Friday, December 30, 2011
Tuesday, December 27, 2011
Monday, December 26, 2011
Friday, December 16, 2011
Monday, December 12, 2011
Thursday, December 8, 2011
Wednesday, December 7, 2011
Friday, December 2, 2011
Friday - December 2, 2011; Market Insight and Guidance
The November Jobs report came in at 120,000 new jobs, 140,000 in the private sector offsetting losses of government jobs. This is right in-line with expectations. There were upward revisions to the two prior months readings adding another 72,000.
Hourly earnings grew by just .1% compared to the expected .2% and that suggests no threat of wage based inflation and that is a good thing for bonds and interest rates offered on home loans.
The big "huh?" involved in this mornings report was a completely unexpected sharp drop in the unemployment figure from 9% down to 8.6%. However, that may or may not be a "real" number in that people who in essence give up on finding a job are not counted in the unemployment rate. i.e.- the 8.6% are people who are actively seeking work and cannot find it. 315,000 were removed from the "workforce" and therefore aren't considered when determining that rate of unemployment.
One bit that is currently flying under the radar though is the "Labor Force Participation Rate." This is calculated based on people over the age of 16, not in the military, qualified for work against the total number of people living in the country. Basically it measures how many people are living here are actually participating in the labor force. This fell to 64.0 down from 64.2 and is hoovering at 30 year lows. If this number doesn't come up north of about 66 or so, it will be difficult for our economy to grow fast enough to lower the budget deficit. We have to have people "participating" in order for our debt bill to be paid. It's that simple and this is a big deal, not sure why it isn't receiving the attention it deserves but we need to keep an eye on this as it could have very serious long term consequences if it's not corrected soon.
I expect to see home loan rates stay fairly flat for near future in spite of the jobs report and drop in unemployment. I think with inflation tame, the uncertainty in Europe, along with the rumors of QE3 (the Fed buying more mortgage bonds), the price for mortgage bonds should remained propped up keeping rates in the range we've been seeing for the last few weeks. HOWEVER, I also don't see a situation that would result in rates moving substantially lower as they are already holding at or around all time lows and though inflation isn't a problem yet, it is slightly elevated and as it continues to creep higher, it will prevent any further drop in rates and eventually the increases will start. In other words, now is the time, waiting for lower rates is a pointless and potentially foolish and costly game to play.
If you are in the market to refinance or purchase a new home and the only reason you're still on the sidelines is because you're taking the "wait and see" approach for mortgage rates, you need to get in the game now. If you are on the sidelines for other reasons, then now is the time to have a detailed consultation with me to find out what steps do we need to take over the next few weeks/months in order to eliminate those reasons so that you can get in the game before the opportunity passes us by. In other words, regardless of what is keeping you out of the conversation, it's time to take action and get on the phone with me. Whether we close a loan now or not is almost irrelevant because you will walk away from the conversation better equipped to position yourself in such a way that you greatly improve your overall financial health for you and your family. It's that simple! Call or email today and lets get the conversation started even if you aren't sure what direction we need to move in. Remember, doing nothing is an action in and of itself and the best action to take is rarely the "do nothing" approach. Talk is free, advice is free, the only thing you lose is a little time and the potential gains are tremendous.
Looking forward to our conversation!
Hourly earnings grew by just .1% compared to the expected .2% and that suggests no threat of wage based inflation and that is a good thing for bonds and interest rates offered on home loans.
The big "huh?" involved in this mornings report was a completely unexpected sharp drop in the unemployment figure from 9% down to 8.6%. However, that may or may not be a "real" number in that people who in essence give up on finding a job are not counted in the unemployment rate. i.e.- the 8.6% are people who are actively seeking work and cannot find it. 315,000 were removed from the "workforce" and therefore aren't considered when determining that rate of unemployment.
One bit that is currently flying under the radar though is the "Labor Force Participation Rate." This is calculated based on people over the age of 16, not in the military, qualified for work against the total number of people living in the country. Basically it measures how many people are living here are actually participating in the labor force. This fell to 64.0 down from 64.2 and is hoovering at 30 year lows. If this number doesn't come up north of about 66 or so, it will be difficult for our economy to grow fast enough to lower the budget deficit. We have to have people "participating" in order for our debt bill to be paid. It's that simple and this is a big deal, not sure why it isn't receiving the attention it deserves but we need to keep an eye on this as it could have very serious long term consequences if it's not corrected soon.
I expect to see home loan rates stay fairly flat for near future in spite of the jobs report and drop in unemployment. I think with inflation tame, the uncertainty in Europe, along with the rumors of QE3 (the Fed buying more mortgage bonds), the price for mortgage bonds should remained propped up keeping rates in the range we've been seeing for the last few weeks. HOWEVER, I also don't see a situation that would result in rates moving substantially lower as they are already holding at or around all time lows and though inflation isn't a problem yet, it is slightly elevated and as it continues to creep higher, it will prevent any further drop in rates and eventually the increases will start. In other words, now is the time, waiting for lower rates is a pointless and potentially foolish and costly game to play.
