Merry Christmas, everyone! I hope the holiday season was full of relaxation and time with family, and that you're all looking forward to a fantastic 2006. I'm really looking forward to a lot of the things we've got planned for January Financial and the incredible ways we're going to be able to assist our clients.

This time I've included an interesting article on why it may make sense to go from a fixed-rate loan to an ARM, as opposed to vice versa. Feel free to contact me at carey@januaryfinancial.com if you have questions about the article...

Tips On Refinancing Your Home - When To Convert To An Arm
By Carrie Reeder

Common advice tells borrowers they should refinance their adjustable rate mortgage (ARM) to a fixed-rate mortgage. However, there are times when it makes better financial sense to do the reverse. The prime reason is that an ARM provides lower rates.

Low Interest Rates Of An ARM

An ARM's primary benefit is a lower interest rate. Typically a couple of points lower than a fixed-rate mortgage, an ARM can save you thousands. The downside is that an ARM's rates can rise.

However, if you are planning to move in a couple of years or expect rates to drop, then an ARM may be worth the risk. If you are worried about rising rates, you can select an ARM with rate and payment caps. There are also ARMs that convert to a fixed-rate after a preset number of years.

Smaller Payments With An ARM

An ARM can also give you smaller payments temporarily through lower rates. Even though these payments may rise, you can expect your wages to increase with the rate of inflation as well.

If you need some temporary breathing room in your budget, you may find that an ARM can help. There is always risk with this option, especially if you are planning on a promotion or career change in the future.

Considering The Costs

While lower interest rates can save you money, the loan costs can eat into your financial savings. Loan fees can easily add up to $3000, in addition to points. The general rule of thumb is that after three years, you will be saving money on the refinance deal.

There are times when you can see a savings earlier, especially if rates are more than two percent lower or you find a low cost refinancing deal.

To really know if you will save by refinancing, you need to research rates. Ask for quotes from several lending institutions. Then figure out your interest payments with the help of a mortgage calculator. Compare these with your current interest charges, and you will know what type of savings to expect. Subtract the loan fees and points, and you will find if you can come out ahead in the end.

Today I'm bringing you an article that I wrote for our monthly e-letter that goes out to our clients. If you'd like to sign up for this letter, please go to http://www.januaryfinancial.com and you can sign up right on the home page. The article is regarding 30-year fixed mortgages and why it almost never makes sense to get one with a "no points, no fees" kind of deal. I hope you enjoy it!

Why “No Points” 30-Year Fixed Loans Usually Don’t Make Sense

I hear it all the time, and you probably do too. On the radio, TV, in the newspaper or online – “Call now to get a 30-year fixed loan at x% with no points or fees!”. I’d like to explain to you why this almost never makes sense.

First, we need to make an assumption – if you’re getting a 30-year fixed loan, you’re planning on keeping the loan for several years. This may seem simple, but so many people get 30-year fixed loans because it’s what they’ve always gotten or because everything else is perceived as risky. If you’re not going to keep your loan for at least 7-10 years, it makes no sense to get a 30-year fixed loan. There are products available called hybrid ARMs (adjustable rate mortgages), which allow you to fix your rate for a set period of years (typically 3, 5, or 7 years). These loans usually have lower rates than 30-year fixed loans. If you’re not going to keep the loan for over 5 or 7 years, you shouldn’t pay more to keep it fixed longer than that.

So, you’ve decided that unlike the majority of people who refinance or sell their home every 3-5 years, you’re going to stay in your home and do not plan to refinance for at least 7-10 years. In this case, it may make sense for you to get a 30-year fixed loan. However, it still doesn’t make sense for you to get a 30-year fixed with no points. In order for you to understand why, I have to explain how loans and interest rates work.

When you go to a lender to get a 30-year fixed loan, they will tell you what interest rate you qualify for. If your loan officer is good, they will explain to you that you can buy down the interest rate by paying 1 or more “points” through the loan (a “point” is simply a lending term that means 1% of the loan amount, so if you have a $300,000 loan then 1 point is $3,000). If your loan officer is REALLY good, he’ll explain why it probably doesn’t make sense to get a 30-year fixed loan without paying any points.

