New “High Balance” loan limit rules go into effect on October 1st

Anyone known of someone in need of financing a mortgage loan above the $417,000 conforming loan size? Many unfortunately have been sitting on the fence, not acting on the current increased temporary conforming loan limits, better known as “High Balance” loans, this affects the maximum loan sizes for FHA and Conventional loans.  The maximum loan size will be reduced as of October 1^st (all existing loans must close by 9/30).  For those who had “jumbo financing” (loans above $417,000) with above market interest rates, the ability to obtain a “High Balance” loan can mean the difference between a homeowner saving hundreds of dollars on their mortgage payment every month. There is a huge need for this type of loan that affects many areas in the Northeast.

Since the beginning of the housing market fallout in late 2007, consumer loans above the standard $417,000 maximum loan size have had quite a challenge obtaining financing. The market for any jumbo loans essentially dried up or was so restrictive that no one could obtain financing. This phenomenon contributed to the further plunge in housing prices and more foreclosures for people in all markets. When Congress passed temporary high balance limits in 2008 for certain high priced counties…….which include several highly populated areas in Maryland, to have a maximum conforming loan size loan up to $729,750. The change provided much needed relief for prospective and current homeowners in designated high cost areas around the country.  The mortgage market was certainly helped, certainly not saved, by the ability to provide financing options to those applicable borrowers. Unfortunately, today many politicians and political pundits are calling for government to “get out of the housing sector,” the Government has heeded the call and allowed for this change to go into effect.  With many high priced markets still facing a glut of excess inventory, these changes are expected to add to the difficulties in housing and an already fragile economy.

For a typical purchase or refinance, most banks are requiring high balance loans to be submitted by August 20^th in order for them to get processed and closed by the end of September. Those missing the deadline will be faced with the new high balance loan limits. In Howard County alone the limit is being reduced $65,500 to $494,500. Don’t be one to sit and delay, those missing out may not qualify or be forced to bring a lot of extra money to qualify for a loan.  Many may think Congress will eventually step in and extend the limits. In today’s divided Congress and fears of further “tax payer liability”, I personally wouldn’t be one to count on it. To find out how the changes affect you and your plans, email us to receive more information.

Paying off your loan early makes sense in today’s housing market

The most recent stock market meltdown saw the investment earnings of many Americans decline rapidly since the 2008/2009 stock market crash. Since that time, Americans have also been inundated with a mortgage meltdown, a real estate implosion, and the loss of millions of jobs...many expected never to return. The last three years have changed our buying habits, how we look at debt, and especially how we view retirement. The depression-era belief was that you bought your home and paid it off – owning your home free and clear by the time you retire. Many today (usually financial advisors or investment people) preach the idea of using other people’s money….”the bank” in the form of a mortgage…… in an effort to make greater returns in the stock markets.  Sounds great, right? Except when economists and financial people refer to the last decade in the stock market as the “lost decade” where the markets returned nothing? Or in the last half of 2008 and into 2009 when the markets on average lost 50% of its market value?  Unfortunately, there are just no guaranteed investments anymore…..except when you look to pay your home mortgage loan early.  Taking such an option is a 1^st step to planning for retirement.

Today, homeowners can get near record low mortgage rates. Even if they refinanced a few years ago, the market is quite favorable to reduce the mortgage term to a 10, 15, 20, or even 25 year term. Such an option can save thousands of dollars in compounded interest payments over the life of the loan. When a homeowner pays any additional money per month to principle through a refinance of an old loan to a lower interest rate will save simple interest. However, the compounding effects allow a homeowner to pay their loans early, often saving tens, if not hundreds of thousands of dollars in mortgage payments.

What happens if you are not eligible for refinancing or cannot afford the new payments? Simply paying extra automatically through a direct payment allows homeowners to pay as little as $25 extra per month. Such an extra payment would save over 2 years of mortgage payments on a $150,000 loan over a 30 year term. Others still may want to take paying off their homes earlier through a bi-weekly payment program. Such options allow homeowners to pay their mortgage automatically ever two weeks or 26 times per year, the equivalent of a 13^th mortgage payment every year. Using the same example above, a homeowner would save over 3.5 years. Such an option works quite well….but comes with a catch, since transactions are usually orchestrated with the help of a 3^rd party company, most banks charge an upfront fee ranging anywhere from $295-$595 plus a per transaction fee from every payment. This often can make such an option not worthwhile.

Is refinancing worth the time and effort? Or should I just opt to pay a little more per month?  Determining what is best for each individual is a personal decision that does not fit everyone the same. However eliminating the mortgage payment, usually a family’s largest expense is a key step toward successfully retiring with additional cash flow.  Best of all….as long as the mortgage payments are made consistently and on-time, there is no risk of unstable markets, stock market declines or housing crashes.  Regardless of the decision you decide to pursue, make sure to speak with a qualified, licensed, and experienced mortgage consultant to best analyze your options.