Orange County Register

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Q. I own a house with $400,000 left on my mortgage at 5%. Similar houses nearby are worth between $470,000 and $530,000. Through selling of my employer’s stock options, savings and other investments, I have about $500,000 sitting in money market accounts and CDs, earning very low interest. I would like to take the downturn as an opportunity to move up to a bigger house and keep my current one as a rental. My question is which way to go: one mortgage vs. two mortgages? Should I pay off my current mortgage and borrow for the new house? Or should I leave the remaining mortgage balance untouched and pay as much as possible towards the new house purchase? My job is in good shape. I have excellent credit, no debt other than the mortgage on my current home. I heard with my income level, the tax benefit from mortgage interest will be very limited or completely phased out in the next year or two.

A. For most people Fannie Mae and Freddie Mac have a rule that says you must have at least 30% equity in your home if you plan on keeping it as a rental. There have been too many instances where someone “says” that he is going to rent it out, but when there is no equity, as soon as he has the new home, he lets the old one go. This rule does NOT apply if you have enough income to qualify for both the current loan and the loan on the new property.

If you can’t do that, you could pay down the current mortgage to 70% of the appraised value and that would still leave you with plenty of money for a down payment on a new home.

So far as the tax law is concerned, I have been hearing that for more than 40 years. The only thing that has happened is that the IRS limits interest deductions to mortgage amounts of less than $1,000,000 plus $100,000 equity line. I think this has been a sacred cow but Congress is going to have to figure out how to raise revenue and at some point the deduction may be further limited.

Judy in Anaheim Hills:
Q. Is it best to go directly to the bank that holds your mortgage if you want to get it re-evaluated for a refinance? The loan payments are in good standing, but it was purchased high! There are all kinds of ads/promotions stating they can help and appear to be legit; how do I analyze which is the right way to go?

A. It has not been my experience that going back to your current “lender” has any advantages, but I would include them on your call list, especially if you have a jumbo loan. Most lenders are really “servicers” who collect your payments and manage the loan for the actual owner. A majority of loans in this country are owned by Fannie Mae or Freddie Mac and with a couple of exceptions any lender you choose can offer the same options as any other. However, and this is critically important, you ought to choose someone who is really talented to help you explore those options. All too often the people who answer the phones at many lenders are poorly paid, inexperienced people who cannot offer you accurate or helpful advice.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Reader considers buying retirement home early
• Is an interest-only loan safe these days?
• Reader owns too many homes for another loan
• Readers debate paying off their mortgages
• Buy now, refinance later at your own risk
• Bank sends bill after foreclosure
• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Chris in Fremont asks:
Q. I currently rent an apartment for $1,050 a month and work a part-time job that pays me a little more than twice that gross. I have not had a mortgage in four years and am considering a move to much cheaper Albuquerque, New Mexico to buy a house now and retire in five years at 59. I have substantial savings and plan to put at least 20% down on a maximum price of $200,000 with a 30 or 20-year fixed loan. Problem is, I’ll have to stay in California until I find a decent paying job in New Mexico, but would love to rent out the house until I can move. I have zero debt, live an extremely frugal lifestyle, and my tri-merge FICO is 780. Will I have a problem getting a mortgage because of my low income over the past four years?

A. Frugal is good. Not having a lot of debt gives you more options, perhaps being able to retire at 59.

If you wait until you get a job in New Mexico, you should have no trouble qualifying and it will be based upon what your income is there, not what it was here. If you want to buy a home sooner, you would have to buy it as an investment property. That requires a larger down payment, 25% is best, and entails higher costs than an owner-occupied home. The problem is that the income from your part-time job is not going to be sufficient to qualify for that. New rules taking effect make the qualifying ratio of housing expense to income at a maximum of 45% and you are already at 50%. If you can get more income with a full-time job, this would be the time to do it.

While frugality has its rewards, it’s OK to loosen up a bit and have some fun.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Is an interest-only loan safe these days?
• Reader owns too many homes for another loan
• Readers debate paying off their mortgages
• Buy now, refinance later at your own risk
• Bank sends bill after foreclosure
• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Debra in Irvine asks:
Q. My husband and I are retired (ages 75 and 68). We have a home in the desert and a small condo in Orange County. Due to the cost of supporting two homes (we do not want to sell the O.C. condo; there is no mortgage on it), we are thinking about refinancing our desert home with a five-year interest-only loan at 4.4%. Refinancing would give us an additional $600 each month for the next five years. At that time, we will probably sell our home (and the condo also) since mortgage rates will be much higher and purchase a smaller home in Orange County with the funds from the sales. But what if after five years we decide we are not anxious to sell? We are concerned we might be forced to sell if rates for a new loan are much higher in five years. We are not quite sure if we are making a wise move with this new interest-only loan. We would appreciate your thoughts on this matter.