If you are in the market to refinance or purchase a new home and the only reason you're still on the sidelines is because you're taking the "wait and see" approach for mortgage rates, you need to get in the game now. If you are on the sidelines for other reasons, then now is the time to have a detailed consultation with me to find out what steps do we need to take over the next few weeks/months in order to eliminate those reasons so that you can get in the game before the opportunity passes us by. In other words, regardless of what is keeping you out of the conversation, it's time to take action and get on the phone with me. Whether we close a loan now or not is almost irrelevant because you will walk away from the conversation better equipped to position yourself in such a way that you greatly improve your overall financial health for you and your family. It's that simple! Call or email today and lets get the conversation started even if you aren't sure what direction we need to move in. Remember, doing nothing is an action in and of itself and the best action to take is rarely the "do nothing" approach. Talk is free, advice is free, the only thing you lose is a little time and the potential gains are tremendous.
Looking forward to our conversation!
Wednesday, November 30, 2011
Tuesday, November 29, 2011
Really looking for feedback.
Let me know what information and guidance you want to see more of on the blog. I put info out that I find interesting but I may have a different opinion than any readers looking for the next answer in the problems they are trying to solve and work through. Let me know if any of these you would like to see more of:
Weekly piece for Realtors on changes and trends in the mortgage world. Tips and Tricks to make closings smoother from initial application to funding. How to sell when no house appraises and no borrowers qualify. Just throwing out topics....
Strategies homeowners underwater looking for a way to fix the issue and minimize and/or eliminate loss completely. Selling a home that won't sell? (Realtor or seller)
How to maximize the benefits of home ownership and use the mortgage strategy to beef up savings, pay for college, etc. or what to do with a windfall income and how best to use that.
Investment property strategy from locating the property to making the right offer to how to carry that property for the time set before the returns would be raked in.
I can go anywhere with this stuff folks so tell me what you want to read and I'll make sure I get more and more of it out on the blog. If we're all helping each other sell then we're all doing our part to move closer to a recovery. We're in it together so let me know what I can do to help!
Weekly piece for Realtors on changes and trends in the mortgage world. Tips and Tricks to make closings smoother from initial application to funding. How to sell when no house appraises and no borrowers qualify. Just throwing out topics....
Strategies homeowners underwater looking for a way to fix the issue and minimize and/or eliminate loss completely. Selling a home that won't sell? (Realtor or seller)
How to maximize the benefits of home ownership and use the mortgage strategy to beef up savings, pay for college, etc. or what to do with a windfall income and how best to use that.
Investment property strategy from locating the property to making the right offer to how to carry that property for the time set before the returns would be raked in.
I can go anywhere with this stuff folks so tell me what you want to read and I'll make sure I get more and more of it out on the blog. If we're all helping each other sell then we're all doing our part to move closer to a recovery. We're in it together so let me know what I can do to help!
Thursday, November 3, 2011
What can I help you with today?
Interesting times to say the very least. Opportunities for home buyers to purchase more square footage for the dollar than at any other time in history. Opportunities for home owners to refinance to low fixed rates or even lower ARM products. Increase cash flow to beef up retirement accounts, college savings plans, eliminate other consumer debt. It is a definitely a worthwhile pursuit to have a conversation about options even if you don't follow through with a transaction. Not having the discussion seems like the worst thing when talking is free and the potential gain is so substantial.
Interesting times to say the very least. Opportunities for home buyers to purchase more square footage for the dollar than at any other time in history. Opportunities for home owners to refinance to low fixed rates or even lower ARM products. Increase cash flow to beef up retirement accounts, college savings plans, eliminate other consumer debt. It is a definitely a worthwhile pursuit to have a conversation about options even if you don't follow through with a transaction. Not having the discussion seems like the worst thing when talking is free and the potential gain is so substantial.
Monday, October 10, 2011
Relying on the Media to tip you off on low rates? We'll see....
The last week of September was a good for mortgage bonds. Bonds picked up some steam, rates edged lower, borrowing costs did as well. Last week we had the "hangover" from that good time with rates deteriorating each day of trading the first full week of October.
But after I watch the bloodbath of a week in reference to how rates and cost are getting pushed up on my borrowers, I then read these two articles and realize that most people read the article below than read my blog. Therein lies the problem. I do this for a living and I do this every day. The journalists puts together what is assumed to be newsworthy information from a trustworthy source. If I'm telling you that 2 weeks ago, rates were improving almost daily and then I tell you they were increasing every day last week, what would danger in printing these articles:
or even better yet:
Both of these articles were run at the end of last week, well after the rates they are referring to have been priced out of the market. so the phone starts ringing with people that I have the same conversation with every so often. "I heard rates dropped again today...." No you didn't, you read that rates dropped at some point over the last two weeks and the reporters just got the numbers from Freddie Mac, their "reliable source" and make no mention to the fact that the Freddie Mac numbers are referencing what WAS available last week and not what is available this week.
Keep a trusted mortgage advisor in your contact list and don't get caught up in this type or even worse, bankrate.com type "pseudo quotes." use them for what they are, bell weather for directional trends and not actual, offered, going rates as of today. You will get paralyzed with information and you need to understand the system.
