Conventional Mortgages, all the same?

scrynApril 6, 2007

Hi, We are refinancing our FHA ARM loan to a Conventional mortgage.

We are doing this to get rid of PMI, lock our rate, which is the same as a conventional mortgage now, and to be able to handle our taxes ect ourselves (not have escrow account)

So we have never had a "conventional" mortgage. Are all conventional mortgages the same? Do they have the same "rules"?

We can do early payoff, without penalties, which we hope to take advantage of.

The rate is fixed and we have to pay normal closing fees. We have paid off 20% off our house value so, pending the appraisal, we should not have to pay PMI.

Are there any other things I should be checking/asking about?

We are not locked in yet. We just met with the bank mortgage advisor yesterday. I have not physically SEEN the terms of the loan. I asked all these questions. I want to make sure that when I read the terms that I do not miss something.

What would you look for? Or are conventional loans all the same so I don't have to worry about missing something?

We got our mortgage in 2002 and this is our fifth year. We knew when we got the mortgage we would have to refinance to lock the rate. We were betting on the interest rates falling for a couple years and we wanted to take advantage of that. Luckily we bet right and it worked, so we were able to pay off about 20% of the mortgage in 5 years. We are getting another 30 yr mortgage and hope to pay 2x the mortgage every month to pay it off in maybe 12-15yrs. However, we still have the ability to pay less, if needed. (if one of us loses a job or something)

This seems like a suitable plan to us. Is there any reason this is NOT a good plan??

Thanks for all your advice!!


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I would find out if the lender you are working with still holds your original mortgage. If they do, try to work out a deal to save yourself closing expenses. This part can be negotiated.
Also, all banks and mortgage companies have different terms (rates, points, fees,etc) so you defitely, in my opinion, should be checking with other banks and funding sources to see if you are getting a good deal on rates and closing costs.
My last bit of advice, bite the bullet and pay a lawyer to look over your paperwork and represent you.

    Bookmark   April 6, 2007 at 12:52PM
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Conventional is a generic term .. you really are talking about Conforming Fixed rate products. I was very confused at first reading that you've had a mortgage since 2002 but had not locked the rate, as that is not possible. I went back and saw that you had an Adjustable (ARM) rate and were looking for a Fixed rate mortgage. Then I got it!

There are many different Fixed rate products out there attention to the rate, the fees, particularly the fees can vary widely.

Sounds to me that you are looking for a Full Document Fixed Rate Mortgage with an 80% Loan-to-value. The terms of this type of mortgage should be pretty straight forward.

Your other comment about taking a 30 year but paying it off early is great. Many lenders offer bi-weekly mortgages that do the same thing. Though I tell people they can do it themselves like you are planning on.

Sounds like your planning is right on!

Good luck!

    Bookmark   April 6, 2007 at 1:46PM
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Hi Renee,

This seems like a suitable plan to us. Is there any reason this is NOT a good plan??

You don't say about how well your retirement funding is established. If you have not fully funded every available tax-preferred retirement plan, then paying extra money to your mortgage bank is not a good plan.

Here's a very generic set of "rules of thumb";
A) Make sure your overall family costs of interest are as low as possible (NEVER send a dollar to retire lower cost mortgage that could be used to retire higher cost debt,)
B) Make sure you maintain an emergency cash-access fund of at least 6-12 months of your total family monthly budget,
C) Make sure you take advantage of EVERY dollar of tax-preferred retirement investments and savings... the earlier in life, the better... before sending a single extra dollar to eliminate your tax-deductible mortgage,
D) Reduce your overall family amortization costs (the amount of each payment that isn't actually interest) if they take money away from your tax-preferred retirement investment/savings deposit capability.

It is important to eliminate all debts... but ONLY after the best debts no longer serve you.

Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   April 6, 2007 at 1:51PM
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Thanks for all the advice. We DO NOT want to go to the bank that holds our first mortgage because they are idiots (to put it bluntly)We are very unhappy with them although they are a large chain.
We only have school loans left and a car loan, which has a very low apr.
We have a savings for emergencies.
we both have 401ks, IRA's and stocks.So I think we are ok on that although we could always put more money in. We do the highest amount that gets matched by our companies.
Our closing costs will be around 2000 dollars.

    Bookmark   April 6, 2007 at 2:45PM
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Chemocurl zn5b/6a Indiana

We are getting another 30 yr mortgage and hope to pay 2x the mortgage every month to pay it off in maybe 12-15yrs.

Might you consider a 20 or 25 year mortgage. Chances are you might get a better rate. I would ask.

Then you can see just what the difference in required monthly payments would be....thus saving more.

When I had my house built, I had a construction loan initially.
Once the house was completed, it had to be paid off by getting a mortgage. I used the same lender, and we discussed various ways of getting me the best rate.

