Help Deciding on a Mortgage / Having my Loan Sold
October 27, 2005 8:11 AM Subscribe
MortgageFilter: I just purchased a unit in a 4-story, new construction, condo complex. My fiancee and I plan to be there between 3-5 years, so I'm interested in a 5/1, 7/1, or 10/1, just to be safe. 30-year fixed is okay too, but the chances of us staying there beyond 5 years is very unlikely.
[MI]
I've been quoted 5.875% on a 10/1 with 1/2 point from Wells. Suntrust has quoted me 5.75% with 1/2 point, or 5.875% with 0 points. I'm still looking at other banks, and in doing so, I want to know the repercussions of having my loan sold.
So, can someone help recommend what to do about my mortgage (for those of you who are much more experienced than this first-time home buyer), and two, what happens when my loan is sold.
Thank you!
I've been quoted 5.875% on a 10/1 with 1/2 point from Wells. Suntrust has quoted me 5.75% with 1/2 point, or 5.875% with 0 points. I'm still looking at other banks, and in doing so, I want to know the repercussions of having my loan sold.
So, can someone help recommend what to do about my mortgage (for those of you who are much more experienced than this first-time home buyer), and two, what happens when my loan is sold.
Thank you!
You haven't talked about what other costs are associated with each loan (e.g., appraisal fees, application fees, etc.) You really need to look at this to determine which loan is a better deal. If all other costs are the same right now it looks like Suntrust is giving you a better deal (they're both quoting you 10/1 ARMs, right?)
Almost all home loans get sold. It should have no impact on you as the buyer is still subject the terms of the note. You'll get a letter when your loan is sold.
If your servicing is sold (the entity owning the loan isn't necessarily the one who handles your payments) you'll get letters telling you to where you should start sending your payments after the transfer date, as well as new customer service contact numbers, etc. If you are making T&I escrow payments on the loan, these payments might change sooner than you'd planned if the new servicer does an escrow analysis right away. Be sure to make sure your loan doesn't fall between the cracks if the servicing is transferred -- call the new servicer and make sure they're getting your payments after you send the first one to the new address.
posted by Opposite George at 8:45 AM on October 27, 2005
Almost all home loans get sold. It should have no impact on you as the buyer is still subject the terms of the note. You'll get a letter when your loan is sold.
If your servicing is sold (the entity owning the loan isn't necessarily the one who handles your payments) you'll get letters telling you to where you should start sending your payments after the transfer date, as well as new customer service contact numbers, etc. If you are making T&I escrow payments on the loan, these payments might change sooner than you'd planned if the new servicer does an escrow analysis right away. Be sure to make sure your loan doesn't fall between the cracks if the servicing is transferred -- call the new servicer and make sure they're getting your payments after you send the first one to the new address.
posted by Opposite George at 8:45 AM on October 27, 2005
Response by poster: Sorry, no Suntrust quoted me a 5/1.
And I'm assumming all the closing costs, etc are the same.. They basically are, as of now, so that's not a discriminating factor.
posted by seinfeld at 8:47 AM on October 27, 2005
And I'm assumming all the closing costs, etc are the same.. They basically are, as of now, so that's not a discriminating factor.
posted by seinfeld at 8:47 AM on October 27, 2005
I'm assuming your 5/7/10 mortgages are APR, and your 15/30 options are fixed?
In my opinion, now is probably NOT a good time to bet the market, even over a three year period. I'd personally go for a fixed rate mortgage. I would also definately steer clear of intrest-only or COSI style loans - The possibilty of being 'stuck' in an negatively amoritized APR loan over the next five years is grim, particularly without seeing how the new bankruptcy laws are going to play out WRT mortgage defaults.
You might find Bankrate's mortgage price listings for your area informative as far as evaluating how well same-type loans compare.
posted by Orb2069 at 8:48 AM on October 27, 2005
In my opinion, now is probably NOT a good time to bet the market, even over a three year period. I'd personally go for a fixed rate mortgage. I would also definately steer clear of intrest-only or COSI style loans - The possibilty of being 'stuck' in an negatively amoritized APR loan over the next five years is grim, particularly without seeing how the new bankruptcy laws are going to play out WRT mortgage defaults.