But after I watch the bloodbath of a week in reference to how rates and cost are getting pushed up on my borrowers, I then read these two articles and realize that most people read the article below than read my blog. Therein lies the problem. I do this for a living and I do this every day. The journalists puts together what is assumed to be newsworthy information from a trustworthy source. If I'm telling you that 2 weeks ago, rates were improving almost daily and then I tell you they were increasing every day last week, what would danger in printing these articles:
Both of these articles were run at the end of last week, well after the rates they are referring to have been priced out of the market. so the phone starts ringing with people that I have the same conversation with every so often. "I heard rates dropped again today...." No you didn't, you read that rates dropped at some point over the last two weeks and the reporters just got the numbers from Freddie Mac, their "reliable source" and make no mention to the fact that the Freddie Mac numbers are referencing what WAS available last week and not what is available this week.
Keep a trusted mortgage advisor in your contact list and don't get caught up in this type or even worse, bankrate.com type "pseudo quotes." use them for what they are, bell weather for directional trends and not actual, offered, going rates as of today. You will get paralyzed with information and you need to understand the system.
Tuesday, September 6, 2011
...and by the way.
If you haven't already done so, "Like" Mortgage Network Columbia on Facebook. Every little bit helps!
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The Refinance Question
This was posted on my Mortgage Network Columbia Facebook page already but it is good information and I spent a little time on it so I figured I would post it as many places as possible! Please feel free to comment or offer a dissenting opinion, conversation and debate make us all better in the end and I'm never so proud/confident that I think I can't learn something new. Enjoy.
IS IT WORTH IT JUST TO LOWER MY RATE BY A HALF OF PERCENT?
The power of interest rate on a debt as large as your mortgage is often difficult to grasp. I’ve heard several variations of what “the rule of thumb” apparently is and all are wrong. All are also right….the problem with the rule(s) of thumb is this; they don’t take into account how you are approaching the transaction and how your mortgage planner, if you have one, is using his or her knowledge to properly structure the new loan and how that structure will impact you in the short run, mid-range, and long term in reference to your overall financial game plan. We’ll look at a couple scenarios by looking at some of the “rule of thumb” myths and some of the objections people have to the refinance and see why they are often misleading or at best not the whole story.
1) “It’s not worth it unless I can lower my interest rate by 2%.” (or 1.5%, or 1%.....I’ve heard multiple numbers plugged into this one so my rebuttal will apply to any and all of these.)
Well of course saving 2% is fantastic but what gets left out here is actually the reason people are putting that number there in the first place. The real question or point of emphasis should be, “What is the cost of the transaction and how does that cost get justified based on what my goals and objectives are?” Considering the nature of the questions, it doesn’t lend itself to “One size fits all” target rate reduction number that would work. Think about, if you have a mortgage balance of $150,000 and could lower your rate by 2%, a very large change in rate, but it cost you $10,000 it wouldn’t make sense.
$150,000 loan amount at 6.5% = $948.10/mo
$150,000 loan amount at 4.5% = $790.03/mo
Savings at lower rate = $188.07/mo
Cost of $10,000 / Savings of $158.07 = 63 months or 5 years, 3 months just to break even.
$150,000 loan amount at 4.5% = $790.03/mo
Savings at lower rate = $188.07/mo
Cost of $10,000 / Savings of $158.07 = 63 months or 5 years, 3 months just to break even.
Too many things can happen over 5 years to know whether or not you would ever see that benefit so I would say no, you don’t move forward on this one.
However, if you take that same loan and reduce the interest rate from 5.25% down to 4.25% and the total cost is $1,000…..lets look again:
$150,000 loan amount at 5.25% = $828.31/mo
$150,000 loan amount at 4.25% = $737.31/mo
Savings at lower rate = $90.46/mo (much lower monthly savings…..)
Cost of $1,000 / Savings of $90.46 = 11.05 months. Less than 1 year!
$150,000 loan amount at 4.25% = $737.31/mo
Savings at lower rate = $90.46/mo (much lower monthly savings…..)
Cost of $1,000 / Savings of $90.46 = 11.05 months. Less than 1 year!
So these two examples show that “I need to save 2% to refinance” is flat out wrong because we’ve seen that in one case, 2% isn’t worth it when the cost is brought into the equation and the other has a 1% savings and makes total sense because everyone has a better idea of where their life will be in 11 months. If recouping the cost inside of 11 months is still not quick enough then the conversation needs to be about your purchase mortgage and which Real Estate agent I would recommend.
2) “But if I refinance, I’m just starting over for another 30 years.”
I hear this a good bit and it’s like nails on a chalk board to me. The term of the loan is just one piece of the equation. The term tells us the maximum time until it has to be paid off and sets monthly payments accordingly. Unless you have a pre-payment penalty, something I never write, there is no rule against paying any of or the entire loan off at any point so you are in total control of the loan, the amortization or term simply gives us a deadline and a means to determine minimum monthly payment. So really, does the term matter at all provided you have an actual game plan in place?
Example:
Objection: Well your proposal is going to cost me $1,000 in closing costs and it’s going to put my loan back out to 30 years, in order prevent out of pocket cash for the costs and setting up the new escrow account your loan amount is higher than my payoff, and the monthly savings just isn’t enough. I just don’t think it makes sense…..
In the words of Lee Corso, not so fast my friend…….
