I’m getting ready for a short vacation (taking the rest of the week off) so that I can be ready for 2009! I was trying to work on an example of what I provide clients to post for you which does factor in amortization, additional principal payments, etc…but I’m running out of time!

Happy New Year.

I’m not trying to qualify my clients for anything actually. I’m listening to what their needs or wants are and seeing if I can help them with that.

They want lower payment–the buydown might only provide that temporarily.

Even with a buydown, Freddie Mac will allow the borrowers to qualify at a lower rate with 2-1 buydown (which is expensive BTW)…I don’t believe Fannie Mae will allow this at this time.

I think they’re better off retaining their existing mortgage and not refinancing at this time. They have about 4.5 years to find another job with the fixed period remaining on their ARM that provides them a much lower payment than a 30 year fixed current offers (even if it’s bought down).

Plus, the other factor is that their mortgage is above $417k and they’re willing to use a significant amount of money to put towards their equity to get the loan amount at $417k. I’d rather see folks keep their cash in this climate and not put it towards equity as it’s challenging to extract to cash out of your home once you put it in (with today’s guidelines)…not to mention expensive by having refinance cost (if paid out of pocket or finance by rate).

They have 2 young kids and the buydown would provide increased payments over the following 2 years with a higher payment for the remaining term (unless the refi). The mortgage they currently have as interest only 5.5% equals a 30 year fixed rate of 3.5%. With just under 5 years left on the fixed period term (I’m not their original LO btw) and two young kids, it’s also possible that they may be moving before their rate adjust…at least you can’t rule it out. But all of this type of stuff is what I (and fellow mortgage professionals) converse with our clients about to get them thinking about their mortgage as more than a monthly payment.

Believe it or not, I’d rather set folks up with a mortgage where they don’t have to refinance with me… unless we have an unusal low rate environment.

This family does want to move to a fixed rate mortgage and to lower their payments. With an interest only ARM of 5.5%, based on their current balance, they would need a fixed rate of less than 3.5% in the “high balance” conforming market…which is not likely to happen. In this economy, I also feel it’s wiser to be more liquid than to plunk your cash towards equity since it’s more challenging (and costly) to get your cash out of your home after you put it in.

What would your calculator say?

We do have a calculator that addresses this issue. It is calculator 3e on our menu. The URL is:
http://www.decisionaide.com/MPCalculators/RefiARMToFRM/RefiARMToFRM.asp
I am assuming the people in your scenario above want to move into a fixed rate mortgage.
Not only do we have calculators that address many of the issues to which your clients may need answers, we also have links to the wonderful articles written by The Mortgage Professor. Our site attempts to be an educational resource that provides both the information and the tools you need to answer many of your mortgage questions. I have been writing financial applications for the past 34 years. In addition to the over 50 calculators running on http://www.decisionaide.com I created 15 of the calculators running on the MSN Money website.

Let me ask you this, do you have a calculator/formula that can solve this scenario:

A married couple with young children who have an interest only ARM that is fixed for 4.5 more years at 5.5% and one spouse has received a lay-off notice. The loan amount is currently $80k over conforming but they’re willing to dip into their savings to obtain a conforming loan.