Answering Your Mortgage Questions

If you missed last week's Web chat with David Reed, author of "Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You," take a look at the transcript.

Reed's book was the October selection for the Color of Money Book Club.

We were able to answer many of the questions during the discussion, but here are some leftovers that Reed answered after the chat:

Q: We are almost two years into a 5-year ARM. Although our down payment was more than 20 percent of the sale price, we still had a jumbo loan. Now that home sales have plummeted, we aren't exactly sure what our house would appraise at (bought it new in 2005). It's unlikely we have 20 percent equity despite having paid such a large down payment. When would be the best time to refinance be? Wait it out and hope home prices go up? We have until December 2010 to refinance and our current thinking is to aggressively pay down the principal in hopes we won't have a jumbo loan when we refinance.

Reed: How close are you to the current conforming limit of $417,000? With jumbo rates being a bit out of the ordinary, I would suggest paying your mortgage closer to the $417,000 level then refinancing before your jumbo 5-year ARM resets.

Q: We currently have a 6.5 percent ARM on our home for the next 7 years. We tried earnestly to refinance in May 2007 for a fixed rate (we had a 20/80 arm set to adjust in 8/07) but this is the best we could get. We've never been late on any payments. When should we refinance?

Reed: It appears there may also be an equity, or some other problem. A 5/1 ARM shouldn't be higher than a prevailing fixed unless it's a jumbo mortgage. You may indeed want to sit tight with your current rate and concentrate on paying a little bit extra each month. Not sure where your property is located but within the next 7 years undoubtedly home prices will have more than recovered at that point.

Q: Are 40 year mortgages good to have. I've been pre-approved for a 40 year mortgage with a 6.5 percent interest rate. Problem is that the broker is charging me $4,300 for loan origination fee. This number seems way too steep.

Reed: Find another broker and get a no origination fee loan. Forty-year mortgages are OK, I guess. It's just that unless you pay extra on the principal each month, you'll find very little equity in the property for the next 10 years as a result of principal pay down. If you can qualify for and are comfortable with a 30-year loan, that would be my preference.

Q: My husband and I are working to save up a 20 percent down for a town home or single-family home, our first purchase. My question is about closing costs: I assume that we will need 1 to 3 percent of the home's value in addition to the down payment, and that closing costs do NOT come out of the down payment. Is that right? It would be great if we could find one of those loans where closing costs are paid (we are first time buyers, have outstanding credit, and our only debts are college loans at a 2.5 percent interest rate). However, I want to work on the assumption that won't happen, and then if we have money left over, so much the better.

Reed: Fannie Mae has an excellent first time home-buyer program called "My Community Mortgage" which allows for zero money down and allows for the seller to contribute up to 6 percent of the sales price of the home to be applied to buyers closing costs.

Rates for the MCM are slightly higher than standard conventional loans but not by much. You should also check into an FHA loan with requires only 3 percent down with excellent rates again allowing for sellers to contribute to your closing costs. Your Realtor can help structure an offer that will allow sellers to help with closing fees.

What Do Your Kids Owe You?

I love reading the letters submitted to advice columnists. Some letters in particular provide a raw, inside look at the role money plays in families. I've said it before, but when people are fussing about money, it's rarely about the availability or lack of cash.

This certainly is the case in a recent Carolyn Hax column. A father wrote in that his grown daughter "owed" him the right to ask her to remove a tattoo. The father reminded his daughter of the money he and her mother have spent over the past 15 years. Money I might add, given to the daughter and her husband. "We have carried the loans for every house and car they have owned, given them more than $80,000, and they are repaying $20,000 more in loans" the father wrote.

The daughter responded to her father's request by telling him to go to Hades.

Read Carolyn's response to the situation. She's on point for both the daughter and father. My favorite observation she made: "Custodial finances produce grateful, thriving children roughly 0 percent of the time, and ingrates with ill-tended stockpiles of seething resentment about 100 percent."

What do you think? What do your kids owe you if you provide a great deal of financial support? Has a similar situation happened to you? E-mail your responses to colorofmoney@washpost.com. In the subject line put "Parental Support."

Rescuing Homeowners

Where there is a crisis there are would-be saviors. Such is the case on Capitol Hill, says The Nation's Housing columnist Kenneth R. Harney.

As Harney writes in his recent column, "New Ideas In Congress, But Not All Have Traction" (Oct. 27), there are a number of bills being proposed to save distressed homeowners, including one that would allow people to take money out of their tax-deferred retirement accounts without risking a penalty.

What are your thoughts on these rescue efforts? I'm particularly interested in how you feel about letting people pull money out of their retirement portfolios to bring their mortgage current or to refinance. Borrowers wouldn't have to pay the 10 percent federal tax penalty for an early withdrawal as long as the money was paid back within three years.

Send an e-mail to colorofmoney@washpost.com. Write "Rescuing Homeowners" in the subject line.

XM Show

You can still join me on the radio if you have a personal finance question and haven't been able to participate in my online discussions. I host "Singletary Says" every Sunday on XM Satellite Radio, Channel 169 The Power. The show airs from 8 p.m. to 10 p.m. ET.

Call in with your comments or questions. The number is (866) 801-TALK or (866) 801-8255. You can also e-mail your question, which I may read it on the air, at michelle@xm169thepower.com or at singletarym@washpost.com. Be sure to put "XM" in the subject line.

You are welcome to e-mail comments and questions singletarym@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.