Don’t wait.

Until the end of the year, rates will be far lower for those with mortgages of $417,000 to $729,000 in most of coastal California. This is because these loans temorarily fall into a special category between conforming loans (the least expensive rates) and jumbo loans (the most expensive rates).

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Are you guilty of thinking like this when it comes to a future refinance?  Mortgage RATES are something I can wrap my arms around. Mortgage RATES are numbers I understand. Mortgage RATES are why have decided to refinance. Therefore, I have decided I will adopt the following mantra:

I will WAIT for the RATE to go down. “Call me when it drops to 5.25%, see ya!”   

But there is a silent killer lurking in the background with the ability to blow your refinance to smithereens. It doesn’t attack the rate, so you never see it coming. It attacks liquidity, security, and your ability to survive.

While you were watching the rate, everything else was left exposed and vulnerable.

Month by month, your house became worth a little less as bank owned properties bled the economy and played havoc with property values here in California. You read about it in the newspaper, but figured it could never happen to you.

 While you were watching RATES, your equity disappeared.

What does this have to do with a refinance? Everything. You need equity to refinance.  If you lose enough equity that the appraised price is close to, or equal to the amount you owe, you just shot yourself in the foot. 

Please note the word “appraised value”  which is different from “your  opinion” of the price or “potential selling price”. Banks do not care about the last two opinions, and are running more than a little scared when it comes to making loans these days. They are equity hungry.

The less equity you have, the more difficult it will be to refinance. Your are probably losing ground as you read this. At lease losing VALUE in your ground.

Strategy: If you NEED to refinance for ANY reason, timing is everything, and the time is NOW. Do not wait for rates to go lower. If property values continue to slide here in California, you could end up without the ability to refinance,  without the ability to extract cash that you need, or without the security of a fixed rate mortgage. 

 Forget timing the rate and start timing the equity. I don’t know about you, but if I’m going to owe more to the bank than my house is worth, I would rather be sitting safely in a 30 year fixed rate with some cash in the bank. This trumps a rate that is .25% lower ANY DAY.

Written by Janet Guilbault, California Mortgage Expert Based Out of the San Francisco Bay Area.

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In response to the discussion about Realtors being “encouraged” to use their affiliated lender, I would ask this:

What do you think happens in the Toyota dealership when you are ushered over to the finance department and walk out with a Toyota Motor Credit loan or lease?

That’s right, you have just been referred to the “affiliated lender”.

Does it work to add profit to the dealership?

Of course…especially since you are in an altered state of mind from being under the influence of new car smell.

Is it the best thing for the consumer?

Not by a long shot.

“Buy here, finance here”. That’s what they call it in the auto business (where I spent 20 years of my career). Please, let’s not pretend that the reason real estate companies “encourage” their Realtors to use their in house lender is for the sake of “mortgage broker quality control”. It is another profit center, plain and simple, just like in the Toyota dealership. The more the Realtors use the in house lender, the more money the real estate company makes. (more…)

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