took care of their personal business and that was reflected by their credit scores.  There was plenty of equity in the homes they were seeking to encumber as the loan to value (LTV) ratios at inception didn’t exceed 80%. This was simply a mortgage product that was devised to fill a need that was created by the modern economy.

Problems began to emerge when lenders stretched the no doc jumbo to fit the unqualified borrower that was sitting across from them.  While they had good credit, their debt to income ratios wouldn’t support the loan.  But, the numbers were only off by a smidge.  If the borrower just didn’t eat out as much, the numbers would work.  But why worry about getting the borrower to take the steps?  Let’s just do a no doc jumbo, and that’s how it all started.  Soon, hotel maids with a yearly income of $50, 000.00 were taking out $250,000.00 no doc jumbo refi loans and on $350,000.00 houses they bought a couple years earlier for $100,000.00.

I’m not trying to pass judgment on the mortgage industry or speculators or just homeowners that got caught in the fiction of the free lunch real estate boom.  What I am doing is mourning the passing of the no doc jumbo.  There is still a legitimate demand for this product and those who can afford and utilize them. Unfortunately they are getting harder and harder to get. I sure wish the no doc jumbo was here today.