Existing loan: $255,000 at 4.875% with 28 years remaining on the term. (336 months)
$1349.48/mo P&I payment
$248,787 remaining balance
$453,425.28 total of remaining payments
$1349.48/mo P&I payment
$248,787 remaining balance
$453,425.28 total of remaining payments
New loan: $250,000 at 4.25%, 30 year fixed rate mortgage. (360 months)
$1,229.85/mo P&I payment, savings of $119.63/mo
$442,745.91 total of all 360 payments
$1,229.85/mo P&I payment, savings of $119.63/mo
$442,745.91 total of all 360 payments
Option 1- Do nothing and just let monthly difference fall into your day to day budget/spending. This to me is the least attractive but it must be considered. To compare it under the “do nothing agenda” you have to look at the sum of payments remaining vs. sum of all new payments. You would save $10,679.09 and from that you’d have to subtract your cost of $1,000 giving you a “net benefit” of $9,679.09. so that does make sense but I would never advise this be the path because that’s a lot of money at once but over 30 years you wouldn’t really and truly know the difference.
Option 2- You’ve budgeted for the existing payment so why not just keep making it? Making the same payment but on the new mortgage at the lower rate we begin to see the separation. Under that scenario a couple of things happen.
The total dollar amount paid falls off a cliff…. It’s now $407,451.44 which is lower than paying the same amount for the next 28 years. How does that happen? Because you’ve now paid the loan off in 302 months which means you have effectively cut 5 years off the term of the new loan and cut 3 years off the term compared to the existing loan.
This is the best way to show that term of the loan is irrelevant and it only sets the bar at it’s lowest point. The new loan that “takes me back out to 30 years and increases my loan amount back up to $250,000” actually cut 3 years off the existing loan and saved you $45,973 in payments even with the increase of the loan over actual payoff. So worrying about the term and increased mortgage amount couldn’t be a bigger waste of your energy. Worrying about the plan is where you need to focus your efforts.
So….
Total of payments remaining by staying put: $453,425.28
Total of payments at the lower rate but making the same payment: $407,451.44
Total of dollars saved: $45,973.84
Minus your cost of $1,000
Net benefit of the transaction = $44,973.84.
Total of payments remaining by staying put: $453,425.28
Total of payments at the lower rate but making the same payment: $407,451.44
Total of dollars saved: $45,973.84
Minus your cost of $1,000
Net benefit of the transaction = $44,973.84.
Now that’s a little bit different than option1 isn’t it? Look at it another way or to annualize the benefit of the transaction, divide the net benefit by the 25 years until the loan is paid in full and it’s $1,798.95/year. Or an almost $1800/yr pay increase without tax……
All with $0 change to your existing monthly budget!
Option 3- My personal favorite….Take everything from option 2 and we’re going to make one simple twist. Rather than apply the savings as additional principal pay down, we took that $120/mo and made a monthly contribution to an interest bearing account and created a second appreciating asset to build our net worth. Using an annual rate of return 6%*, things look like this:
* 6% is a very conservative projection for long term investments considering that the overall return seen by S&P is 11% average since 1957. We’re not overstating the potential, we’re understating it tremendously. We are all aware that nothing is guaranteed and there is always “something that could happen” you can’t take it to the bank but then again, paying off your loan to zero does you no good either if the house is then worth $0…..it COULD happen but your assumption that it won’t is no more guaranteed than my assuming a 6% paltry return on an investment account.
$120/mo invested into a conservative, managed account at 6% average return:
The balance in 10 years: $23,304
The balance in 23 years: $78,993
The balance in 23 years: $78,993
Point at which the balance in the investment acct. is equal to the balance of mortgage: 23.67 years.
In other words, at this point you actually own your home free and clear…..how? Because you have the cash on hand to zero out the balance of the mortgage should you so choose based solely on the balance in the new investment account. This actually cuts another year off the loan and compared to the existing loan you are debt free 4.5 years sooner. (Comparing to the additional principal payment approach you pick up another 1.5 years off the mortgage.)
Yet again, all without any adjustment at all to your existing monthly budget!!
So term is yet again rendered a pointless place for your concern.
Conclusion to this rebuttal is simple…..4.875% is a low interest rate, but 4.25% is a lot lower. If your cost to achieve that rate is held low AND a plan is put in place for how to handle the realized monthly savings, who cares whether or not the maximum term of the loan is extended back to 30 years. Can you imagine how these numbers would look if your current mortgage was at 5.25% or 5.5% or 6%? It exponentially increases the urgency to visit your situation.
3) “You say the cost is $1,000 but there is another $2500 in “prepaids”….that’s money I have to spend so it’s a cost and should be factored into my cost/benefit analysis right?”
Not really….here’s why.
If you escrow your current mortgage, which most people do. Every month your payment includes 1/12th of your total homeowners insurance premium and 1/12th of your yearly tax bill. The servicer to whom you make your payments then takes that portion of the monthly payment and puts it into a savings account. (To simplify it we’ll call it a savings account.) Then every year when your insurance and taxes are due, they cut a check to the agent or the county/city to make sure that both items are paid on time.
