Joel: Greg needs an explanation on how he can help ensure a mortgage servicer does not sell
his mortgage. He says, "I've had many mortgage companies and just when I think I got a good one,
they sell it, and each time it was a step down, bad customer service,
subtle rule changes that are worse for me and sometimes just bad websites. I'm with Quicken
now and they're great, but then I just found out that they're selling me in October. "So is there
anything consumers can do to stop this madness?" Clark: Unfortunately no. You know when you
originate a loan with a lender, they tell you what percent of their loans they sell. And
generally the number will be a 100% of their loans, and there's a very high likelihood
servicers trade you just like they're trading baseball player cards. I mean, it's just like
you're nothing to them. As long as you have a loan with a lender, having your servicing sold again
and again is a problem, because the records often don't translate. Well, you weren't mentioning
records. You were mentioning their procedures and how adequately they do customer no service.
But the other thing is you want to make sure that your loan balance always reflects correctly.
So you can simply print out your own amortization schedule for your mortgage
for free online. When servicing changes you can make sure that the balance being reflected is as
it should be -- and not that a payment did not get credited, a payment or two, get credited properly
when the servicing rights changed.
Clark: Gail joins us now on the Clark Howard Show. Hello Gail. How are you doing?
Gail: I'm awesome Clark. How are you doing? Clark: Great, thank you.
Well, how can I be of service? Gail: Okay, so I am on a forbearance on
my mortgage, and the forbearance is coming up on the end of September 20th. And so
my loan is a Fannie Mae loan. I'm currently having some repairs done on my house, and I plan to
list and sell my house as soon as possible. So my question is: Since Fannie Mae made deferrals
available for people with Fannie Mae and Freddie Mac, which one is better for my credit:
do a deferral or to stay on the forbearance? Clark: Stay on the forbearance for sure,
because that was done by statute. It was part of the Congressional
response to coronavirus. And so you have the initial three months followed by an
extension to six months, and you can extend for another six. In the area where you live,
how quickly will your home sell? Gail: Very quickly.
Houses sell pretty quickly here. Clark: So then I would say,
do the extension of forbearance. So this September will be six months for you?
Gail: Right. Yeah. Clark: So you can do the one more,
and in that time period you're going to put your home on the market, going to get it sold.
The good thing with the federally required forbearance is you're not reported as delinquent
on credit reports. You go into anything else you could end up with a delinquency on your credit,
which you don't want, and it buys you time. And when the deal closes on selling your home, the
money that was in forbearance, of course, has to be paid along with the remaining mortgage balance.
And so that is a clean process in theory, and that should work out best for you. How long is it going
to take you to get the home ready for sale? Gail: Probably another three weeks, I think.
Clark: Oh - really short time! Gail: Yeah. I mean I've been working
on it, and repairs and updates should be done really soon. So I should have it listed
by the first week of September, I think. Clark: Okay, so you get it on the market. If
you're right how strong the market is, you'll end up with the loan closed and you being out of there
well within the time period of the additional extension of forbearance you will have requested.
So that's the way I'd do it. And I wish you continued good health and
I hope that everything goes as smoothly as you anticipate on the sale of your home.
Joel: Clark, Rudy in Florida says, "I removed my escrow payments from my bank's monthly mortgage.
Each month I set aside the taxes and insurance into an account that I manage.
I'd like to know if there's a safe investment for this scenario that's better than a savings
account or a 6- to 12-month CD." Clark: No, that one's really easy.
You can't afford to put your escrow money at risk.
And so you need to go in a plain simple savings account or the CDs as an alternative as you
mentioned. You're not going to earn today more than 1%, but it's still 1%
you'll earn that you wouldn't have had otherwise. The problem with any other strategy of investing,
investing by its nature, the meaning of the word "investing," is you're putting
money at risk to hopefully get a reward, which means you could also lose money doing that.
Joel:
Clark, Chris in Wisconsin says, "Would you ever refinance a mortgage to put more money
into the market? I'm 35, my wife is 36. We both max out Roth 401(k)s, invest in an HSA
back to a Roth, plus we save about $1,000 a month for college for our two kids. We have a
house worth about $350,000, and we owe $165,000, three years into a 15-year mortgage at 3.4%.
So would it make sense to take money out in a cash-out refi to lower that rate and get a bigger
chunk into the market in an after-tax account?" Clark: You're doing so many great things
with your money. Don't take a good thing and turn it into a bad thing.
I would want you to refinance your mortgage right now though, and with the way you are about money,
why don't you look at going from, it was three years ago on the 15-year loan, is that right Joel?
Joel: That's right. Exactly. Clark: So you have a 12-year mortgage
at this point. I would like you to refi into a 10-year mortgage at a credit union. You'll get
a rate substantially lower than what you have now. You'll be on a trend line to pay off the loan in a
decade, be completely mortgage debt-free. And then if you want to increase putting
money into the market when you're done with the mortgage, just every month the amount of money
that you would have put towards the mortgage, put into the market. That's dollar cost averaging
is you're putting in little chunks over time. But there's way too much risk in you
taking a loan against your home to invest, because if those investments don't do well
you still owe on that mortgage. So "steady as you go" would be great with today's mortgage
rates. Getting that refi done with a credit union into a 10-year loan would be outstanding.
Clark:
Esperanza is with us on the Clark Howard Show. Hi, how are you doing?
