Response to the New Rules

There has been a little confusion in regards to one of the responses about the upcoming rule changes because banks are discussing the savings one will have because of the shorter amortization period. (30 vs. 35 years).  But how is that possible?  Simply put, if you buy a house and amortize it over 30 vs. 35 years, naturally you are going to save interest because it takes 5 years less to pay for the house.  Don't be so concerned with the amount of weekly/biweekly/monthy payments, but with the concept of less interest.  Paying for a shorter period of time is just better.  A broker can always figure out your savings for you at the time of purchase.

The other change involving refinancing your current mortgage has also caused a lot of confusion.  It is better to return to the fundamentals of refinancing to explain.  Using the new change, here is an example:

A home worth 200K has a current mortgage balance of 120K.  According to the new rules, you can refinance up to 85% of the 200K, which is 170K.  Thus, you would have roughly 50K in equity.  When considering a refinance, you need to use your current mortgage balance and multiply the current value by 85% to see if you can refinance.  Please note, if you are trying to get out of the mortgage early you must remember there is a penalty and that will use up some of your equity.

Don’t forget the changes are taking place March 18^th, 2011, and that we are here to help expedite the process if you need us: 519-426-9842.