Is your ARM set to adjust? Here are your options.

By Sabrina Karl

If your home is financed with an adjustable rate mortgage, or ARM, you’ll eventually be faced with a decision. That’s because ARMs have a fixed rate only for an initial period of 3, 5, 7 or 10 years. After that, your lender will start adjusting your rate every year.

If your timing is lucky, you could see a downward rate adjustment. But often, you’ll find yourself looking at higher monthly payments for the next year.

Once in the adjustment period, your lender will recalibrate your rate every 12 months, and you have three main options on how to respond. You can do nothing and accept the new rate. You can refinance into a new ARM, starting over with a new fixed-rate period. Or you can eschew adjustments by refinancing into a fixed-rate mortgage.

Your best choice will depend on a number of factors. Certainly, if your adjustment will lower your payment, you’ll want to do nothing and enjoy your good fortune. But that scenario isn’t especially likely for those with ARMs currently moving into adjustment, as rates have inched upwards over the last 5-6 years.

If your rate will go up significantly, refinancing can be a smart option, with ARMs making good sense if you expect to move in the next handful of years, and fixed-rate mortgages being better if you plan to stay for many years.

Another consideration is the cost to refinance. Though moving out of one ARM into another with a lower rate can be attractive, the gains must be weighed against the refinancing expenses you’ll incur. Keeping your current ARM could turn out to be more economical.

Of course, if you don’t refinance, this decision will come upon you again in a year, when your next rate change is announced. And all of the same considerations will apply.

Buying a home? Here’s what to expect at the closing.

By Sabrina Karl

For most homebuyers, the process of house hunting, arranging financing, finding the right home, and making it through an offer and inspection is a months-long process. So it’s fitting to call the day it all finally concludes “the closing”.

In short, the closing is when ownership and money are legally transferred, providing the seller with funds for the sale and the buyer with a deed in their name and keys in their hand.

Depending on the state and the parties involved, the location and number of people around the table can vary. Sometimes both seller and buyer participate at the same time, while other times the two parties’ closings are handled separately.

In either case, others attending the closing might include the real estate agent(s) and representatives of the title insurance company, the lender, the escrow company, and any representing attorneys.

Generally this happens in person at the offices of the title company, the lender, or an attorney. But some companies have begun allowing electronic signatures, executed either ahead of time or on the day of closing.

The most prevalent activity at closing is reviewing and signing documents, with you penning your John Hancock at least a dozen times, and likely twice that. These signatures execute three categories of transactions: transferring the real estate into your name, finalizing your home loan, and executing title insurance.

As homebuyer you’ll also need to bring a check (usually certified or cashier’s) to cover any down payment, closing costs, or other agreed upon contributions to close the deal, unless arrangements were made to pre-wire these funds.

Ask your agent or lender in advance for a checklist of what to bring and what to expect, as it’s the smartest way to help you navigate this big day with as little stress as possible.

When it makes sense to refinance to a shorter mortgage

By Sabrina Karl

It’s not uncommon for a homeowner’s financial situation to change in the years after taking out their mortgage. And if that change is positive – because income has risen, expenses have dropped, or a windfall has been received – it can make sense to shorten the time that mortgage payments need to be made.

Refinancing can be a good way to do this, but it’s not for everyone and isn’t smart at all times. It depends on rates and on how many years are left in your current mortgage.

Although rates for shorter terms almost always run lower than 30-year fixed rates, whether it’s a good move for you depends on your original rate. You may find that today’s best 15-year rate is higher than your 30-year rate from a decade ago.

But rates are only part of the equation. How much time is left in your current term, and how long you expect to stay in your house, also bear considering. With just 5-10 years left on your mortgage, the only refinance likely to make sense is a 5-year adjustable rate mortgage. But if you have more than 20 years to go, refinancing to 10 or 15 years might pay off.

Knowing you’ll be staying in your home for the full term you’re considering is also useful. If it’s likely you’ll sell in the ensuing years, it’s probably financially smarter to avoid refinancing costs and, if you have funds available, make extra payments on your existing loan.

In all cases, of course, shortening your mortgage duration will increase your payment. While choosing a 15-year mortgage instead of one at 30 years won’t double your payment, your monthly obligation could be quite a bit more than what you’re used to. So consider carefully what level of payment feels comfortable to you.

What is a jumbo mortgage?

By Sabrina Karl

 In the world of mortgage jargon, it’s refreshing to see a term that tells it like it is. A jumbo mortgage is, quite simply, a very large mortgage. And if the home you’re buying is expensive or in a high-cost area, you’ll likely need one, so let’s look at how they differ from standard mortgages.

Jumbo loans are also called non-conforming loans because they don’t conform to Fannie Mae and Freddie Mac’s limits for purchasing mortgages. In most of the U.S., the 2018 threshold for conforming loan amounts is $453,100. But in high-cost housing markets — largely in the Northeast, along the West Coast, and in Hawaii — the limit before hitting jumbo territory rises to $679,650, or even higher.

If you’ll need a jumbo mortgage, a few extra things might be required of you beyond qualifying for a conforming loan. For one, you may need a slightly higher credit score, as many jumbo lenders require scores of at least 700.

Your down payment requirement may also increase. Though some conventional mortgages allow down payments as low as 3 percent, a jumbo mortgage will likely require at least 10 percent, and maybe as much as 15 or 20 percent.

Jumbo lenders will generally also require that you show more cash in reserve than a conforming mortgage would require. Needing to demonstrate reserves of 12 months’ mortgage payments is not uncommon for jumbo loans.

As for costs, jumbo mortgages used to charge higher rates than conforming loans. But today, they may be more, less or about the same. They may, however, cost more for processing given their increased paperwork. And some lenders will require a second appraisal be conducted.

Though you won’t have a choice if the house you’re buying requires a jumbo mortgage, you’re wise to know the differences going in.

How can I stop paying private mortgage insurance?

By Sabrina Karl

If you took out your current mortgage with less than a 20 percent down payment, you’re almost certainly paying for private mortgage insurance (PMI) every month. While PMI serves a welcome purpose for those who otherwise wouldn’t be able to buy a home, it’s an added expense that’s best dropped as soon as possible.

In essence, PMI is an extra fee homebuyers pay to make the lender willing to extend a mortgage when the down payment is small. If the homeowner defaults, private mortgage insurance covers most of the bank’s loss.

For any new or refinanced mortgage of more than 80 percent of the home’s appraised value, PMI is calculated during the closing process and generally broken into monthly amounts that are tacked onto the monthly mortgage payment. So when PMI can be eliminated, the monthly payment drops.

For conventional mortgages, the Consumer Financial Protection Bureau allows homeowners to request PMI elimination once their mortgage balance falls to 80 percent of the home’s value. This can occur over the course of normal mortgage payments, or more quickly if the homeowner makes extra payments. It can also occur if the value of the home has risen substantially due to market conditions or significant improvements made by the homeowner.

In order to cancel PMI at the 80 percent threshold, homeowners must make the request in writing, be current on their payments, and have a good payment history. They may also be required to prove there are no additional liens on the property, or to pay for a new appraisal.

There is one additional way to eliminate PMI, and that’s to simply wait until the mortgage falls to 78 percent of the home’s original value. At that threshold, lenders must automatically cancel PMI, though only if the mortgage is current on its payments.