Happy Mothers Day!

 

Happy Mothers Day! Enjoy your special day!

Work and Associates Home Loans

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

margeate@workhomeloans.com

NMLS ID 394275 | DRE ID 01769353

So You're Ready To Buy A House? (Now What?)

 

Downsides of Home Equity Lines of Credit

• The rate is adjustable and tied to prime
• It can go up significantly during periods of inflation
• Rate adjustments can be frequent relative to other ARMs (multiple times per year)
• Higher interest rate caps

There are a number of reasons to steer clear of HELOCs. The main reason being that it’s an adjustable-rate mortgage.

Whenever the Fed moves the prime rate, the rate on your HELOC will change.

Usually it’s only .25% at a time, but the Fed raised the prime rate about 20 times in a row since 2004, pushing the rate from 4% to 8.25%, before it began to move the other way.

Then recently raised rates 11 times from early 2022 to mid-2023, pushing prime up more than five percentage points in the process.

So your interest rate can fluctuate greatly, even if the Fed moves prime in so-called “measured” amounts.

HELOCs generally adjust either monthly or quarterly, depending on the terms specified by the lender.

Check your paperwork so you know what to expect after the Fed makes a move.

Also note that HELOCs don’t have periodic interest rate caps like standard adjustable-rate mortgages, just lifetime caps, so the rate can fluctuate as much as the Fed allows it to, up to 18% in California (it varies by state).

Term of a Home Equity Line of Credit

• Typically begins with a 5-10 year draw period
• Where you can make interest-only payments each month
• Followed by a 10-20 year repayment period
• Where you must pay back principal and interest to satisfy the loan

A HELOC normally has a 25-year term, with a draw period and a repayment period. The draw is typically the first 5 to 10 years, followed by the repayment period of 10 to 20 years.

But it can vary, with some HELOCs offering longer draw and repayment periods to lessen the payment burden. And some shorter draw periods between 3-5 years.

During the draw period, the homeowner can borrow as much as they’d like within the line amount, and can make interest-only payments on the amount drawn upon.

There is usually a minimum payment, just like a credit card.

After the draw period, the borrower must pay off the principal of the HELOC, along with the interest. This period is known as the repayment period.

Typically the loan balance is broken down into monthly payments, but there could also be a balloon payment because of the way the loan amortizes.

Also note that some HELOCs don’t have a repayment period, so full payment is simply due at the end of the draw period. Source

Adjustable-Rate vs. Fixed-Rate Mortgage: Which Should You Choose?

In today’s high-rate environment, borrowers are looking to land the lowest possible home loan rate. While most choose fixed-rate mortgages, many consider adjustable-rate mortgages (ARMs) too, which typically offer lower interest rates for an initial period. These days, ARMs are the most popular they’ve been since 2022, accounting for about 10% of all mortgage applications, according to the Mortgage Bankers Association. Which is better for your situation: a fixed-rate or adjustable-rate mortgage?

What is an adjustable-rate mortgage (ARM)?

An adjustable-rate mortgage, just like it sounds, has a mortgage interest rate that adjusts — or fluctuates across its loan term.

Most ARMs today are known as “hybrid ARM” loans because they have a fixed interest rate for an initial amount of time, followed by adjustment periods — when the interest rate can go either up or down. The initial fixed rate on an ARM is typically lower than what you would pay with a fixed-rate loan.

Some common ARM terms lock in your rate for five, seven, or 10 years and then adjust it annually after the fixed period. Those are often called 5/1, 7/1, or 10/1 mortgages. Other ARM terms are available, such as a 7/6 ARM, which indicates you’d have a fixed rate for seven years and then the interest rate would adjust every six months.

Most ARMs include caps, or limits on how much your interest rate can increase or decrease during the adjustable period. Usually, there will be an initial cap on how much your mortgage can change at the first adjustment, a periodic cap that restricts how much your rate can change at each subsequent adjustment, and a lifetime cap that limits how much your interest rate can change during your entire loan term.

For example, if your rate during the introductory period is 6% and you have a 2/1/5 cap, your rate could only go as high as 8% or as low as 4% at the initial adjustment. Each subsequent adjustment could only change your rate by a maximum of 1%, and overall, your rate could only change by 5% over the loan's lifetime, so your maximum possible interest rate would be 11%.

The exact interest rate fluctuations an ARM will see depend on the margin the lender has assigned to the loan and the benchmark index rate the loan is tied to. These should be detailed in your loan documents.

For example, a benchmark could be an index such as the Secured Overnight Financing Rate (SOFR), and your margin could be 2% — meaning your rate would be two percentage points above the SOFR rate.

