OUR SERVICE

Your Pena Lending Group consultant will conduct a thorough initial consultation that goes far beyond your ordinary loan application experience. Our Residential Mortgage Planning service takes into consideration your current financial situation as well as your future goals, and tailor makes recommendations based on current and projected real estate and financial market conditions. Once a strategy is drawn (using a suite of proprietary tools), your specific loan scenario is run through automated loan search and underwriting tools to find the best execution. After the closing of your loan, we also offer free active monitoring of your entire mortgage portfolio for life to capitalize on changes in the market and ensure your mortgage strategy is optimized.

INFORMATION ON MORTGAGES FOR REFINANCING YOUR HOME

A Rate & Term refinance loan is used to reduce either the interest rate or the term in years of the loan. Our clients will refinance when interest rates drop, or in the case where we have had to put someone in a subprime loan, when their credit score has improved enough to qualify for better rates (A-paper). Occasionally our clients wish to reduce their loan term from 30 years to 15 years to pay less interest over the life of the loan and also pay it off quicker. If you wish to receive money from your home's equity when you refinance, you should consider a cash-out refinance as a Rate & Term will allow only a very small amount (less than $2000) of cash-back at closing.

Things to consider in picking out a mortgage:

Fixed Period. Although you may be determined that a 30 year fixed mortgage is the best way to finance your home due to the stability it offers, VERY FEW 30 year mortgages ever come to term. Most are refinanced after just a few years as people sell their homes, refinance as rates drop, or take a cash-out refinance on the property. This means that the majority of people who have paid the higher interest that a 30 year mortgage offers have paid the extra money for nothing. This is not the smart way to manage your money. Examine your situation realistically, and discuss it with your mortgage professional. It may be better to get an adjustable rate mortgage with a fixed period of 5, 7 or 10 years and enjoy the savings in rate and monthly payment while still maintaining some degree of stability. If however, you are reasonably sure you will hold onto that mortgage for many, many years then 30 year fixed is a good choice (or a 20 year, 15 year or 10 year fixed).

Interest-Only. One option for lowering your monthly payment is to consider an interest-only loan. This is a good way for you to lower the amount you are obligated to pay, while still allowing you to build up equity by sending in a little extra to principal every so often. This loan is a good choice for investment properties or homebuyers that want to lessen payment shock with the new mortgage.

Prepayment Penalty. Prepayment Penalties are a "free" way to lower your rate/payment. In exchange for your promise to hold the mortgage with a certain amount of principal for a set period of time, the lender will give you a lower interest rate, usually from .250 to .500 lower. In order to take advantage of this, you must choose a product which you will feel comfortable with for at least the term of the prepayment penalty, which can range from 6 months to 5 years. The typical penalty is a fee equivalent to 6 months' interest on any amount you pay over 20% of the principal balance in a given year. So, if you owe $200,000 and make a principal reduction of $40,000 within a year, you will not incur a penalty. If you pay down the balance by $50,000, then you will incur a penalty on the amount above 20%, which in this case is $10,000. If the interest rate is 6%, then your penalty will be $10,000 x 6% / 2 = $300. Most people incur the penalty because they pay off the entire loan balance due to a refinance or sale of the home. In the above example, if the loan is paid off the penalty would be based on $160,000 and the amount of the penalty would be $4800. A soft prepayment penalty means you may sell the home and not incur the penalty, only if you refinance or make a large principal reduction will you have to pay. A hard prepayment penalty refers to the penalty being enforced no matter if you sell or refinance. Some lenders may waive the prepayment penalty if you refinance your loan with them and you have held the mortgage for at least one year.

Discount Points. If you want to further lower your monthly payment, you may wish to buy down the rate by paying discount points. A point is one percent of the loan amount so on a $200,000 loan, paying a point equals $2000 more in closing costs. Let's say paying that point saves you $50 per month in interest. In that case it will take a little over three years (40 months to be exact) for you to break even on the $2000 you paid. As long as you have that mortgage for more than 40 months, then paying the point pays for itself over time.

Option ARM: For a primary residence, avoid an Option ARM (PayOption) unless you can very carefully manage it. This is a risky loan more suited for investment properties or second homes than a primary residence for many reasons. If it is not managed correctly, you will add to your principal every month instead of paying down what you owe, and if you do this excessively not only will you eat away your home's equity but you may trigger a much higher payment sooner than you expected. For an investment property, an Option ARM may be a great choice if you want to avoid negative cash-flow every month, especially if the property is in an area experiencing good appreciation and you do not intend to hold onto the mortgage or property for very long. Please consult with your mortgage professional for an in-depth analysis of your situation and thorough explanation of the risks and benefits of an Option ARM.