A. In my discussions with clients, my objective is to help them find a comfortable balance between risk and cost. Getting a five-year interest-only loan, while it has a lower payment than a 30-year fixed rate loan, seems inappropriate because of the higher risk you clearly see. Do you really want to have to refinance when you are 80 and 73?

Some loan officers just don’t listen to the client’s concerns. They are taught to “push” programs the company thinks that customers might want. An interest-only loan appeals to people who focus on getting a lower payment, even if for a shorter period of time. In your case, I think taking a longer term view would leave you risk-free and more comfortable.

Dooski in Anaheim Hills asks
Q. How many times can you do a modification on your home loan? And why are companies like BofA not abiding by Obama’s law of ‘if your mortgage is more than 31% of your income, the lender is supposed to lower it if you qualify,’ which we do and they aren’t modifying?!? How can they get away with that?

A. In my view, the entire industry has been incredibly unresponsive in doing loan modifications. That hurts millions of people and puts the housing recovery in jeopardy. This may be due in part to the fact that your “lender” just may collect payments for the ultimate lender. He may not have any power to modify loans. But it is clear that not enough modifications are being done and those that are being done fall short of real help.

The big lenders talk about the number of people they hire to do loan modifications; they say they are doing them by the tens of thousands. But it is hard to find borrowers who have been helped. Perhaps they look at participation in the government’s modification programs as “optional.”

The Home Affordable Modification Program had the goal of helping 3  million to 4 million homeowners but a review of the program by the government’s General Accounting Office (http://www.gao.gov/new.items/d1016.pdf - see page 92) showed as of September 25 for loans not owned or guaranteed by Fannie Mae or Freddie Mac only 209,000 modifications had been started and only 1,080 borrowers had successfully completed the program. (Editor’s note: Treasury reported that through September all participating lenders and servicers had 487,081 trial and permanent modifications underway, or roughly 16% off all eligible loans 60 days or more past due.)

We would sincerely like to hear stories from anyone who has actually been helped by a modification. Tell us your story. In the meantime, I would keep calling BofA.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Reader owns too many homes for another loan
• Readers debate paying off their mortgages
• Buy now, refinance later at your own risk
• Bank sends bill after foreclosure
• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Ed in Yorba Linda asks:
Q. We have a 740 FICO credit score, more than ample reserves, no consumer debt, very good income-to-debt ratio, can qualify with full documentation and yet we own too many homes (more than 10) to qualify for a loan. We are not interested in hard money loans of short duration. We are long-term, buy-and-hold real estate investors. We can put a 30% down payment on the right property. Any ideas of where we can go for a non-owner-occupied loan?

A. The rule applies to Fannie Mae and Freddie Mac loans, but the entire rest of the mortgage world keys on what they do so it is not likely that you can find another lender who will swim upstream. Not only that, some lenders are still working off the four-property limit that was established early this year and later rescinded. My point is that you have to ask. Jumbo lenders don’t have that restriction, but it’s even worse. The ones I know about are only doing principal residence loans.

You might think about this strategy. The rule applies only to properties with loans on them. If you have 12 rental properties but only eight have loans on them, you can buy two more. If you have enough equity in one property, you can refinance the loan on it and have enough cash to pay off a loan on another property. That leaves you with an opportunity to buy one more. Once I did a big loan on a client’s home and we paid off loans on a half-dozen rental properties.

Mike in Mission Viejo asks:
Q. We bought a home in June 2008 for $400,000 in Mission Viejo. We put $80,000 down; the mortgage being $320,000 at 6% for 30 years, with monthly payments of $1,917. The balance is now $316,070. Although the lender, Wells Fargo, says in a form letter that we can reduce our payment by $142, when I spoke to their rep last month, he indicated that the costs involved wouldn’t make it practical to refinance at this time. My question is: Can we refinance at a lower rate that would reduce our monthly payment without having to pay up-front costs that negate the savings?

