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Buyer's Blog Update 3/3/21

Buyer’s Blog

 The yield on the ten-year Treasury bills (T-bill) has risen roughly 0.75% over the past six months and 0.5% in February alone.  Mortgage rates are heavily impacted by the 10-year T-bill yields because the average homeowner moves an average of every seven years.  Tim has heard from two lenders over the past two weeks regarding the rise in mortgage rates from historical lows.  Mortgage rates rose 0.25% about three weeks ago and rose another 0.5% last week in response to the rising T-bill yields.  A mortgage interest rate increase of 1% raises the monthly mortgage payment about $50 for every $100,000 borrowed at current rates.  At the current median prices on Oahu, that equates to a monthly mortgage payment increase of about $180 for a condo or $400 for a single-family home for a buyer obtaining a 30-year mortgage and putting a 20% down payment.  Our website has a mortgage calculator that will calculate your monthly mortgage payment at different sales prices, mortgage rates, and terms.  Follow the link below if you would like to estimate your monthly mortgage payments while searching for a home.

Recasting a Mortgage:  Recasting a mortgage is a little known option available to some homeowners that want lower monthly mortgage payments, have paid off extra principal, or have a large lump sum of cash available, and do not want to refinance their mortgage.

Normally, if you pay off extra principal on a mortgage, the monthly payment remains the same and you simply end up paying off the mortgage sooner.  While this strategy will save you interest paid over the life of the loan, it will not shrink your monthly payments.

Recasting, or re-amortization, involves reducing your monthly payment by paying off a sizeable chunk of the principal on the loan, and then requesting the lender to recalculate the principal and interest owed using the same interest rate and time remaining to pay off the loan.  The result is that you pay a lower monthly amount, make your final loan payment on the date specified in the loan documentation, and save some interest over the life of the loan.  The added principal could have been paid off over time or the borrower could have a large lump sum available from savings, a recent bonus, or asset sale.  We recommend contacting your lender first before paying off a large chunk of your mortgage if you goal is to recast your loan.  Not all lenders will offer the option and some lenders may charge an administrative fee.  Bank of Hawaii for instance, will allow a borrower to recast their mortgage once for certain mortgages over the life of the loan.


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