Michigan Retirement & Financial Services Group, LLC

Here are some tips and strategies that save you money when you are in the market to refinance your home loan:

• Don’t get caught in the trap of consuming your home equity by getting deeper into debt to go on vacation, purchase unnecessary items and spread out your car loans and credit card balances over 30 years. CMPS professionals help you implement viable refinancing strategies to conserve your home equity, build greater wealth and achieve your goals in life.
• Understand that you may need to pay higher fees or interest rates if you are getting cash out of your home equity vs. simply paying off the current balance. Also, you may lose the interest tax deduction on cash-out funds in excess of $100,000. CMPS professionals help you structure your refinancing transaction to give you the best overall financial impact for your individual circumstances.
• Certified Mortgage Planning Specialists professionals help you evaluate the mortgage products that will work best in your situation. Remember, it is far better to find a CMPS professional who can help you implement the best strategy with competitive interest rates than for you to shop for the lowest rate with the wrong strategy.
• Don’t pay too much for title insurance - this is a very common mistake that can be avoided. All lenders will require Title Insurance each time a mortgage loan is granted. This is because it insures the title to the property is free from any surprise liens that occurred previously. So, in essence, it covers the timeframe prior to the mortgage closing. That is why a new one needs to be done even on a refinance. Generally speaking, law regulates title policy fees so all title companies charge the same amounts. CMPS professionals help you save over 50% by making sure you get the “refinance” instead of the higher “basic” rate.
• Know your credit score - you may be able to get a better mortgage rate and more favorable loan terms by restructuring some of your balances on credit cards, car loans, etc. CMPS professionals help you correct errors on your credit report and determine which balances to restructure or pay off in order to improve your credit score.

Always make sure you are working with an experienced, professional lender. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell? Here are four simple questions your lender absolutely must be able to answer correctly. If they do not know the answers immediately leave and go to a lender that does.

1. What are mortgage interest rates based on? The only correct answer is Mortgage Backed Securities or Mortgage Bonds, not the Fed or the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. Do not work with a lender who has their eyes on the wrong indicators.
2. What is the next Economic Report or event that could cause interest rate movement? A professional lender will have this at their fingertips. To receive an up-to-date weekly calendar of weekly economic reports and events that may cause rates to fluctuate, contact a Certified Mortgage Planning Specialist professional today.
3. When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates? The answer may surprise you. When the Fed makes a move, they are changing a rate called the “Fed Funds Rate”. This is a very short-term rate that impacts credit cards, credit lines, auto loans and the like. Mortgage rates most often will actually move in the opposite direction as the Fed change, due to the dynamics within the financial markets.
4. What is happening in the market today and what do you see in the near future? If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well as what is coming up in the near future, you are talking with someone who is still reading last week’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.

Be smart… Ask questions… Get answers! More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but CMPS professionals do this every single day. It’s your home and your future. It’s our profession and our passion. We’re ready to work for your best interest.

There are many pitfalls you can avoid when you are in the market to buy a new home. Here are just a few tips and strategies to help you prepare for success:

• Know your credit score. You may be able to get a better mortgage rate and more favorable loan terms by restructuring some of your balances on credit cards, car loans, etc. Certified Mortgage Planning Specialist professionals help you correct errors on your credit report and determine which balances to restructure or pay off in order to improve your credit score.
• Know how much you can spend and determine how much you can afford. CMPS professionals can help you:
  • Finance your home based on your monthly payment comfort level
  • Determine how much cash to use as your down payment and where to get these funds
  • Understand your before and after-tax monthly payments
  • Restructure some other debt you may have to free up more monthly cash flow that enables you to improve your home buying budget