You might find Bankrate's mortgage price listings for your area informative as far as evaluating how well same-type loans compare.
posted by Orb2069 at 8:48 AM on October 27, 2005
I don't have advice on the actual mortgage. I guess if you're only staying there a few years the floating rate won't come around to bite you - but I'd make sure there are no pre-payment penalties (though I'm not sure if those would apply in the case of a sale of the home versus just paying down or refinancing the mortgage).
But, I do have some experience on the mortgage securitization process. Your loan will be packaged with other loans into a large pool and used as collateral for a bond issuance (called mortgage-backed securities or MBS). This has become a very standardized and common process - you probably could not take out a mortgage that wouldn't be securitized. The bonds will stipulate a "servicer" for the loans - that is, a company that processes the payments and does other administrative things as well as handles delinquencies/foreclosures. Wells and Sun Trust will probably issue their own bonds - if you buy from a smaller bank or mortgage broker, they will probably sell their loans to a large institution which will then securitize it.
Mortgage-backed securities investors HATE pre-payments, so that's why you may have to watch out for pre-payment penalties. Other than that, none of this should affect you.
posted by mullacc at 8:55 AM on October 27, 2005
But, I do have some experience on the mortgage securitization process. Your loan will be packaged with other loans into a large pool and used as collateral for a bond issuance (called mortgage-backed securities or MBS). This has become a very standardized and common process - you probably could not take out a mortgage that wouldn't be securitized. The bonds will stipulate a "servicer" for the loans - that is, a company that processes the payments and does other administrative things as well as handles delinquencies/foreclosures. Wells and Sun Trust will probably issue their own bonds - if you buy from a smaller bank or mortgage broker, they will probably sell their loans to a large institution which will then securitize it.
Mortgage-backed securities investors HATE pre-payments, so that's why you may have to watch out for pre-payment penalties. Other than that, none of this should affect you.
posted by mullacc at 8:55 AM on October 27, 2005
Best answer: 5/1 vs. 10/1 vs. fixed-rate loans: Longer times before adjustment mean (almost always) higher rates. 5-year money'll be cheaper than ten-year money because the lender's making a shorter-term bet. You have to decide whose bet you're going to call. If you really, really are leaving after 5 years then the 5/1 is a no-brainer (but then again Wells can do better on a 5/1 so ask what their 5/1 rate is.) If you are really, really leaving by 10 then there's no reason to consider the fixed-rate option. But you have to be ready to kick yourself if your plans change.
If you want to be safe (i.e., you're not totally, totally sure that you'll be out of the loan before the adjustment period) you should get more quotes on a 10/1. It sounds like you have been going directly to mortgage banking loan offices -- you should consider contacting a mortgage broker or two (they have access to all the major lenders' programs) and see if they can do better.
Also ask about the adjustment caps are on the loans; most loans have limits on how much the interest rate can change per adjustment (2 percentage points is a common number) so if you thing you might be getting out in 6 years instead of 5 maybe another percentage point or two in interest for that last year won't be a deal-breaker for you. Again, you have to decide based on your circumstances.
Cost assumptions: a prospective lender is required by law to give you a good-faith estimate of all costs associated with closing your loan. I'm not sure when in the process that has to happen or where you are in the process but it doesn't hurt to ask the folks pitching you loans. DO NOT assume your costs will be the same regardless of the lender; you could be in for an unpleasant surprise.
Re: prepayment penalties. They're used to lower the rate of your loan. The new owner or servicer can't change the terms of your loan so unless your loan has prepayment penalties when you sign the papers that isn't going to change. Ask if the loans you're being quoted have them or not (most don't) and find out what the rate would be without them. Different states have different laws so it might not even apply to you. They don't keep you from prepaying if you sell so really they're there to keep you from refininancing.
And though as mullacc said, most home loans end up securitized its not unheard of even today for lenders to portfolio a loan or two -- the loan on my condo is a portfolio loan and it isn't even that big; just a weird property in a weird spot. What impact does this have on you, the borrower? Pretty much none.
posted by Opposite George at 9:21 AM on October 27, 2005
If you want to be safe (i.e., you're not totally, totally sure that you'll be out of the loan before the adjustment period) you should get more quotes on a 10/1. It sounds like you have been going directly to mortgage banking loan offices -- you should consider contacting a mortgage broker or two (they have access to all the major lenders' programs) and see if they can do better.
