Mortgage tips for people who relocate frequently

People who relocate frequently have special needs when it comes to financing home purchases, especially in today’s real estate and lending climate.

Two major factors for people who relocate frequently to consider are the terms of an adjustable-rate mortgage, and the tradeoff between loan closing costs and interest rates, said Pamela Hamrick, vice president of operations for LendingTree Loans.

Most adjustable-rate mortgages, or ARMs, have an initial fixed rate that adjusts after a set period. In general, the shorter the fixed-rate period is, the lower the initial interest rate. When the rate adjusts after the fixed-rate term expires, the new rate – and therefore monthly payments -- can be significantly higher.

The challenge is in matching the fixed-rate term with the length of time you expect to be in the home before relocating and selling, Hamrick said. If the rate adjusts after three years but you stay longer, you’ll be stuck with higher – and potentially unaffordable – payments.

“If you’re really not sure you’re going to move again, that might not be the way to go,” she said.

New considerations
Until recently, homeowners often refinanced to a fixed-rate mortgage before the rate adjusted upward. But Hamrick noted that tighter lending guidelines mean some people who would have qualified for refinancing in the recent past won’t be able to qualify now.

At the same time, the slow housing market is posing challenges for some workers trying to sell their homes when they relocate, Hamrick said. “If you need equity from that other house to buy a new house, it becomes a challenge if you don’t sell it on time,” she said.

Another thing to consider when relocating is whether a working spouse has a job yet at the new location, she said. Lenders consider “trailing spouse” income during the loan qualification process, but it’s just a portion of the previous earnings. Frequent movers who derive a large portion of income from commissions and bonuses may also be challenged in qualifying for a loan, she said.

Weigh costs carefully
People who relocate frequently also need to carefully weigh loans that have no or low closing costs versus those that charge traditional closing costs, Hamrick said.

Loans that don’t charge points at closing – each point represents one percent of the total loan – generally carry a higher interest rate than loans with no or low points. But the latter might make more sense for someone who won’t be in their home long, she said.

Here’s why: Let’s say you saved $2,000 at closing by choosing a $100,000 no-closing-fee mortgage loan. The higher interest rate on this loan means that the monthly payment is $40 more than you would have paid with a $100,000 loan charging two points. That means that in order to make the higher interest rate worth it, you would have to stay in the house long enough to make paying points worth the cost. In this instance, it would take you 50 months (or 4.12 years) to make it worthwhile to choose the loan with the points. ($2,000 (amount paid for points) / $40 (savings per month) = 50 months.)

“After that, it’s really costing you money to have the higher interest rate than to pay the point” at closing, Hamrick said. But people who relocate before hitting that point will save money with the no-points loan.

For help determining whether or not you should pay points on a loan, use the LendingTree Mortgage Discount Points Calculator.

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