A. The answer is a qualified, “Yes.” It depends first on the value of your home. There has obviously been a further decline in the market since you purchased. That would mean you would have to pay mortgage insurance (PMI) because you would be over 80% loan-to-value. That would make it unattractive to refinance.

However both Fannie Mae and Freddie Mac have special programs that allow you to refinance with over 80% LTV without paying PMI. To see if Fannie Mae owns your loan, go HERE to and the Freddie Mac Web site is HERE.

Assuming you loan is owned by one of them, you can reduce the interest rate by over 1%. (Editor’s Note: Rates may have changed since Johnson answered this question.) That is an attractive opportunity because you would earn back your upfront costs in less than two years. That’s a great deal. Don’t rush in and take a no-point deal. It’s much more attractive to pay a point and buy down the rate even further.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Readers debate paying off their mortgages
• Buy now, refinance later at your own risk
• Bank sends bill after foreclosure
• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Louis in Irvine asks:
Q. I am a married 74-year-old retiree. I took out a 40-year adjustable-rate loan in 1987. My current interest rate is 5.5%.with a $536 monthly payment. I could pay off the $73,431 left but have chosen to continue the current monthly payments. Is it wise to continue the payments or pay off the balance? Another possible option might be to refinance. Any thoughts?

A. If your money is only earning a probable 1.5% today and if you pay off your 5.5% loan, your income drops by $1,100 per year but your expenses drop by $4,000. You can improve your cash flow by $2,900. However, I would do that only if you will not need that $73,000 again.

You should also note the tax considerations. Your itemized deductions with mortgage interest included may not exceed your standard deduction. That means you are not actually getting any benefit from the deductibility. But you will have to pay taxes on the interest income regardless. Check with your tax adviser to get the specifics on your situation.

Chickie in Fullerton asks:
Q. I refinanced my mortgage to a 15-year loan. I have nine years left. I am 72 and would like to end it earlier than that. Can I do this by paying extra money on the principal? Will it automatically shorten the years left?

A. I hope by “end it,” you mean end the mortgage, not YOURSELF. The answer is a very definite, “Yes, you can, and I encourage you to do so.” Any extra money sent in goes to reduce the principal amount. Say you had an original loan of $200,000. At 6% your payment is $1687.71 per month. After six years, you would still owe about $140,000. Increasing your payment to $2,500 per month shortens the life of the loan to 5.5 years instead of nine. For readers who have similar questions, you can find calculators that will help at numerous Web sites.

Congratulations on making good decisions and asking a good question.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Buy now, refinance later at your own risk
• Bank sends bill after foreclosure
• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Q. I’m interested in buying a house but I have little money for a down payment. I was wondering if I get an owner-financed mortgage, can I apply for a bank-financed mortgage in a year or two and would the money paid to the owner count as a down payment or would I still need a separate down payment with the bank mortgage?

A. That is a better strategy for a rising market. In today’s market, who knows where we are headed? The issue comes when you want to refinance to pay off the seller. Will you have enough equity? Here’s the problem. Our industry will treat your request as a cash-out refinance. Current rules say that your new loan cannot exceed 75% loan-to-value. Say you paid $300,000 for the home and had a $300,000 loan. Your home would need to appraise for $400,000 in a couple of years to make this work. In my view that is highly unlikely. If the seller will carry back for ten years, you would probably be safe with that.

These are times where the “old rules” apply and one of those rules is that you ought to set money aside for a down payment. Consider an FHA loan which will require only a 3.5% down payment.

Q. I bought my condo in Rancho Santa Margarita in 2005 for $305,000. It’s now at $170,000. I have a 1st and 2nd interest-only loan both at 7%, both adjustable, and with the second being at times as high as 11%. Both loans are current, never late, but I can’t get any help. I tried to refinance shortly in ‘06 but the banks told me times were bad and I would have to wait. The problem is I can afford my mortgages now as is, about $2,000/month, but after the second adjusts I will be paying close to $3,000/month — not a possibility for me. Also, I live in a one-bedroom condo which I have been told could take up to 10 years to rebound and that is not an acceptable time to live in that kind of space. Any advice? Short-sale or attempt to wait it out? After working so hard to keep everything in check, I refuse to ruin my credit just so I can get some help.

