I have heard that you need at least a 2% drop in rates to justify a refinance. Is this true?

Not true at all. In fact in many cases a refinance is justifiable with only a .25% - .50% rate reduction. It really comes down to cost versus savings. Loans can be structured in many ways (i.e. with points, with no points, with closing costs, with no closing costs). The rate will vary depending on the type of loan program and interest rate. In some cases, you may be able to lower your rate for absolutely no cost. In this case you save money immediately for literally no cost. This is commonly called a "no cost" refinance. Some confuse "no cost" with a "no out-of-pocket." A true no cost loan is where there is closing costs charged, and nothing added to principal. In affect, the cost of the transaction is built into the interest rate. If this rate is lower than the existing rate, the only real cost is the effort to complete the transaction. Therefore, if there is an interest rate savings for literally no cost, any reduction in rate can make sense. It is best to consider various options to determine what makes the most sense based on the length of time that you expect to hold the mortgage.

Do I really skip a payment by refinancing?

Yes. However you still owe the interest for the month that you miss. You can either pay this interest at closing or roll it into the new loan amount.

I've heard of some people skipping two payments by refinancing. Is this an option?

Yes. Again, the interest would still be due at closing, in this case for two months, however again you can choose to roll the interest into the new loan.

Why would I want to roll interest back into the loan?

For some situations, rolling interest back into the mortgage may not make sense, particularly if one of the objectives is to try and pay off the debt sooner rather than later. However, in other situations, rolling the interest into the note might be a smart financial decision. An example might be someone who carries credit card debt. In this case it would be wiser to use the two missed payments to reduce or eliminate high interest, non-tax deductible credit card debt. It really comes down to what is the best use of the money available.

How about closing costs and escrows. Should I pay these or roll them into the new loan?

Again, it all comes back to the best use of money. Someone who is flush with cash in a savings account earning a low rate of interest might be better served to use the excess cash to pay these settlement charges, rather than borrowing these funds for several years at a higher rate of interest. On the other hand, if liquidity is important, or other high interest debt can be reduced or eliminated, then it might be smarter to finance the charges. Another consideration might be the "loan-to-value." This represents the loan amount divided by the appraised value. If by financing the closing costs, this puts you at a loan to value that might create mortgage insurance, or a higher rate, then it might not be prudent.

How is it that some lenders rates can be so much lower than others?

The rate is only one component of the cost of a mortgage loan. Some lenders advertise below market rates, but don't always explain the costs associated with getting these low rates. Below market rates can always be secured AT A COST. Not all lenders are forthright with these costs, which can amount to thousands of dollars. It is important when shopping lenders to secure a "Good Faith Estimate" of settlement charges. This form provides a detailed breakdown of loan fees and other third party fees associated with the refinance transaction. Just as below market rates can be obtained by paying "discount points" (discount points are additional fees paid to discount the interest rate below market of "PAR." A point is 1% of the loan amount), by accepting an above market rate ("premium rate"), the loan can be structured with no origination fee and in some cases no closing costs. Executive Home Mortgage always provides a detailed Good Faith Estimate BEFORE the loan application. We want to make sure that our customers have a clear understanding of all of the rate/point/closing cost options. Unlike many of our competitors, our closing statements are consistent with our estimates. We want to make sure the closing is smooth and there are NO SURPRISES.

What if I don't want the lender to handle my taxes and insurance?

Some borrowers like having the monthly payment include the taxes and insurance as a "forced savings." Others prefer to pay their own taxes and insurance. Both options are available. "Waiving escrows" (paying your own taxes and insurance) is not for everyone. Generally speaking, the loan-to-value ratio must be 80% or less in order to waive escrows. Also, in some cases there is an additional fee associated with waiving escrows.

What about PMI (Private Mortgage Insurance)? What is it and why should I have to pay it?

PMI or Private Mortgage Insurance is usually required on loan-to-value ratios above 80%. There are several ways to structure a loan without PMI. The most common way is with a split loan structure (i.e. an 80% first lien, and 10% or 15% second lien). Although second lien interest rates are generally higher than first lien rates, this option still might be a better choice than PMI. An Executive Home Mortgage loan officer can evaluate your situation to determine if a no PMI loan is a viable option for the individual situation.

What makes one mortgage company better than another?

Obviously price is important. But it is not the only factor. So many people shop for a mortgage based solely on rate. In some cases the lowest rate might cost thousands of additional dollars in unnecessary closing costs. A good mortgage company is one that not only has competitive rates, but also understands the intricacies of the various products and options, and can make appropriate recommendations and suggestions based on the borrower's unique circumstances, financial situation, goals, and objectives. Executive Home Mortgage is staffed with experienced loan officers. Our seasoned staff of loan officers coupled with our access to wholesale mortgage products from around the country allow us to provide unparraled service at the most competitive rates available in the marketplace. You won't get a bait and switch with EHM. You will get honest, straightforward information, efficient service, at competitive rates. Since 1991, we have been making customers smile at closing. This is why over 75% of our business is repeat business or referrals from past clients.

What about home equity loans? Can I get cash back at closing?

Home equity loans are available. In the state of Texas, the laws for home equity loans are different than purchase money or "no-cash out" refinance transactions. The loan to value (for an owner occupied transaction in Texas) is limited to 80%, and generally the rates are a higher. Also, there are other important considerations in securing a home equity loan. Talk to an EHM loan officer for all of the details if you are considering a home equity loan. It is important that you understand all of the facts before entering into this type of transaction.

When is the right time to refinance?

The best time to refinance really varies with every situation. A "breakeven" analysis is important to determine the pay back of the upfront closing costs relative to the monthly savings. Once you know the breakeven point, then it is a matter of comparing that to how long you expect to be in the home. Sometimes the answer is clear, other time it is less clear. Let us help you evaluate the breakeven and whether the timing makes sense or not. If it doesn't, we will be the first one to tell you. Many of our referrals have come from individuals we didn't do business with.