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February 15, 2008


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I believe that a mortgage broker must be licensed to work in a particular state in order to issue loans in that state. That being said, there are many mortgage companies out there that are licensed in various states so it could be possible to find one that will offer you a better rate but not necessarily because the loan is issued in another state.

I just recently bought a house at 5.5% through FHA just before the FED held their emergency meeting and lowered rates the first time. After the second drop, I asked my mortgage broker if we would be able to get an even lower rate but she told me that even though the Fed rates dropped, the mortgage rates had fluxuated upward and that she had just quoted someone in a situation similar to ours just over 6%.

I don't know your sitatuation, but in my case, I would question whether refinancing so quickly is the right thing to do.

Comparing your loan in one state to others in another state is not a good idea. Each state has their own set of criteria for FHA loans. Only having your mortgage for 6 months, I would suggest waiting at least a year or year and a half before you look to refinance. Apparently you didn't make a large downpayment on the home, because you have an FHA mortgage. That would mean you have hardly any equity on your home at this point. By waiting a year or so, you give your home time to appreciate in value, thus increasing the equity. Not sure if your loan officer told you, but on an FHA mortgage, you pay a whole month's interest no matter what day of the month you pay it off or refinance it. If I were you, I would make principal payments monthly to reduce the amount of principal, which reduces the amount of interest and after your equity has increased, I would consider refinancing. I'm not suggesting that you take my advice, but another way to not get an FHA mortgage is to do what lender's call an 80/20 split. You get a first mortgage for 80% of the equity and then a second mortgage or equity line for the 20% balance. With these types of loans, you avoid mortgage insurance premiums or private mortgage insurance because you are only using 80% of the equity in the home for the first. These are tricky, because you must pay back the second mortgage like the first, or if you default on the second loan, you can be foreclosed on. If you choose that type of loan, I would work on paying off the second loan as quickly as possible, as the rates on those are usually slightly higher than first mortgages.

Another thing to consider is the break even point for refinancing. That is, what closing costs are you going to pay to get the new loan and how long will it take to recover those costs via the monthly payment savings with the lower rate? If you're planning on staying in the home awhile it might make sense, but if not, paying a bunch up front to get the lower rate may not be the right move.

I'm being offered rates anywhere from 5.5% to 6.5% on big ($5M+) commercial (office/industrial) deals. I would have expected to owner-occupied residential to be cheaper?

What is the typical refinance costs?

Thanks in advance,

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