That said, if you refinance and close today, your first payment will be due on November 1st of this year. If your insurance premium is due in November, you’ll be about 12 months short right? you never made a payment, it came due, and the escrow account balance would otherwise be $0. Same thing with taxes, however many months you would pay between now and when the tax bill is due will be less than what needs to be there. But you have been making those payments to the other mortgage right? Well that savings account is still there and you still have money in it and it’s still YOUR money. In other words when the refinance closes and the old mortgage is paid off, they have to send you back that money because you paid it but they never had the chance to pay the premium or the tax bill and you get it back.
So if you have a refinance with that $2500 in prepaids, roughly $2000 (estimating only based on a lot of experience) would be in the existing escrow account and therefore would be coming back to you. that’s still $500 short though…..
The rest will be interest. When you make your payment on September 1, you actually paid for the interest accrued over the month of August. You’ve paid in arrears, this is the way all mortgage loans work and is the opposite of rent. When I pay rent on 9/1, I actually pay for the right to live there over the month to come, the mortgage pays for the month that was. So using our closing of today from the escrow example, your first new payment would be due on 11/1 right? which would pay for Octobers interest right? Well if you never make an October payment then how are the remaining days of September paid for? Bingo….prepaid interest at the closing. So the difference between the escrow refunds and the prepaids on the new loan, 99% of the time, is going to be negated by the fact you miss a payment. This is VERY important and is not to be neglected in your calculations on cost/benefit.
In short, the prepaid line item on your good faith is not part of the equation on the cost/benefit but will factor into your best execution structure of the loan. (Do I get a new loan for the exact pay off and bring $2500 to the table or do I write the $2500 into the loan and negate my out of pocket? Things like that should be addressed with your mortgage professional based on current position financially, needs/wants, convenience, upcoming expenses, etc.)
As we just worked through these examples, hopefully you noticed the following:
- The amount the interest rate is reduced and the benefit in that reduction isn’t the same thing. I’m not saying “rate isn’t important” but it’s not important as the raw number itself as much as it’s only important in how effects your plan.
- Term is only part the equation and not the single piece to make your decision on. The term of the loan is relevant only in how it effects the minimum monthly payment.
- Cost isn’t a cut and dry number and money has to be accounted for in areas that aren’t truly costs.
Any mortgage, large or small, needs to be approached from a big picture planning position and not from any rule of thumb. By using any of these objections/assumptions to the refinancing process you are severely increasing the chance that you will let today’s fantastic opportunity slip by. How much benefit would you get from seeing the additional $50k+ added to your net worth over the next 23 years?
Retirement planning or retiring early, paying college tuition, eliminating other consumer debt, caring for your parents as they age, having your first child (or 2nd, 3rd, etc…..) and the list goes on. These are topics that are of concern and should be discussed with your mortgage professional on how best to achieve these goals. Discussing how much the rate is dropping is getting off the real topic if you think about it in those terms.
Saturday, September 3, 2011
The Risk/Reward of Waiting.
A 1-year chart shows Bonds are unable to break above key resistance created nearly one year ago. Rates can't improve further unless or until the Bond can do so. With President Obama set to talk next Thursday on jobs, and feelings that the Fed may do even more to help the economy - don't bet on lower rates just yet. Also notice what bond prices have done when this resistance level has been tested previously....sharp drop in pricing which leads to huge jumps in rates. The bet on lower rates is not the smart play. Refinance or purchase now and you're definitely going to come out ahead.
Tuesday, August 9, 2011
My Closing Last Week
Everything went according to plan with our closing last Wednesday. We have a wonderful new home with a wonderful new mortgage and everything is as it should be. There are two remaining problems for me to get worked out, one is finding all of my stuff and figuring out how I'm ever going to get back to some level of organization at the new house. The second is a bit more out of my hands, selling our old house.
Considering the current market, I was able to get such a great deal on our new home and the reasons for that are exactly the same reasons I can't sell the existing home. Lower property values make it more difficult for a seller to "get out of it what they have in it." That said, I'm not trying to make any money on the current home, I just want it sold. The reality of it right now is that I may very well end up having to take money to the closing, assuming anyone ever actually comes to look at the house, let alone make an offer. But even still, I know that what we did was the best thing for me, long term, and I will be willing to take that loss knowing that I picked up a better home, a more valuable asset, and purchased it with the cheapest money in history. That will far outweigh any heartburn over the existing home. I recommend that other do the same.
When blood is on the street, that is exactly when you buy. Fear is causing people to take the path of "inaction" to avoid risk. The reality of it is that inaction is the riskiest option on the table right now.
Considering the current market, I was able to get such a great deal on our new home and the reasons for that are exactly the same reasons I can't sell the existing home. Lower property values make it more difficult for a seller to "get out of it what they have in it." That said, I'm not trying to make any money on the current home, I just want it sold. The reality of it right now is that I may very well end up having to take money to the closing, assuming anyone ever actually comes to look at the house, let alone make an offer. But even still, I know that what we did was the best thing for me, long term, and I will be willing to take that loss knowing that I picked up a better home, a more valuable asset, and purchased it with the cheapest money in history. That will far outweigh any heartburn over the existing home. I recommend that other do the same.
When blood is on the street, that is exactly when you buy. Fear is causing people to take the path of "inaction" to avoid risk. The reality of it is that inaction is the riskiest option on the table right now.
