Q & A with Dottie Herman

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Q1 - We just locked in a rate, and now I see that the bank has a lower rate offered. Can we change or alter our rate to the lower one without having to pay?

A - Most banks have a policy that allows you to take advantage of lower rates once you have applied.  There is normally a fee and set parameters as to when and how you can do this.  Inquire with your lender as to their policy and what is available to you.  If you find that your lender will not provide you the opportunity to lower your rate, then consider canceling the application. Even if you forfeit some of the monies spent with them, it may be worth it if starting anew at another bank will provide you with a significantly lower rate.

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Q2 - My wife and I are currently in financial trouble. She recently was let go from her job and we can't afford our mortgage currently. Our home is worth about 250,000 since the decline in home prices, but we owe $350,000 on the home. Can we still sell it before we get into more financial trouble?  

A - You can sell your home but will need the cooperation of your present bank.  When you sell a home for less that the amount owed on the mortgage it is called a short sale.  In today's market banks are sometimes willing to take a loss on the mortgage amount owed in order to not have to foreclose.  The foreclosure process can be expensive for the lender.  Unfortunately, most lenders do prefer you keep paying the existing loan and often will not allow a short sale unless you are behind in your mortgage.  Your first step is to call your lender and inquire as to their policies regarding a short sale. Another option is to consult an attorney who specializes in these types of transactions.

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Q3 - My husband and I have a 5.75% mortgage, 30 year fixed.  We refinanced last May to get 5%. Our monthly payment is currently 2250.80. My bank just gave me the opportunity to refinance to 5% at a 15 year fixed rate. Is this something I should do? I can't decide if it pays for me. I want to pay my mortgage early so I pay more any month that I can.   

A - The answer is most likely YES. I have one comment before we go further; if your loan is under $729,000 I believe the rates currently in the fall of 2010 should be closer to 4%?  So, shop around and make sure this rate is competitive, or maybe it is higher because the bank is not charging closing costs and has built them into the rate.  That said, having a 15 year fixed rate will reduce the interest you will pay by much more than 1/2 compared to a 30 year loan but your payment will about 1/3 more than that of the 30 year loan.  So if you can afford the payment a 15 year loan is the way to go!

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Q4 - I have a few renovations I need to make in my home. How do I decide if I take a renovation loan or refinance my mortgage and take the money out of there? How are these two situations different?
       
A - The answer will depend on the amount of monies you need for the renovation and your current mortgage rate and term.  If your current mortgage is at a rate higher than the current market rates for the same loan, it would make sense to look into a refinance that would include the extra money needed for the renovations.  Doing this will allow you the benefit of lowering your interest rate into a fixed-term payment loan that will also include the renovation so you do not have two payments.  On the other hand, if your mortgage is currently at a very competitive rate it would not justify refinancing due to the closing costs.  In this case, you would look into a second mortgage or home equity loan in the amount required for your renovations.  With these loans you may take a fixed-rate fixed-payment loan over a set period of time, the most common being 15 years. This will give you the stability on payments and protection from rising interest rates. This is the best option if you plan to pay off the loan over a long period of time. Should you plan to pay the loan off in a shorter period of time, say 2-3 years, then you may want to consider an equity line of credit which allows you to pay only the interest per month and add to that as much of the principal as you like. In this case you can pay it off in your own timeframe, adjusting your payments each month to fit your needs. These types of loans generally carry a lower interest rate. 
 

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com

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