A. I really feel for you and I admire your determination to live up to your agreements and protect your credit score. You are a prime candidate for a mortgage modification. You have maintained a good credit record, you can afford your payment at current market rates, and you are willing to stay in the home and make payments. Your problem is that you have “toxic” loans. Not only are they substantially higher in rate than the current market, they can go even higher.

One would think that your lenders would be trying to work out an accommodation with you that would keep you in the home, even if they had to reduce your loan balance to give you some hope of recovery. Sadly, the mortgage industry seems short on common sense these days in spite of all the encouragement and cajoling from Washington.

Part of the problem is that your “lender” may not own your loan. They may just “service” it for some group of investors who are probably calling the tune. I hope that as these guys feel the crush of foreclosures, they are more willing to entertain realistic modifications for people like you who ought to receive prime consideration.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Bank sends bill after foreclosure
• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Q. The bank (my first lender was WaMu/Chase) took acquisition of my property on 08/19/2008. WaMu sent me a statement at the end of the year for my taxes, and it showed the home was foreclosed on. They have never sent me anything in the mail or contacted me since. The lender (Ocwen) on my second mortgage has continued to send me monthly statements, but never called. I finally called them to find out why they are sending me statements and of course my loan has increased since then. Ocwen claims I still owe the money and was not aware of the foreclosure. I had tried working with them regarding a short sale when I first vacated the property, and so did my realtor, but they wouldn’t approve anything or accept anything and that was the end of it, (or so I thought). I need to know if I do owe them the money. Do they and will they always have the right to come after me for the money?

A. The issue of legal liability for mortgage debts is very complicated. It varies from state to state and on the type of debt and when it was incurred. You will have to get the answer to your question from an attorney. Before you spend money for that, send papers relative to the foreclosure to Ocwen. If the loan amount is small and they finally see the fact of the foreclosure then they might just let it drop. Worth a try.

Q. We currently have a 1st mortgage on our home in Mission Viejo with a remaining balance of $414,000, interest of 6%, and payment of $3,654. It matures in 10/33. We also have a 2nd mortgage for $148,000, which is interest-only for 10 years and has a rate of prime -0.5%. We are a two-income family and want to start thinking of my retiring and becoming a one-income family. To do this we feel it is necessary to reduce our monthly mortgage payment. We are considering refinancing the 1st with a 15-year fixed-rate mortgage of 4.75%. The second would stay in place. The other option we are considering is paying an additional $1,000 per month towards the principal of the loan over the next 2 to 3 years to try and pay it off sooner. Which would be the better option? Or is there a better option we haven’t considered?

A. I like to have clients like you who think ahead. Your current rate is high enough so that you ought to refinance regardless. But you have some conflicting objectives here. The first one that occurs to me is that you want to reduce your mortgage payment but you say you want a 15-year loan. That has a higher payment. Your current payment is probably around $2,500 and going to a 15-year loan means a payment increase to $3,220. Can you afford that on one income?

If that’s uncomfortable you can still refinance to a 30-year loan at less than 5% and that makes economic sense also. Then, while you are still working, you can throw your entire net paycheck at the 2nd and make it go away much more quickly. You can also get an idea about what it would be like living on just one income.

I am a big believer in 15-year loans because they eliminate debt more quickly, a worthy objective. But we have just refinanced a few clients who owe a fraction of what they owed 10 years ago when we got them a 15-year loan. But now they still have that big payment with lower income. We are putting them back into 30-year loans.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

Read prior questions and answers by clicking on the headlines below…

• Forget downturn. Homeowner with equity wants to ‘cash out’
• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Mitch in Dallas, TX asks:
Q. I purchased a home for $110,000 in 1978 now worth somewhere between $750,000 (tax appraisal) and $900,000 (low end of comps in area). I refinanced with cash out for $200,000 with a home equity mortgage in 2002 at 6.2%. I would like to borrow $160,000 for improvements. What’s the least expensive way to do this? Also, we never had escrow payments but I’ve been told I’ll have to pay .25% to avoid escrow even though we’ve paid everything on time without escrow payments since 1978. Is that true?

