Conforming loans are much different. The rates, at this writing, for 10, 15, 20 and 30 year fixed loans are in the 4% range with a point cost. Without points the rates are in the high 4% to low 5% which are generally 1/2% higher than the rates you get paying the point. This, of course, doesn't make any sense because one point up front is far superior to a 1/2% higher in rate for the life of the loan. You now have the opportunity to refinance for life because of the historical low interest rates and be sure to plan for the future when you make up your mind on the loan and interest rate you wish.
People with 30 year fixed, existing loans can refinance to a new 30 year without starting over if they keep paying the old loan payment when they take the new loan. You will pay your loan off much quicker than if you don't refinance. Those with interest only loans can switch to a fixed loan and even take cash out for reserves or other reasons and find something very unusual. You most likely will have a higher monthly payment because your loan is larger, even though the rate is much lower (4% range). What you may find, however, is that your interest payment will be lower and you will be amortizing (paying down your mortgage) with the rest of the payment. This means you are paying less for your loan (interest) than you were and the cash you pulled out isn't costing you anything.
Many borrowers are now able to take their current loan and sharply reduce their amortization, moving from a 30 year to a 20 year fixed or even a 15 year fixed and making a lower payment. Low interest rates mean less interest and thus significantly lower payments which allow for shorter times to pay off the loan.
Fannie Mae and Freddie Mac are now under the government and as we know the government is good at one thing: taxing all of us. Therefore you must realize that we have new charges for these loans. All loans that are amortized over a period greater than 15 years have a charge for doing the loan. This charge depends on loan to value and credit score. High credit scores (generally over 740) and low loan to values (60% or lower) do not have these costs. When you go up from 60% and down from a 740 credit score the costs appear and increase as the loan to value increase and the credit score decreases.
The following is a list of the other costs associated with Fannie & Freddie's conforming loans:
1. Cash out: Becomes expensive at 75% loan to value and/or at a 679 credit score, or less.
2. Units: 2 to 4 units for any use, rental or owner occupied, cost 1% (point.)
3. Rentals: Loan to values up to 75% cost 1.75%; over 75% cost 3 points.
4. No impounds for taxes and insurance (escrows) cost 1/4% in most states
(some states are exempt from this charge even if you don't take impounds).
All of the charges from the simple loan charge to the impounds are cumulative. There can be as little as zero or a 1/4% in additional fees up to 3 to 6 or 7% of the loan in additional fees. These costs are also added to the costs to buy down the interest rate with a point or more if you wish to lower the rate even further.
This column is getting too long and I am only warming up. There will be a second and maybe third column that will continue with the discussion. As per usual the pendulum has swung too far in one direction and people are being hurt,but hopefully it will stop going in the current direction and head back to the middle.