Also ask about the adjustment caps are on the loans; most loans have limits on how much the interest rate can change per adjustment (2 percentage points is a common number) so if you thing you might be getting out in 6 years instead of 5 maybe another percentage point or two in interest for that last year won't be a deal-breaker for you. Again, you have to decide based on your circumstances.
Cost assumptions: a prospective lender is required by law to give you a good-faith estimate of all costs associated with closing your loan. I'm not sure when in the process that has to happen or where you are in the process but it doesn't hurt to ask the folks pitching you loans. DO NOT assume your costs will be the same regardless of the lender; you could be in for an unpleasant surprise.
Re: prepayment penalties. They're used to lower the rate of your loan. The new owner or servicer can't change the terms of your loan so unless your loan has prepayment penalties when you sign the papers that isn't going to change. Ask if the loans you're being quoted have them or not (most don't) and find out what the rate would be without them. Different states have different laws so it might not even apply to you. They don't keep you from prepaying if you sell so really they're there to keep you from refininancing.
And though as mullacc said, most home loans end up securitized its not unheard of even today for lenders to portfolio a loan or two -- the loan on my condo is a portfolio loan and it isn't even that big; just a weird property in a weird spot. What impact does this have on you, the borrower? Pretty much none.
posted by Opposite George at 9:21 AM on October 27, 2005
Based on the description of your situation a 5/1 adjustable rate mortgage sounds like it would make sense.
Kindall is correct about the effect of your mortgage being sold -- that is not something you probably need to be concerned about.
I would suggest taking a look at IngDirect . I re-financed with them over a year ago and was very happy with the process. They had extremely low closing costs and no points.
You might also want to consider the decision to pay points. If you're not going to hold the mortgage to it's full term, the cost of the points is effectively amortized over a shorter period making them more expensive.
Hope this helps and congratulations!
posted by DeeJayK at 9:22 AM on October 27, 2005
Kindall is correct about the effect of your mortgage being sold -- that is not something you probably need to be concerned about.
I would suggest taking a look at IngDirect . I re-financed with them over a year ago and was very happy with the process. They had extremely low closing costs and no points.
You might also want to consider the decision to pay points. If you're not going to hold the mortgage to it's full term, the cost of the points is effectively amortized over a shorter period making them more expensive.
Hope this helps and congratulations!
posted by DeeJayK at 9:22 AM on October 27, 2005
With today's climbing interest rates, you have to do some serious thinking before you commit to an ARM.
We bought a townhouse condo last year and did a 5/1 - but only after doing our research beforehand. First of all, we were very confident that we are going to sell within 5 years. Second, we did the math and figured that even if we end up staying longer, it would take 2 years at the max rate increase the bank could charge to lose the savings we would get during the first 5 years. So effectively, we could do no worse than a 7/1, and since we were planning on moving before 5 years, it made sense to get the lower rate.
Talk to your broker and do the math. When you think about how long you're likely to stay, take things like job security and family growth into consideration.
posted by widdershins at 9:25 AM on October 27, 2005
We bought a townhouse condo last year and did a 5/1 - but only after doing our research beforehand. First of all, we were very confident that we are going to sell within 5 years. Second, we did the math and figured that even if we end up staying longer, it would take 2 years at the max rate increase the bank could charge to lose the savings we would get during the first 5 years. So effectively, we could do no worse than a 7/1, and since we were planning on moving before 5 years, it made sense to get the lower rate.
Talk to your broker and do the math. When you think about how long you're likely to stay, take things like job security and family growth into consideration.
posted by widdershins at 9:25 AM on October 27, 2005
Response by poster: Now I'm trying to figure out what breaks I get in Maryland being a first-time home buyer.. ING quoted my Transfer Tax at over $8,200.. Wells quoted a CITY/CNTY Transfer Tax at $1,999.. Which is it? That fee is mandated by the country and is independent of the lender. I'm trying to call and find out but not having much luck. Anyone know?
posted by seinfeld at 11:34 AM on October 27, 2005
posted by seinfeld at 11:34 AM on October 27, 2005
This thread is closed to new comments.
You mail the checks to a different address. That's basically it.
posted by kindall at 8:43 AM on October 27, 2005