A. I think that you are astute in seeing that there is some rate risk implicit in having the home equity loan. It is likely tied to the volatile prime rate. Even if you didn’t need money for another project, it would still make sense to refinance. Here’s how I define “least expensive.” It means paying the least for the total of upfront costs and interest over, say, the next ten years. Doing a zero point loan lowers immediate costs but adds to the interest costs much, much more than you saved initially. Choose any reputable lender for this. I always suggest asking friends for references

As to the added cost for not having an escrow account for impounding your taxes, many lenders have this policy, but others don’t. In some states, such as California, a lender can’t require it unless loan-to-value exceeds 90 percent. But the law doesn’t say they can’t charge. By the way, lenders like escrow accounts because so many people simply don’t pay their property taxes on time and then the lender has to chase them to get them to do it. If the lender controls the process, they don’t have that worry.

Cathy in Garden Grove asks:
Q. I live in a small two bedroom townhouse with my family of four. We are clearly outgrowing our home but with the way the economy and housing market have been going, we don’t think it would be a good time to buy or sell. We had a five-year hybrid ARM that became adjustable in April. My mortgage payment has actually dropped almost two hundred dollars since then. I am told that my reduced interest rate is locked in for a year and then it adjusts again, which horrifies me. My first question is should I refinance and when, and what type of refinancing will fit my short-term goal? I am enjoying the savings during these hard times. My next question is: I have always paid an additional one to two hundred dollars more towards my monthly mortgage, should I continue to do this? I also have a large home-equity balance that I have been trying to pay down. I have been paying just the interest on the balance owed but have recently started to pay an additional five hundred dollars a month towards the principal. I have tried to stay ahead of the game but am wondering if it’s even necessary at this point. We owe a combined $343,000, and the current value of the home is $341,000.

A. First, I congratulate you on making prudent financial moves that have protected you from going under water. That said, you also obviously do not have any equity to use to buy another home. So let’s deal with your situation. With rates so low, you are certainly not in rate jeopardy for a little while. Unfortunately, you are in a Catch-22 situation that our experts who make policy in Washington didn’t consider. Fannie Mae and Freddie Mac have special programs that would theoretically allow you to refinance into a fixed rate loan even though the loan-to-value is high. However – here’s the catch – they will not allow paying off your home equity loan. They will allow you to subordinate that loan, but it is unlikely that the holder of that loan will want to do a subordination with no equity.

That does not mean that you shouldn’t ask that lender if they will subordinate. Check to see if your loan is owned by Fannie or Freddie by looking at their Web sites. In the meantime, I think I would be more inclined to put that extra money into a special savings account rather than pay down your loans further. There’s just too much crazy stuff going on in the finance world these days.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

• Have your lender fund retirement
• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

John in Long Beach writes:
Q. I’m recently retired and find, not surprisingly, that my fixed income from two partial pensions and Social Security covers my expenses but leaves very little in the way of “disposable income.” I have $74,000 remaining on a mortgage with a 6.125% interest rate. My monthly payment (principal, interest and escrow) is $715. The homes in my area sell for around $550,000 to $675,000. My question: Since I accept that I’ll likely never pay off my mortgage, would refinancing help to put me in a better day-to-day cash flow position?

A. This is a guess because I don’t know your numbers but you may have trouble qualifying for much of a loan based on your admittedly reduced income. And the more money you borrow, the higher your monthly outflow. That doesn’t cure much.

You seem to be a candidate for a reverse mortgage. That allows you to convert your equity in a lump sum payment that you can invest or to receive a monthly income for life. Frankly, I think you are penalizing yourself unnecessarily to be sitting on a half-million dollars in equity and not be able to do what you want, like have a little fun.
You can find out more information at website www.reverse.org. Sadly, the site is a little out-of-date and many of the links do not work. But it is a good place to start.

I would warn you about one thing: this is complicated because program costs and benefits vary with your age and other factors. Although government-approved counselors are, theoretically all OK, let’s remember that it IS the government! I would not rely upon that. Your job should be to find a knowledgeable, experienced counselor. Get references when you think you have found the right person and check those references!

WantingtoRefinance in Brea asks:
Q. We currently owe $615,000 on a first mortgage, and $35,000 on a home equity line of credit. The rates are fixed, and our current monthly payment is $4,250 for the first and second, which is an interest-only equity line (although we always make payments beyond that). We never miss a payment, have outstanding credit, and have very steady income. We have been unable to refinance because no one believes our house will appraise for over $780,000 (last drive by estimate was around $725,000). We are trying to take advantage of current interest rates and lower our payment without taking any additional money out of our house and without putting any additional money down. Isn’t there someone out there that would like our business? Would we have a better chance of getting a bank’s or mortgage company’s attention if we were willing to do a 15-year fixed-rate mortgage?