Most ARMs are based on a 30-year loan term. Some mortgage lenders offer a 15-year ARM — it’s just rarer.

What is a fixed-rate mortgage?

A fixed-rate mortgage is less complicated than an ARM and, therefore, easier to fit into a financial plan. Unlike an ARM, a fixed-rate mortgage has the same interest rate for the life of the loan. That means your mortgage principal and interest payments stay the same until you either refinance your loan, sell the house, or pay the balance in full. The most common fixed-rate mortgage terms are 15 and 30 years, but some lenders offer 10- and 20-year loans or individualized loan terms.

A quick note: With both fixed- and adjustable-rate mortgages, your monthly payment can change if your escrow costs (which cover property taxes and home insurance premiums) or your mortgage insurance costs change. This has nothing to do with what type of interest rate or loan you have, though.

The biggest advantage of an ARM is that it offers a lower initial interest rate and monthly payment than a fixed-rate loan typically does. And if mortgage rates decline later, you could see your rate and payment fall.

On the downside, ARM rates and payments are uncertain, and you could find yourself with a higher rate and payment down the line. Because of this, ARMs can be hard to budget for and put you at a greater risk of foreclosure (because you might have trouble making payments).

Fixed-rate mortgage loans have the advantage of stable rates and payments, which makes long-term budgeting simpler. However, the disadvantage is that interest rates are higher for fixed-rate loans at the outset, and if mortgage rates decline, you would need to refinance the mortgage to take advantage of those lower rates. Source

5 Mortgage Tips to Help You Prepare for a Loan

It's no surprise that getting a home loan takes some time and effort and if you haven’t gone through it before, it may feel overwhelming. After all, this could be one of the largest purchases in your lifetime. The good news is that there are a few things you can do to feel more confident in starting the home buying process.

1.) Check your credit report

Even if you haven't missed a payment, it's important to review your credit report for accuracy. Mistakes can happen and things may show up on your report that must be fixed. Credit is part of the mortgage loan criteria, so your report may affect the interest rate and loan terms a lender will offer you. 

2.) Set your baseline

Before you find out how much a lender will lend you, decide what is a smart amount to borrow based on your finances and goals. If you follow the 50/30/20 budgeting framework, you'll divide your take-home pay between Needs (50%), Wants (30%), and Savings (20%). Your mortgage payment will fit within the 50%, but this also includes all other necessities: groceries, transportation, utilities, insurance, etc. Use our affordability calculator to determine your baseline and see if that fits within the 50/30/20 guidelines. This boundary will help you avoid purchasing more home than you can afford.

3.) Prepare your documents

Let’s face it, there’s a lot of information a lender will need in order to review your loan application. It can be frustrating to continue hunting for documents and slowing down the review process. Try to pull together as much information as possible early on to keep things moving forward. 

4.) Take it one step further...

Consider other situations in your life that may cause your lender to ask for additional documentation. For example, if you have been divorced, your lender may ask for a divorce decree. Here are a few situations that may require additional documentation:

• If you're self-employed
• If you or a co-borrower is active-duty military or a veteran
• If you earn a significant portion of your income from investments

5.) Get pre-approved

Getting a pre-approval letter jump starts the mortgage process because a lender can review your credit history and determine how much you qualify to borrow. Additionally, your lender can identify potential problem areas that disrupt the process, like a mistake on your credit report. It can seem counterintuitive to secure pre-approval before you have found a house, but it streamlines the process since you know what you can afford and you already have a lender working on your side.

Source

Your Resource - Even When It's Not a Loan

One thing I always want my clients and partners to remember:

 You don’t have to be in the middle of a transaction to reach out.

Whether you have a question about:

Real estate decisions

Financial strategy

Market timing

Or just need a second opinion

I’m here as a resource.

If I don’t have the answer, I’ll connect you with someone who does.

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

NMLS ID 394275 | DRE ID 01769353

Smart Cash-Out Strategies

Refinances are becoming a big conversation again, and not just for rate chasing.

Right now, a lot of homeowners are feeling tight on cash. At the same time, we’re seeing lower appraised values, which can make traditional cash-out refinances harder to structure.

The good news: there are still ways to make it work strategically.

Instead of focusing only on pulling out the maximum cash, we’re helping clients:

• Consolidate high-interest debt

• Lower overall monthly obligations

• Structure loans to keep rates as low as possible

• Use equity more efficiently, even with conservative values

In today’s market, it’s less about “how much cash can I get?” and more about

“How can I improve my monthly financial picture?”

That’s where the right loan structure makes all the difference.

Work and Associates Home Loans,

1350 Old Bayshore Hwy Ste. 520, Burlingame, California, 94010

916-847-3090