Saturday, July 23, 2011
Purchase Update
Between work, trying to sell our house, and a very, VERY long overdue vacation with my girls, I haven't posted in almost a month. Coming soon will be an update on the process of purchasing our new home as well as a glimpse into the process of trying to sell one in this market. My hope is and always has been to use the blog to educate and enlighten as much as it is to generate business and create new wealth for my borrowers by giving them sound advice and direction on how to go through the mortgage process. I think that nothing could be more insightful in these times than an intimate look into the process of both buying and selling a home. Since I can share what I want in whatever detail I want about my own financial dealings without concern for privacy issues.....I can't think of a better way to handle it. Check back very soon and hopefully it will help you either make a decision, confirm a decision, or answer questions you may have about either process if you are also in the middle of a similar transaction.
I hope it helps and as always I am wide open to suggestions on what content any readers would like to see posted. As humbly as I can say this.....I am an expert in proper mortgage and liability management and a true mortgage planer that can help you maximize the benefits of home ownership. Whether you are a buyer, a seller, would like to look into a refinance, or a Realtor who needs a different approach to help boost your sales, use your resources! My expert advice is free and I am always happy to help.
Check for the new post soon!
I hope it helps and as always I am wide open to suggestions on what content any readers would like to see posted. As humbly as I can say this.....I am an expert in proper mortgage and liability management and a true mortgage planer that can help you maximize the benefits of home ownership. Whether you are a buyer, a seller, would like to look into a refinance, or a Realtor who needs a different approach to help boost your sales, use your resources! My expert advice is free and I am always happy to help.
Check for the new post soon!
Saturday, July 2, 2011
Practice What I preach....
So I've been talking for sometime now about how it's a fantastic time to make a "Move up Purchase" if you can put it all together where it works out for you. Rates are low, home prices are depressed further still and that means you're purchasing a distressed asset with discounted interest rates.
We currently own a 1900 square foot house that my family of 3 live in comfortably. 2 adults and my 18 month old daughter are certainly not "cramped" in the house and could easily stay here, as was our plan when we bought 2 years ago, for another 3-5 years if not longer and would only need to move if we had 2 more children and they got old enough to care about having their own room. With that in mind most people would say that we are at a minimum 7 years away from "needing more house."
7 years from now, I can tell you this with about 99.9% certainty; interest rates will be substantially higher and home prices will have not only recovered but we could be in the midst of another boom cycle. All markets are cyclical and it's just our extremely poor long term memory that allows us to think the good times go on forever and when things go bad, they will never recover. We always forget past experience when things are headed to one extreme or the other so those that say "housing will never come back," they came back after the depression didn't they? Booms and busts always end and 5-7 years from what could be the bottom, maybe/maybe not, but that time frame is certainly just about right for the next cycle to be in "full bloom" and that will be the swing back the other way.
So if I waited until I "needed" more square footage for our family, I would be paying 6%-7%-8% interest? Perhaps higher? Remember, the average is 9.04% over the last 40 years so though the 8% mortgage rates almost sound foreign to us as we're spoiled by the current environment, it's still 1.04% below our average.
When rates move up it will also signal another move.....decrease in unemployment, increase in wages, increase in consumer spending, all inflation inducing actions right? The first thing everyone "upgrades" when the good times return is their home. So a flood of buyers will push demand up and since building takes 4-8 months or more, the existing inventory of homes will be pushed higher in value.
So when I 'need' more square footage we've determined the most likely scenario will be houses that have been pushed higher and higher in value and rates will be moving in the same direction so I would pay a higher sales price and finance at a higher interest rate if I wait which means I'll either spend a lot more money for the same house we're buying on August 3 or I would have to buy less house and spend the same money. (A LOT less house....)
So I'm being proactive, I'm buying it before I need it yet I can afford it because of the discounted price of the home and the discounted price of the money I'm using to buy it with. Make sense? It should and if you're interested in doing the same, let me know and I'll help you put together a game plan to make it work out with your current situation.
Here is the link for our house, if you or anyone you know is interested, we're priced to sell!!
http://www3.priv.cmls.xmlsweb.com/public/reports/ListingDetails.aspx?StartRow=1&Position=1&lid=293561&prop_type=1&report_id=c_full
We currently own a 1900 square foot house that my family of 3 live in comfortably. 2 adults and my 18 month old daughter are certainly not "cramped" in the house and could easily stay here, as was our plan when we bought 2 years ago, for another 3-5 years if not longer and would only need to move if we had 2 more children and they got old enough to care about having their own room. With that in mind most people would say that we are at a minimum 7 years away from "needing more house."
7 years from now, I can tell you this with about 99.9% certainty; interest rates will be substantially higher and home prices will have not only recovered but we could be in the midst of another boom cycle. All markets are cyclical and it's just our extremely poor long term memory that allows us to think the good times go on forever and when things go bad, they will never recover. We always forget past experience when things are headed to one extreme or the other so those that say "housing will never come back," they came back after the depression didn't they? Booms and busts always end and 5-7 years from what could be the bottom, maybe/maybe not, but that time frame is certainly just about right for the next cycle to be in "full bloom" and that will be the swing back the other way.
So if I waited until I "needed" more square footage for our family, I would be paying 6%-7%-8% interest? Perhaps higher? Remember, the average is 9.04% over the last 40 years so though the 8% mortgage rates almost sound foreign to us as we're spoiled by the current environment, it's still 1.04% below our average.