I took out a 10 year loan (mortgage) and a 20 (might have been 15) year loan (mortgage). The 10 year had a lower rate, and I made the combination of the 2 payments an amount that I was comfortable with. They were both paid off in less than 15 years (I think). The house has been paid off for several years now, and it is only 17 years old.


    Bookmark   April 6, 2007 at 2:51PM
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the 20yr and 30yr mortgages are the same apr now.
we worked it through a couple ways and found that the 30 yr would be best, as we can pay alot of principle extra a month but still feel comfortable if something happens and we can not make the extra payment.

I talked to a couple friends I know that have refinanced and all of them said to forgo the lawyer because it isn't needed for refinancing. Is this a bad idea? We had a lawyer when we bought the house to check for liens, variances and so on. Obviously, since only we have owned the house, we shouldn't have to do that again.
If we read the terms carefully, isn't this enough? We are not afraid to ask questions so if something doesn't make sense I know we will ask about it.

    Bookmark   April 6, 2007 at 3:06PM
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I think the use of a lawyer varies from state to state. When we bought our 1st house in 1982, and/or refinanced a few years later, several sources I read told me to be sure to use a lawyer . I asked the real estate attorney I worked for about this. His response was "What for?" The title company checked for liens, and I paid a title insurance premium to indemnify for any losses due to potential title problems. He knew I could read and understand the paperwork. At least at that time, in Texas, it was not common practice at all to hire a lawyer for the purchase or finance of a house.

I wish I had consulted a lawyer when we started building our new house, but that's another story!

    Bookmark   April 6, 2007 at 6:46PM
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On having lawyer....if you are perfectly sure that you understand every word and it's implication in every piece of paperwork, then you don't need a lawyer. When I was doing a lot of buying and selling, I had a deal where all of the paperwork had to be sent to my lawyer 2 days before the closing. I would get charged for about 1/2 hour time for him to review....about $100. I would check the prorations and such, but he sometimes found little things that I overlooked. For instance, if property taxe rate is up in the air for the current year, how do you do an accurate proration? He sometimes demanded that money be put in escrow to protect me if the final tax bill was higher than everyone expected. Try to get money out of seller 4 months after the closing because the tax bill was higher than was prorated for.
True, the title company will check the title of the property and come up with a closing statement, but I like someone working for me when there are big bucks involved. The problem is that most borrowers don't see the documents until the day of the closing. Try to read all the fine print of 20 pages with 4 or 5 other people waiting for you at the closing. And as my above illustration shows, it doesn't have to cost all that much to have a lawyer require everything be sent to him a few days before the closing so that he can review..

    Bookmark   April 7, 2007 at 9:33AM
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Most of the lending documents are standardized (that is one of the requirements for a Âconforming loan) so there is no reason to be reading it at the last moment.

The HUD-1 settlement sheet is the item that needs careful review, and these are normally only 2 pages.

    Bookmark   April 7, 2007 at 1:47PM
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The non conforming or subprime loans and paper work can be a problem. You have to know what you are doing here, or the SHARKS will have you for dinner.
Just look at the people who say... but I didn't know I had that type of loan...etc...etc...and the rate goes way up.
I would ck around for what a Lawyes charges and get one.

    Bookmark   April 22, 2007 at 8:54PM
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I am not worried about "sharks"
we are working with a Credit union we have been going to for years and we are not getting a subprime loan or anything.

We just recieved some paperwork yesterday (a review of the mortgage). I haven't read it yet. I just browsed it to see if the numbers were in line.

    Bookmark   April 23, 2007 at 9:16AM
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Your plan sure sounds sensible to me.

I can think of two questions you might want to ask:

1) Does your title insurance cover you or just the mortgage holder? I think, though I am far from certain, that you can often get the title insurance policy extended to cover you as well by paying a small additional fee. It would seem to me that if the bank requires you to insure your title for their benefit, then an argument can be made for insuring it for your benefit as well.

2) What's the mortgage rate? If it's low enough, you'd do better by paying it off as slowly as possible and investing the money you'd otherwise use to pay the mortgage. As long as your investments return more than the mortgage interest rate, you win.

Of course, your investments could tank. But (a) even if they do, you're in no more immediate trouble than you'd be in if you had sent the same money to the mortgage company, and (b) they'll probably come back well before you have the mortgage paid off.

Of course you can't just put the money in a traditional savings account. But there are lots of mutual funds there that have long-term returns of 8% or more. So if your mortgage is, say, at 6.5%, that's an extra 1.5% per year, on average, that you can gain by investing the extra instead of retiring the mortgage.

Again, let me emphasize that this strategy is in no way a sure thing, and you shouldn't even consider it unless you feel comfortable about it and convince yourself about why it's a good idea. So I am *not* saying you should do it. I'm suggesting you should think about it and learn enough to be able to make a confident decision.

    Bookmark   April 23, 2007 at 9:45AM
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