A. First, rather than guessing what your home might appraise for I suggest that you select a lender and have them order your appraisal. That is going to cost you $400 but at least you will know what is possible.

From here on it is tricky. I assume that you have a genuine jumbo mortgage that is not owned by Fannie Mae or Freddie Mac. Second, it is important to know if the HELOC 2nd was done to finance the purchase or whether it was taken out afterwards. If it was used to buy the property, the terms and process will be easier. The rules on this are, literally, 19 pages long.

The good news is that there is a potential that may work for you. Both Fannie Me and Freddie Mac have expanded loan limits in high cost areas like Southern California that might allow you to refinance the 1st even if it were at 90% LTV if the HELOC was used to buy the home. If not, you would need to ask the lender on the HELOC to allow a subordination of their loan to a new 1st. Maybe they won’t. Catch 22. So you have to call that lender and ask their subordination policy.

Bottom line, you are going to have to: (a) be flexible and creative and (b) work with an experienced, competent loan officer. Most of the people at 800 numbers are just “telephone answerers” who do not know what they are doing. So find someone local with whom you can sit across the desk.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

• Reader considers defaulting to get lender’s attention
• Reader discovers appraisal irregularity
• Time to ditch California for cheaper living?
• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property
• Who qualifies for Obama’s mortgage refinance plan?
• Paying off a mortgage vs. refinancing
• Mortgage problems of the wealthy
• The skinny on 40-year mortgages
• Refinancing questions and answers
• How to buy with little money down
• Do banks renegotiate mortgages for ‘good’ borrowers?
• Is it time to buy a rental property?
• Caution urged on mortgages that fund retirement
• Refinancing can be tricky if your home was recently for sale

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

GG in Fountain Valley asks:
Q. My husband and I have owned our home in Fountain Valley for 10 years. We have a 30-year mortgage. We owe around $235,000, and the monthly payment is $1,800 with taxes. We refinanced last year and our house was appraised at $540,000. We are in our early 50s and have an 11-year-old child. My husband has been at his work for 20 years but he is not making what he used to and I am dipping into savings to pay bills. I work part time. We were thinking of selling our house, taking the equity, and buying in another state for cash or taking out a small loan, keeping some of the money for expenses as we wouldn’t have jobs yet. We have savings, more than a year’s of expenses worth, a 401K at $45,000, an IRA of $10,000, and an annuity of $253,000. No credit card debt or car payments. What do you think of our plan?

A. Those are gigantic questions that really are beyond the scope of this column, but I will pass on a few thoughts. Everyone’s goal is to be comfortable. You have made intelligent financial decisions and you are better off than most. It seems to me that your current situation is really due to a change in external circumstance, not through any fault of your own. So I admire your being flexible enough to consider a bold solution, like making a major move.

You are not the first people to have moved to California only to say 10 or 20 years later, “This isn’t what I moved here for.” A little known fact is that our population growth lately has been because there are a lot more births than deaths. More people are moving out of state than are moving in, so you are not alone. Ninety percent of Americans don’t live in California and the ones I know are all quite happy where they are. I think that you too can find a new home where you would be happy.

You should recognize that you can pay cash for a home, but if you need even a small loan, you are going to need jobs with an income for qualification purposes. When you find an area that appeals to you, you might start working on the job situation before you buy. My best wishes to you wherever you settle.

Don from Placentia writes:
Q. I am a disabled veteran currently attending school full-time, while my wife works full-time. I have excellent credit and my wife has mediocre credit. Our family income is about $60,000 a year and we do have 20% saved for a down payment, but I prefer not using it, if it’s not necessary. We are looking to buy a home at a price range of $200,000 to $300,000, which I calculate would be about the same price I’m paying for rent of $1,600 a month. I have looked into the loan options and find it confusing between the CalVet loan and conventional loan. I have tried researching CalVet on the Internet, but I could not find any details about the benefit of the loan and most mortgage brokers seem to know nothing about it. Could you help me sort out the two options of loans and which is best for me?

A. As a veteran myself, I want to thank you for your service to our country.

You have two options, the first is a CalVet loan which are good for people in some circumstances and perhaps that includes you. You can download a preliminary form online at www.cdva.ca.gov/CalVetloans/Default.aspx and fax it to your nearest CalVet office.