In order for you to see what I’m talking about, let’s assume you’ve got a $300,000 loan amount and you can get a rate of 6.25%. Your monthly payment would be $1,847. However, if you agree to pay one point ($3,000) through the loan your rate will be 6%, which would translate into a monthly payment of $1,798. At this point, it’s useful to do a “break-even” analysis.

Take the amount you pay in points ($3,000) and divide that by the monthly savings ($1,847 – $1,798 = $49), which gives you 61. This is the number of months in which your monthly savings ($49) pay for your point ($3,000). In this case, if you’re planning on keeping the loan for 7-10 years at least then it makes sense to pay the point for the lower rate since you’ll be saving money. In fact you will save $2,900 after 10 years, $8,800 after 20 years, and almost $15,000 over the life of the loan!

Generally speaking, by paying at least 1 point when you get a 30-year fixed loan you’ll find a break-even point of 4-5 years. Since we’ve already made the case that you shouldn’t get a 30-year fixed loan if you’re planning on keeping your mortgage for less than 7-10 years, and the break-even point is generally 4-5 years, it usually doesn’t make sense to get a 30-year fixed loan with no points.

If you’re in a situation where you’re considering getting a 30-year fixed loan, I would suggest you do this analysis yourself. Ask your trusted loan officer for a rate quote at 0 points, 1 points, and 2 points, along with what the payment would look like at each rate. Then divide the amount you’re paying in points by the monthly savings to find your break-even point. If that break-even point is at least a year less than the amount of time you’re planning on keeping the loan, then pay the money and save in the long run!

Thanks to its inventor Al Gore, the Internet is here to stay and has forever changed the way we live. One of the major benefits provided by the Internet is the democratization of information. Anyone anywhere with access to the Internet can get price quotes on pretty well anything from tens if not hundreds of separate merchants.

However, it's not all good news. Pretty well anyone can give a quote, whether it be accurate or not, so it's quite easy to be mislead by someone with less than honorable intentions online. In that interest, I've included the article below...

Why online mortgage quotes don't always give the best rate

There were days when getting something mortgaged or financed was a big hassle. People had to survey the entire market in order to know about the existing rates and other details. But now things have drastically changed. Now you can familiarize yourself with what’s prevalent in the market by the way of internet. Getting mortgage quotes online is an excellent way to save the labor of wandering day and night in the market. For it fetches you the entire requisite details while you are relaxing at home. But along with these and many other merits there are few drawbacks too.

Pros and Cons of Online Mortgage Quotes

• The best part about online mortgage quotes, as I mentioned before is the convenience with which information reaches our doorstep.

• Online mortgage quotes are immensely time saving in comparison to getting the quotes through other sources. Applying for a mortgage online serves you with a spontaneous reply. Moreover when you apply online for a loan in person, the lenders aren’t supposed to impart a “good faith estimate” until 3 days after receiving the loan application. This is how you get to save a good amount of time and money by not contacting lenders via phone calls or email. This makes online mortgage loan all the more lucrative and fascinating to the aspiring individuals.


• Online mortgage loan is not just about saving time but also money. Sending an online application and completing the entire process is significantly less expensive for the lender. There is no issue of the customer going to the lender’s office to sign up forms etc., you can even negotiate for the interest rates online which most often ends in a discount to the applicant. The discount comes in the form of a reduction in the interest rates, loan origination fees and closing costs. This is also an outcome of the huge competition among the online lenders.

• Online mortgage provides you with the opportunity to compare, scrutinize and analyze the rates offered by various lenders.


• Those who opt for online mortgage biz receive estimates on closing or settlement costs contemporaneous to applying for the loan rates.

• By and large the people who apply online have a great knowledge of the loan process and have a good credit history. The applicants who appeal reliable and not undependable to the lender are only chosen and approved for the loan.


• The security of applying online is always a matter of debate. But the fact is that applying online is as precarious as applying through loan in person. In order to avert the chances of theft most of the online lenders use an encrypted transmission to send your loan information. Once the application is complete, the text is translated to a secure code which suffers from least chances of information being stolen.

• However lack of trust, no face-to-face negotiation etc. invoke odds of cheating or fraud. Most often lenders are the victims of online mortgage deceits. Also it is always possible for the hackers to decipher the codes, steal and misuse the details.


But the fact is that these demerits are not capable of surpassing the hefty benefits of online mortgage loans. Thus mortgage loans online are a good idea