When rates move up it will also signal another move.....decrease in unemployment, increase in wages, increase in consumer spending, all inflation inducing actions right? The first thing everyone "upgrades" when the good times return is their home. So a flood of buyers will push demand up and since building takes 4-8 months or more, the existing inventory of homes will be pushed higher in value.
So when I 'need' more square footage we've determined the most likely scenario will be houses that have been pushed higher and higher in value and rates will be moving in the same direction so I would pay a higher sales price and finance at a higher interest rate if I wait which means I'll either spend a lot more money for the same house we're buying on August 3 or I would have to buy less house and spend the same money. (A LOT less house....)
So I'm being proactive, I'm buying it before I need it yet I can afford it because of the discounted price of the home and the discounted price of the money I'm using to buy it with. Make sense? It should and if you're interested in doing the same, let me know and I'll help you put together a game plan to make it work out with your current situation.
Here is the link for our house, if you or anyone you know is interested, we're priced to sell!!
http://www3.priv.cmls.xmlsweb.com/public/reports/ListingDetails.aspx?StartRow=1&Position=1&lid=293561&prop_type=1&report_id=c_full
Tuesday, May 31, 2011
Weekly Talking Points for the week ending June 3.
From the guys over at Mortgage Coach, as always, full of great information and perspective.
Studying the data this week, the thing that stuck to my mind like chewing gum to the bottom of a school boy’s desk was this: There are now 175,000 newly-constructed homes on the market. Astonishingly, that’s the lowest number since 1963.
Still, new home sales in April rose by 7.3%. The industry has apparently reached the point where minimal of supply for sale is slightly exceeded by minimal demand. Underwhelmed by this news, Bloomberg’s online service called new homes “arguably the weakest sector of the whole economy.”
Sales of existing homes meantime slipped by 0.8% in April, while market inventory jumped to enough homes for 9.2 months at the current rate of sales. (That was 8.3 months in March.)
Welcome to “the darkest hour before the dawn,” to quote The Economist. It is very difficult to get cheery over the data released this past week. The Pending Home Sales Index, compiled from reports of the newly-signed home purchase contracts over the month, did a swan dive in April, falling 11.6%. Worst-hit was the South, with a 17% decline, but most analysts were quick to note that the South has also been hit hard by tornadoes and continuing weather problems.
Lawrence Yun, chief economist of the National Association of Realtors? (which computes the Pending Home Sales Index) offered the following soft-spoken reflections: “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months. The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”
Until this month, he has been grumbling the real estate sales are being minimized by overly restrictive lending policies and overly conservative appraisals. While he may be right, the fact remains that we are becalmed at the moment, our economic sails flapping for lack of wind. The weather, weak economy and unemployment are all side issues, not the cause of slow real estate sales.
Of course, it’s not just the real estate sector that is relatively motionless. Last Thursday, we had the first estimate of Gross Domestic Product growth in this year’s first quarter. Though many analysts expected about 2.2%, the report floated 1.8% as the rate of growth, weak even in a recovered economy—but in our stage of trying to regain a reasonable rate of economic growth, this figure is rather pathetic.
The only real silver lining here is the attractiveness of mortgage rates, though far too few are willing (or able) to step up and apply for a loan. It is as if we’re all thirsty and there’s water in plain view—but it’s ocean water, and we’re becalmed.
Taking the position that things are likely to improve feels a bit like wearing a 3-piece suit to one of my stepson’s rock concerts and declaring that a fashion change is on its way…but I do believe these are the hardest days to keep our chins up.
I just wish there were more indication of approaching economic improvement—a little breeze in our sails. At the least, nearly anyone who wants to arrange financing and can qualify in today’s market should do so. Rates won’t be falling more than an occasional basis point further for the time being, and they are reasonably likely to turn quickly when they move in a new direction.
by: Bill Fisher
Studying the data this week, the thing that stuck to my mind like chewing gum to the bottom of a school boy’s desk was this: There are now 175,000 newly-constructed homes on the market. Astonishingly, that’s the lowest number since 1963.
Still, new home sales in April rose by 7.3%. The industry has apparently reached the point where minimal of supply for sale is slightly exceeded by minimal demand. Underwhelmed by this news, Bloomberg’s online service called new homes “arguably the weakest sector of the whole economy.”
Sales of existing homes meantime slipped by 0.8% in April, while market inventory jumped to enough homes for 9.2 months at the current rate of sales. (That was 8.3 months in March.)
Welcome to “the darkest hour before the dawn,” to quote The Economist. It is very difficult to get cheery over the data released this past week. The Pending Home Sales Index, compiled from reports of the newly-signed home purchase contracts over the month, did a swan dive in April, falling 11.6%. Worst-hit was the South, with a 17% decline, but most analysts were quick to note that the South has also been hit hard by tornadoes and continuing weather problems.
Lawrence Yun, chief economist of the National Association of Realtors? (which computes the Pending Home Sales Index) offered the following soft-spoken reflections: “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months. The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”
Until this month, he has been grumbling the real estate sales are being minimized by overly restrictive lending policies and overly conservative appraisals. While he may be right, the fact remains that we are becalmed at the moment, our economic sails flapping for lack of wind. The weather, weak economy and unemployment are all side issues, not the cause of slow real estate sales.