I believe that the staff there will help you compare alternatives and determine whether a CAlVet loan or a standard VA loan is better for you. Note that you will need your VA Certificate of Eligibility and your DD214. Instructions at the Web site will help you get both of these forms. Good luck.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

• Reader debates paying mortgage after down payment evaporates
• Will ‘walking away’ from an investment property hurt you?
• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property
• Who qualifies for Obama’s mortgage refinance plan?
• Paying off a mortgage vs. refinancing
• Mortgage problems of the wealthy
• The skinny on 40-year mortgages
• Refinancing questions and answers
• How to buy with little money down
• Do banks renegotiate mortgages for ‘good’ borrowers?
• Is it time to buy a rental property?
• Caution urged on mortgages that fund retirement
• Refinancing can be tricky if your home was recently for sale

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

TooManyHouses in Irvine asks:
Q. I “own” two houses: one in Irvine where I, currently, reside and one in Douglas County, NV. GMAC holds the mortgages on both properties including a first and second on the Irvine property. All of the loans are under 6% with no balloons. We are upside down on our Nevada property ($290,000 owed and market value now of $220,000 to $250,000). We have renters in the property, but the rental income leaves us with a $900 per month loss, which I cannot sustain any longer. I need advice as to how I can get out from under this financial burden without jeopardizing my Irvine home.

A. I am sympathetic with your situation but there isn’t much you can do. You have loans that are close to current market rate so a modification isn’t going to do much good, even if you could get them to do it. If you walk away from the Nevada property it will have a negative effect on your credit rating and you will be black-balled from getting a loan from normal sources for four or five years. But it will not jeopardize your Irvine home as long as you stay current. Given that the loan on your home is at a reasonable rate, you are in a better position than many who are in a similar position but who have toxic loans.

(Blogger’s Note: The Obama administration’s loan modification plan is for homeowners who are having trouble paying for the property in which they live. It is not meant for investors.)

Helen in Anaheim asks:
Q. This is my question: My husband and I have an adjustable-rate interest-only loan that becomes fixed in seven years at whatever the rate is at that time. It’s currently at 5.875%. We owe $640,000, and are now upside down because of the market. So, at this time are we able to refinance to a lower fixed rate? Or are we stuck until the market improves? We have my husband’s current income from his job, as well as a pension he is receiving, so we are not on the verge of bankruptcy, etc. and can continue to make payments.

A. The current market rate for loans like yours is about what your current rate is. That means a refinance today wouldn’t pencil out as to current benefit. There is some rate risk that you are taking but seven years is a long time. Who knows what’s going to happen? In all likelihood, the market will improve and by then you, and the rest of us, will have equity.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

• Can a lender demand a second appraisal?
• Income windfall … save it or pay off mortgage?
• Can you get a mortgage with social-welfare income?
• Is it harder to get loan aid from some lenders?
• Think twice before using one mortgage to pay another
• Buying an investment property? Some loan tips…
• Is paying off a mortgage the best option?
• Loan help, or loan shark?
• Answers for first-time home buyers
• Time to double-down on housing?
• Refinance to survive a cash-flow crunch
• Rainy day fund vs. lower mortgage payment
• Is ‘walking away’ from a home justified?
• Real estate investors get no sympathy
• The case for buying a home now
• Bigger home loans coming to O.C.
• A complicated mortgage that could fund retirement
• Loan doors open for serial housing investors
• Forget dodging refinance fees
• No job, no refinancing
• Avoiding a rate hit on an investment property
• Who qualifies for Obama’s mortgage refinance plan?
• Paying off a mortgage vs. refinancing
• Mortgage problems of the wealthy
• The skinny on 40-year mortgages
• Refinancing questions and answers
• How to buy with little money down
• Do banks renegotiate mortgages for ‘good’ borrowers?
• Is it time to buy a rental property?
• Caution urged on mortgages that fund retirement
• Refinancing can be tricky if your home was recently for sale
• Shopping for lowest rate is dumb way to get a mortgage
• Speedy mortgage payoffs could cost you
• Paying your mortgage may be the best use of your money
• A ‘good’ borrower these days is someone who…
• When insurers kill your mortgage application
• Mortgage insurance companies not giving breaks

Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |