On February 1, 2012, The FHA set out a rate of 2.75% on a 15  year conforming rate without points.

The loan will not change for 15 years when it will be paid off.  The  cost of the loan includes the following:

1% fee for the MIP (Government profit), standard closing costs and  mortgage insurance if your loan to value  is >75%.  If you move the rate up an 1/8 or two the MIP will be  eliminated.

The payment on a $200,000 balance would be $1357 per month for  principal and interest.  Total interest  for the loan over 15 years is approximately $45,000.  You will pay off  half of the loan in about 8 years.

The loan is assumable on a sale, easier to qualify than for a Fannie  Mae or Freddie Mac loan and is eligible  for a streamline refinance after you are the borrower, although I can’t  imagine why you would do that.

This loan is not a procrastinators dream as it most likely will  disappear before you can think about for

2 or 3 days.

Obama proposes home loan refinancing plan

I have always enjoyed what I have done in life as well. Certainly, some of the work I enjoyed more and some of it less. Nevertheless, I always adhered to two rules: no alarm clocks and no days off unless I was instructed by a doctor to remain home. That does not mean that I skipped vacations or that I didn’t take days off, but they were always somewhat planned. Did I work hard every day? Absolutely not! I have always been known to finish the work, but maybe not in the time frame that I had given myself to finish. My schedule could be rearranged with a moment’s notice, as long as I didn’t forego the overall plan.

It has been said that more people have heart attacks on Monday because they hate their job. Here it was, starting up again after the relaxing weekend, on Monday and the chest pains began. Mondays, to me, have always been the beginning of a new challenge, even if that challenge is to play in a charity golf tournament. To me, life is a continual adventure and I try to maintain my focus on where that adventure is leading me. Does it always work? Not a chance. A pilot friend of mine once told me that a plane is off course 99% of the time and their job is to get it back on course. I believe my life follows that pattern and part of the adventure is straightening out the course.

Staying in the moment, as difficult as it may be, will let you experience, if not enjoy, every day of your life. I saw this saying on the wall of a 50′s diner on the way back from Las Vegas and it sums it all up.

Yesterday is history and tomorrow is a mystery. Today is a gift and that is why they call it the present!

The five on the plus side are the rates, the ratios, the down payments, the streamline refinances and the assumable loan at sale.  Unfortunately, mortgage insurance is required.

The best rates currently available are those offered by the FHA and the US Department of Veterans Affairs.  These rates are lower than Fannie Mae and Freddie Mac’s rates, and when it comes to ARM’s, they have better terms that lead to lower rates.  After the initial fixed period on an ARM, the interest rate can only increase (if the index and margin dictate) 1% per year. The rate on Fannie and Freddie loans can increase up to 2% per year.

The debt to income ratio qualifications are more relaxed with FHA and VA loans, and the minimum credit score allowed is also lower than the minimum allowed by Fannie or Freddie.

If you have been in the military or you are active duty military, then you can have a VA loan which gives you 100% financing, zero down loan to the conforming loan limits.  If you haven’t been in the military, you can have an FHA loan which allows 3.5% down up to $625,000, or the highest loan limit in your area.

FHA and VA allow streamline refinances if your balance is lower than the balance when the loan was originated, and if you have not had any late payments.  Streamlines do not require financial information or an appraisal.  Not needing an appraisal in this market would help us get out of the housing crisis because everyone (for the most part) could lower their payment and have a more manageable mortgage.

When it comes time to sell the property, the loans are assumable and definitely make the property more valuable.  Confirm this with your real estate agent.

Mortgage insurance is required, with a higher cost for 30 year loans and a lower cost for 15 year loans. The maximum time that you are required to have the mortgage insurance is 5 years.  There is also a small MIP (Mortgage Insurance Premium) deposit which does not affect the loan to value, and it is paid off with the loan.

Let us demonstrate the advantages of an FHA or VA loan while rates are as low as they have ever been.

Now that you see it do you believe it? It is pretty obvious that any loan is pretty good up to the 20 year amortization but after that you are simply overpaying interest to keep a loan going that doesn’t need to continue. While the 10 year fixed is clearly the least expensive way to finance your house the, 15 and 20 year loans are good alternatives for those who cannot afford the 10 year payment. There simply isn’t a good reason to opt for the 30 year except for very specific reasons which do not apply to the average borrower.

The monthly payments on the various loans referenced above are $2192 for the 10 year, $1671 for the 15 year loan, $1429 for the 20 year and $1211 for the 30 year loan. A quick look at the value of each loan in relation to the 30 year is as follows: The 10 year pays off in 1/3 of the time of the 30 year loan but doesn’t cost even twice as much! The 15 year pays off twice as fast as the 30 year but only costs about 1/3 more. The 20 year loan takes only 2/3 of the time to finish but only costs 18% more than the 30 year on a monthly basis. All of these examples show that the value to the borrower is not in the 30 year loan, but in every other loan.

The question now is how do you get into a shorter amortizing loan if your budget is already stretched to the maximum? One of the ways is to break it down to a daily cost. It won’t be pennies but it also won’t be that many dollars to go from a 30 year to one of the other choices. To go to a 10 year it will cost about $33 a day more, a 15 year will be approximately $15 a day (more manageable) and a 20 year will be the easiest at $7.25 a day. If you can find those types of dollars in your budget then you can save yourself a fortune! Your savings without interest accumulating will be as follows:

10 year will save 20 years of payments of $1211 a month = $290,640

15 year will save 15 years of payments of $1211 a month = $217,980

20 year will save 10 years of payments of $1211 a month = $145,320

($1,211.00 is the 30 year monthly payment)

These numbers can make the above sacrifice worthwhile. You can look at it as a weekend problem and notice that to get to a 10 year loan from a 30 year you would have to save about $245 a weekend, which might be more than you are currently spending. A 15 year loan would have a savings requirement of $115 a weekend which is still a monumental task for some. The 20 year loan only requires about $55 a weekend to be cut from your budget, which is certainly more feasible.

The actual savings above will only occur if you a comparing taking one of the other loans versus a 30 year. Most people will have been in their 30 year a few years before awaking to their financial situation and start thinking about the refinancing to a shorter term loan. Therefore the savings would be less.

There are many other ways but I would like to suggest the one that makes the most sense to me because it is a double win. If we assume you have credit cards of $20,000 and your monthly minimum payment is $400 which includes 1% of the balance as a principal reduction and carries 12% interest (low in this market) and you continue to pay the minimum until the balance is gone it will take you at least 8 years to finish, albeit the payment amount would average about $200 a month over the 8 years. Can you see the wisdom of rolling the credit card into a new 15 or 20 year mortgage and save most of the large sums listed above? I believe it is certainly worth considering.

This exercise is primarily to show you the enormous cost and waste of a very rare resource, your money. I hope the picture of all the red ink above will make you understand the unattractiveness, financially speaking, of the 30 year loan.