• Don’t get caught in the “pre-approval” / “pre-qualification” trap. It is always better to get a full approval / loan commitment from a CMPS professional before you even start looking for a home. Many mortgage brokers and lenders will give you a “pre-approval” or “pre-qualification”, but these are often meaningless. What you really need is a bona fide commitment from a mortgage lender that you are in fact approved for financing. Many real estate transactions have been ruined because buyers, sellers and Realtors have counted on “pre-approval” letters that proved meaningless.
• Determine whether to rent or buy a home based on timeframe, budget and local market conditions. CMPS professionals help you run the numbers to determine if it is better for you to rent or buy a home based on your individual circumstances.
• Don’t be scared by “housing bubble” misinformation. For the last four years, the national media has been scaring potential home buyers with continuous chatter about a so-called “housing bubble”.  For the last four years, the national media has been wrong. It is always wise to base your decision to buy or not to buy on fact, not emotional hype. CMPS professionals help you evaluate conditions in your local real estate market to determine whether there is indeed a housing bubble” in your local market. The data they can evaluate for you includes: local housing inventory, local unemployment rate, speculation and other factors that can help you make intelligent choices about whether to buy a
  home.
• Develop a strategy for financing your closing costs, home improvements and furniture expenses. A home purchase is a significant financial commitment. CMPS professionals help you
  understand the costs involved in home ownership and help you develop a financial strategy for dealing with these costs ahead of time.
• Evaluate the mortgage products that will work best in your situation. Remember, it is far better to find a CMPS professional who can help you implement the best strategy with competitive interest rates than for you to shop for the lowest rate with the wrong strategy.
• Understand the 20 Terms You Must Know Before You Sign Off on Your Mortgage > Download 20 Terms

What makes up your credit score, and how can you improve your rating?

CMPS professionals are committed, qualified and equipped to help you improve your credit rating. Your credit scores usually determine the price you pay for your money (your mortgages, your auto loans and leases, your credit cards, business loans, etc.). Perhaps the most significant part of your credit report is your credit score. Credit scores range from 350 to 850, with 850 being the best possible credit score that you could receive, and 350 being the worst possible credit score. There are five factors that determine your credit score:

1. Your Payment History - 35% impact on your credit score. Paying debt on time and in full has a positive impact. Late payments, judgments, charge-offs, collection accounts and bankruptcies have a negative impact. One of the most important issues as far as payment history is whether or not you have had any late mortgage payments in the last 12 months. Timely mortgage payments are weighted heavily by the scoring systems and are one of the most vital requirements that lenders look for when evaluating your credit history.
Many times a single late mortgage payment within the last 12 months can hold up your file or spell the difference between the best interest rate and the next credit level. This is not to say that your mortgage is the only debt you should pay on time. Your payment history on other debts (car payments, credit cards, etc.) is also given a lot of weight.

The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or 90 days late, or whether they are currently in default, with default being the worst situation. Additionally the systems look at whether the late payments were consecutive. If you only have one or two minor late payments on your report with no other derogatory marks, your score will not be terribly affected, but you will have a tough time getting over the critical 700 level.

Bankruptcies and judgments are another major area of importance. If you have had any bankruptcies within the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts. Additionally, if you have had any judgments within the last several years, it is very important that you pay off the judgment and get a “satisfaction of judgment” from the court. Any unsatisfied or recent judgments will make a bad dent in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid
prior to the closing. However, in some cases, they can be paid out of the loan proceeds.

Here are four practical steps that you can implement to improve your credit score in the area of “Payments”:

• Make all your payments on time.
• Past dues on any account will destroy your score - bring your delinquent accounts current immediately. A 30 day late payment one month ago is worse than a 90 day late payment three years ago.
• Pay your bills before they go to a collection agency.
• Check your credit report for accuracy on a regular basis; and make sure that disputed bills are not negatively affecting your credit scores.

2. The Balance You Owe vs. Your Available Credit Lines - 30% impact on your credit score. Keeping your credit balances below 50% of your available limit is very important. Keeping your balances below 30% of your available credit is even better. This is perhaps the single most misunderstood part of credit scoring. There are a lot of misinformed people that don’t understand how the credit scoring systems work, and yet they insist on pretending to be experts in this area. Here are just a few of the common myths:

• You should close all your credit accounts if you are not using them.
• You should not have credit accounts appear on your report after they have been closed.
• You should not have any open credit card accounts at all.
• You should not have high limits on your credit lines.

First of all, the credit scoring system looks at the percentage of debt that you owe compared to your overall credit lines - not the amount of credit that you have available to you. For this reason, most of the time it is better to leave your credit accounts open. By not using the credit that is available to you, the system regards you as having enough financial restraint and discipline not to overload on debt.