Esperanza: I'm doing great. How are you, Clark? Clark: Good, thank you. You want to
run a mortgage riddle by me? Esperanza: I do. So we do have a
mortgage that we refinanced about six years ago. We have a maturity date of 2034. We pay 4.5%
and we do the bi-weekly program, to lessen the years and the interest that we pay, and that's
really paid off to do that. And we don't intend to move from the house any time soon. We also have
a second mortgage that we're paying off with an 8.25%. That actually ends in March of 2021. And we
do pay $303 a month for that which is a big chunk of change. And I was wondering with the interest
rates that we have right now, if it would be worth refinancing the first mortgage and perhaps
including the second mortgage along with that? Clark: Yes, potentially so and I would have
encouraged you to not do the bi-weekly that you're doing and instead to have poured more money onto
that second mortgage you have. But it is what you've been doing, so let's talk alternatives. So
at 4.5% you would be wise to look at doing a refi. You have approximately 14 years left. If you were
to do a 15-year refinance right now if your credit score and standing is good. Your credit is good?
Esperanza: Yes sir, and my husband's as well. Clark: You're going to get a rate right now
somewhere between 2.5% and 2.75%. So if you're at 4.5% now on the first,
and you said the second was at what? Esperanza: 8.25%, I just didn't know at the time
that second mortgages usually carry a higher rate. Clark: Yeah, second mortgages kill you because
they're in second position and many times, if somebody is unable to pay,
they just lose that money at the lender. So that's why you pay a higher rate. So in your case,
it would be a great idea for you to refi both of those together into a straight-out
new 15-year fixed rate, then just shop it around. Are you a member of a credit union?
Esperanza: I am not so we kind of left that, and we strictly deal with,
you know, one of the big banks that you will probably want us to shy away from.
Clark: Yeah, the giant monster mega-banks. Don't even think about going to a giant
monster mega-bank for a mortgage. They're really expensive on mortgages. So go find another credit
union and find a mortgage broker. That's somebody who can quote you from many different lenders
and look at doing that refi. I mean in your case, you could even do a no closing cost refi,
take a higher rate like let's say 3.25%, and you're still going to save a ton, taking that
4.5% and that 8.5% and putting them together into a new loan at a much, much lower rate. So
best to you. Go get shopping on it because the rates are so extremely good right now.
Kim:
All right, this is from Gail in North Carolina. Gail says, "I called the mortgage company about
my loan and was told that I could recast the loan balance and reduce my payments instead of refi-ing
the loan. I've never heard of recasting. Is this something that's wise for me to do?"
Clark: So that term is not an official term. It usually means that you lengthen your loan again,
and I assume that's how it was explained to you, that whatever number of years you have,
you extend the loan term which is a highly profitable event
for your mortgage lender and not a good event for you. If that is in fact what the lender meant
by recasting it, so you'd have to know what they mean. And if that is what they mean,
then ignore that and do a refinance into the ultra-low interest rates that are available in
the marketplace today. And if you are somewhere in your low 20s in years remaining on your loan,
look at a 20-year loan. Or if you can afford the payments look at a 15-year loan,
but don't go back into a new 30-year loan because then again you're paying many, many additional
years you take your life backwards from whatever number of years you have left back into a 30-year.
Clark:
Harish is with us on the Clark Howard Show. Hi, how are you today?
Harish: I'm doing good Clark. How are you doing? Clark: Great, thank you. You have a money dilemma
that many people would love to have, don't you? Harish: Yes, it is. It is indeed a good problem
to have. First of all, thank you very much for taking my call. I've been a big fan of
the show and the podcast as well. Clark: Thank you. So what's your
scoop financially? Because it sounds like you have really gotten
your financial house solidly in order. Harish: We think so, yeah. My wife and I,
we are doing very well, comfortable financially in terms of our retirement savings, kids education,
emergency fund and so forth. And the only debt we have is the mortgage on our primary residence. And
that sort of brings me to my question. I guess. It's a good problem to have but I wanted your
advice. So we have been saving money. It is through hard work. We didn't
inherit anything but we do have money in the bank to pay off the mortgage. The mortgage
is around 300,000 at 4%. We refinanced it couple of years ago. So the rates have come down since
and so we have about 28 years left. So either I can just pay it off, write a check for 300,000.
Clark: No way you have that much sitting in savings in a bank?
Harish: And that is really bad, I know. Clark: But wait, wait, wait on top of that
you are saving money for retirement. Harish: Correct.
Clark: You have saved money for kid's college. Harish: Correct.
Clark: Take that savings and wipe out that mortgage and be 100% debt free!
Harish: And that's what I have been hearing from a lot of advice. But then I've been also hearing
that, you know, you should really keep the mortgage: keep it as long
as possible. You get the tax deduction. Clark: No, the tax deduction is way oversold.
It's not worth you carrying a 4% mortgage. I would zero out that mortgage. Know you don't
have to worry about it anymore, that you own the home free and clear, is exactly what I would do.
Harish: Perfect! Clark: And I wouldn't, I mean
in your situation with all your financial ducks in a row so beautifully, you've lived substantially
on less than what you make, you have a lot more emergency funds obviously than you need.
I would be completely debt-free. And look every month going forward
after you've done that, you can take that money and put it to work for yourself that
you have been paying on the mortgage. So being debt-free is for you and me. Congratulations!