Remember, the credit scoring system looks at the percentage of debt you owe compared to your overall credit line. For instance, if you owe $10,000, and you have $100,000 of credit available to you, you are only using 10% of your available credit line. On the other hand, if you owe $10,000 and you only have $20,000 of credit available to you, you are using 50% of your available credit line. This is negatively interpreted by the credit scoring system as being a strong dependence on credit. Furthermore, if you owe $10,000 and you only have $10,000 available to you, you have “maxed out” your available credit and your credit scores will be very negatively impacted. Therefore, it is not how much you owe, but how much you owe compared to what you are able to borrow.

Additionally, if you have no debt and no credit lines open or available to you, you will end up with a lower score than someone who has no debt and a few lines of credit available to them. Financing is a game of percentages and ratios. The credit scoring system does not look at the dollar amount of debt you have; only the balance you owe, compared to how much credit is available to you. Here are three practical steps to improve your credit score in this area:

• Do not close your credit accounts unless it is necessary to do so. It is  better to have many open accounts with little or no balance than to have just one or two accounts regardless of the balance.
• Do not concentrate large balances on just a few accounts. Pay outstanding debt down as close to zero as possible, and evenly distribute the remaining balance across all your open credit lines. The key is to keep the balances down below 30% or at the very least 50% of your available credit line(s).
• Call your credit card companies and try to increase your available credit lines if they can do so without pulling a new credit report.

3. Your Credit History, or how long your accounts have been opened - 15% impact on your credit score. The longer your accounts have been opened, the higher your score will be; newly opened accounts will bring your score down. Here are three practical steps for you to improve your score in this area:

• Do not close your credit accounts. If you have too many department store credit cards, close the newest ones - do not close the old accounts. If you keep your accounts open and use them every once in a while, your score will improve over time.
• Think twice before jumping on that latest 0% credit card offer or opening a new card just to get a 10% discount at a department store.
• If you dont have much of a credit history, and you are planning on taking out a mortgage in the future, it would probably be a good idea to establish a few open credit lines with little or no balance on them. Although newly opened accounts tend to lower your score initially, they will improve your score once they have been open.

4. The type of credit that you have open - 10% impact on your score. A good mixture of auto loans and leases, credit cards and mortgages is always best. Too many credit cards is not a good thing, and having a mortgage does increase your score. Practical steps to improve your score in this area are:

• Having 3-5 revolving credit cards open is optimal.
• Having a good mix of auto loans, credit cards and mortgages is positive for the score; rather than having a concentration in credit cards only.

5. The number of recent inquiries that have been made by creditors - 10% impact on your credit score. Inquiries affect the score for one year from the time the inquiry is made. Personal inquiries do not count toward your score. In other words, you can check your credit report as often as you like and that wont affect your score. The score is only affected if a potential creditor checks your credit. Potential creditors include credit card companies, auto finance companies, department stores and mortgage companies. The reason that inquiries impact your credit score is because the scoring system assumes that if you have many recent inquiries, you must be strapped for money and in some type of “panic” mode, trying to get credit wherever you can find it. The system also assumes that all these inquiries will eventually result in new accounts being opened, and as stated before,
the system doesnt like you to open new accounts and punishes you by giving you a lower credit score. Here are three practical steps that you can take to improve your credit
score in this area:

Multiple auto and mortgage inquiries are treated as only one inquiry if made within 45 days of each other. So, it is better to shop for a car or a mortgage over a two week time-frame, rather than to prolong it over a longer timeframe.

• Don’t apply for a lot of credit or open multiple credit cards at the same time.
• If you are thinking of applying for a mortgage within the next 90 days or so, it would be good to wait until after your mortgage closes before you apply for any new credit.

CMPS professionals help you implement these and other strategies that improve your credit rating.

Many clients ask: “Why do I keep hearing that the Fed is cutting rates, but the mortgage rates are going up? My broker says my interest rate is determined by T-bill rates, but those rates have dropped and mortgage rates haven’t fallen. What gives?  What don’t I understand about the Fed rate cuts and mortgages?”

Don’t worry, you are not alone in your confusion.  Its not as complicated as many think – what is surprising is how many financial professionals don’t know the answer either.   I hear almost daily from people in the financial media, real estate and lending professions, including those from the public two misconceptions.

1. The first is how mortgage rates are determined.
2. What is the affect on mortgage interest rates by the U.S. Federal Reserve Board?

How are mortgage interest rates determined?

The only correct answer is Mortgage Bonds or Mortgage Backed Securities. Mortgage rates are not based on the 10-year Treasury Note. When shopping for a new home loan, many of you will jump online to your favorite financial web site to see how the 10-year Treasury Bill is doing. In reality mortgage-backed securities (MBS), are what cause mortgage rates to fluctuate. In fact, it is not unusual to see Mortgage Backed Securities and the 10-year Treasury Note,  move in completely different directions.  Without professional guidance, that confusing movement could lead you to make a poor long term financial decision.

Do not feel bad, I have seen many bond market reporters mistakenly tie mortgage rates to the performance of the 10-year T-Bill. Many of these financial reporters possess a broad knowledge of bond markets, but they are not mortgage experts and do not fully comprehend how mortgage interest rates are determined.  Take it from some one that knows – it is not uncommon to watch the   morning or evening news and hear misinformation and incorrect advice  being delivered from  the guests and so-called experts.

Think about this: the financial markets move faster than you may expect — recently at lightning speeds. When investors spot a short-term stimulus, they bail out of the safe haven of bonds (Mortgage-Backed Securities) and move those dollars into stocks. When this happens, we see a rally in the stock market and a sell-off of mortgage backed securities, both of which cause Interest rates to go up. On the reverse side — when  disappointing  economic reports  come out,  the  investors pull  those same dollars out of the  stock market and go back to the safety of  the bond market, which causes interest rates to move lower. My suggestion is to avoid working with any lending professionals  that do not understand  which indicators determine mortgage rates.

The Fed Lowered Rates - Why Aren’t Rates Going Down?

When the Federal Reserve Board known as the Feds, lowers the short-term Discount Rate or the Fed Funds rate   this is designed to stimulate consumer spending on short-term credit, which affects credit card rates, some car loans and lines of credit. The short-term discount rate and fed funds rate  have no affect on long-term mortgage rates.
We have all heard the radio commercials from lenders: “The Fed is at is again — slashing rates. Don’t miss this opportunity to get the lowest rates in years! Call us today, before it’s too late!” We even hear it on the nightly news: “Fed set to cut rates again. This action will help to stimulate the housing market”.
They aren’t necessarily lying to us, but they are being disingenuous by implying that mortgage rates are going to follow suit and fall.  Do not fall for this misinformation.  It gets listeners and viewer’s attention just like intended,  but that is as far as it goes. Advertisers  are trying to make the phone ring and the media is trying to  sell viewership for ratings, nothing more. If you need to know what the markets are really doing, or the effect of any  action made by the Federal Reserve Board,  please take the time to call a Certified Mortgage Planning Specialist.

The Reality of Fed Rate Cuts

When the Fed cuts the rates, especially by a large  percentage or multiple smaller cuts, people automatically assume that mortgage rates will fall. What is important here is that the Federal Reserve Board cuts the fed funds rates not mortgage rates. Fed funds are the rates banks charge one another to borrow money.   But if you follow mortgage rates, like I do, you will see that most of the time, when the fed funds rate is cut, mortgage rates  actually increase.  Historically, when the Feds have dramatically cut rates, mortgage rates  increase  due to the presence of inflation. Inflation is the number one enemy of  bonds ( Mortgage Backed Securities). Often these increases to mortgage rates are factored in  days or weeks ahead of a pending  cut by the Federal Reserve Board.

On the other side of the equation is, that when the Federal Reserve Board raises the rate on Fed Funds – mortgage interest rates trend lower.  I caution my clients to try to avoid the knee jerk reaction to these types of reports – if you are working with a Certified Mortgage Planning Specialist, they will be able to guide you in the right direction. Working with a professional that understands the current  economic data and reports,  and its relationship to  mortgage interest rates is crucial in  helping obtain the best rates.

How do I get the best interest rate?

Have you ever heard the story of the person who just refinanced at 5.75%   only to find out a few days later his co-worker refinanced for 5%? This scenario plays itself out week after week around water coolers in offices across the country.  So how could this be?  Do you really have to shop around that much to get a good rate? How do you shop around?  Read on, I will try to answer all these questions and more.

Getting the best interest rate on your mortgage is much like trying to find the best burger, the best music or the best car.  It is all very much dependent on you! The taste of a burger or the rhythm in music is very much a unique and personal preference. Mortgage interest rates are very similar, they are determined based on how you qualify. Much like a fingerprint, no two individuals have the same financial profile, the same borrowing criteria and or have the same plan for their financial futures. A younger persons concerns are far different compared to an older person looking to retire in a few years, there are many, many factors that go into determining the rate you are offered.  I will try to cover the majority of those factors and share with you the tips on getting the best rate for you.

Let me start out by saying that if you call up a bank or a mortgage broker and ask what the rate is on a 30 yr fixed - you will most certainly get a incorrect quote.  In fact with all of the factors that go into determining a rate for a specific client - I would consider it extremely unprofessional for anyone to quote a rate to a client with out a complete application and credit analysis.  Here is why – there is a base rate for a 30 yr fixed mortgage, then there are all the multiple adjustments both added too and subtracted from the base rate to determine the rate for the specific client.  The latest data suggests that with on line quotes like bank rate .com that 1% of the clients actually receive the rate they were quoted.

The  basic compensating factors that affect rates are as follows: Credit scores, LTV ( loan to value of home), Loan amount, Type of property (owner occupied, second home or investment) Type of loan ( fixed, adjustable, interest only)  The loan program ( conventional, FHA, USDA-RD, Jumbo) - all these just to get started. Once  the above is determined then you need to move on to the  secondary adjustments which include the following – Risk based FICO adjustments, No escrows,  paying discount points,  then there are compounded  adjustments that combine such criteria as Credit score and LTV  for another adjustment.

It has become a mathematical challenge, to accurately account for all the adjustments and quote the actual rate that the client qualifies for.  Each lender has their own set of adjustments – so it can be very difficult to compare the best rate.  Most seasoned professionals are now utilizing programs to help search the best rates. Although they are very costly to subscribe to - these programs take your personal profile and every detail of the loan requested into account and list off every avail program and the rates for each. To do this manually could take hours for each loan.

Tips on getting the best rate

1. The best advice I can give anyone is to find a local trusted professional, and be prepared to give complete and accurate information. A local professional has an interest in delivering a great experience to the people in his community. On-line companies or Brokers located across the state that you will never see, do not always share this value.
2. Once you have identified a trusted professional, do not be afraid to interview him/her. Asking a few simple questions will help you determine if this professional has the expertise to guide you thru the process. Questions such as, how long have you been in this business? What indicators determine interest rates? What economic reports are due out this week that can move the markets? In addition, always ask for a reference list of recently closed, past clients.  Check those references! If a Professional cannot give you this information right on the spot – find one that can.
3. Know your credit score! -  The single biggest factor in getting a great rate is your credit score. Make sure it accurately reflects your history and make any necessary corrections prior to inquiring about a mortgage.
4. Ask if they would suggest locking the rate, or waiting? Then ask why? – The answer should make sense.
5. Request that your communications be documented in writing, email works best. Too often, important details are discussed and forgotten. This is especially true when it come to getting the rate you were quoted.
6. Call at least two trusted professionals and be consistent with all the details. Take notes and compare the information each has given you.
7. Ask for a GFE (Good Faith Estimate) - this will allow you to compare two lenders side by side in both rate and closing costs.
8. Do not compare a rate from yesterday to a rate today – interest rates can vary a lot from one given day to the next. Do all your comparisons in the same day.

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Today’s financial markets can see interest rate changes up to twice in a business day. With these volatile swings, it is important that you work with a CMPS that understands the economic indicators that influence these changes. Whether you are purchasing a new home or refinancing your existing home, it is most likely one of the biggest financial transactions of your life.  You owe it to your self and your family to ask questions, make sure the individual understands your financial goals and  you feel comfortable with  them, and the answers your given.  For additional help and advice, please contact me.