Of course, it’s not just the real estate sector that is relatively motionless. Last Thursday, we had the first estimate of Gross Domestic Product growth in this year’s first quarter. Though many analysts expected about 2.2%, the report floated 1.8% as the rate of growth, weak even in a recovered economy—but in our stage of trying to regain a reasonable rate of economic growth, this figure is rather pathetic.
The only real silver lining here is the attractiveness of mortgage rates, though far too few are willing (or able) to step up and apply for a loan. It is as if we’re all thirsty and there’s water in plain view—but it’s ocean water, and we’re becalmed.
Taking the position that things are likely to improve feels a bit like wearing a 3-piece suit to one of my stepson’s rock concerts and declaring that a fashion change is on its way…but I do believe these are the hardest days to keep our chins up.
I just wish there were more indication of approaching economic improvement—a little breeze in our sails. At the least, nearly anyone who wants to arrange financing and can qualify in today’s market should do so. Rates won’t be falling more than an occasional basis point further for the time being, and they are reasonably likely to turn quickly when they move in a new direction.
by: Bill Fisher
Monday, May 30, 2011
Liquidating an Asset so you can do a Cash Purchase? Read this First.
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 If you are considering liquidating assets from a traditional retirement account for your housing needs, read this document first! Low mortgage rates can save you tens of thousands of dollars in taxes and lost opportunity cost. Consider this example:
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If you use cash from a non-traditional retirement account, you might not need to pay taxes when you use the money. However, a mortgage could still make sense in that situation. The bottom line is that you need to compare the after-tax cost of the mortgage with the after-tax rate of return you could otherwise be receiving on the money. It is always advisable to consult with licensed financial and tax professionals when evaluating strategies that impact your tax and financial situation. It is also advisable to consult with a Certified Mortgage Planning SpecialistTM(CMPS®) when navigating today's turbulent mortgage and real estate marketplace. As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your mortgage options! Contact me for more information!  Clint Hammond, CMPS®Mortgage Network, Inc.7011 Garners Ferry Road Columbia, SC 29209 803-771-6933 direct 803-771-6944 fax chammond@mortgagenetwork.com http://www.clint-hammond.com  |
Monday, May 23, 2011
Weekly talking points
Gold has worked its way back above $1500 an ounce, ending last week at $1508.90. Silver, on the other hand, which used to be hovering around $50 an ounce, can’t seem to work its way above about $35. And oil dropped nearly 1% to 112.39.
What I want to suggest here is that the inflation hypothesis may not be quite as strong as many advocates have been suggesting. Yes, gold is strong—but it’s primarily because of its status as an “alternative currency” in a time when major currencies may be weakened by one or more of many problems, not least of which is the apparent impossibility of making Greece whole again. (The financing of its sovereign debt is now costing the country nearly 17%.) Oil and silver are sitting on their heels, meantime.
I am just not satisfied with the argument that we have an either/or situation here. Either inflation or something like deflation. Either we should all be hiding from inflation in a cave somewhere with our wealth in the form of gold or we should join Bill Gross with our wealth in the form of Treasury bonds (because we agree they will be hurt the least by the forces of deflation).
I’m not sure I can get away with this, but I’m playing with another hypothesis—that both the Inflationistas and the Deflationistas are right…to a degree. Thus, they are also wrong…to a degree. The prices of a large number of items—oil, gold, raw metals, food—continue to rise. The prices of a large number of other items—houses, high tech items, furniture, department store goods—continue to decline. The key here is that emerging countries, many of which are in the midst of a major battle with speeding economies (and thus, with inflation) are driving up the first set of prices. The second set of prices has no such support and hasn’t found its post-recession legs yet.
But guess what? Housing may soon seem to be the key force in this up-and-down, inflation-vs.-recession economic game. The final stages of its recovery have been very effectively held off by the remnants of the foreclosure fiasco (which are definitely still with us) and the utter confusion among lenders regarding how to qualify buyers who will bring solid profits. It has been—and still is—a mess.
But there may be a light (still rather distant) at the end of this twisting and turning tunnel. No less than the editors of The Economist announced in their most recent newsweekly: “But there are signs this may be the darkest hour just before the dawn. House-ownership is beginning to look more affordable by many measures.”
Now, The Economist isn’t exactly Fast Eddie’s Cut-Rate Economic Forecast Service. It’s the real thing. The magazine notes that “the ratio of house prices to rents has returned to its pre-bubble level”; vacancies among rentals are way down and rents are up; the credit markets have begun to heal themselves, with foreclosures declining (albeit very gradually) and interest rates closing in again on their record lows; and a series of monthly improvements to the number of job formations.
To this, I would add that the worst foreclosure data is weighing heavily on national data. About 24% of recent foreclosures, after all, have been in Florida. It is not that difficult to find areas that have really lightened up, but you have to look past Florida’s figures to find them.
If The Economist is correct—and I’m willing to put my own money on their assertions—then it will still take some time for real estate indicators to look very good. It will take a while for the press to shake its habit of lamenting the slow real estate market, for the public to realize they’d better buy now if they want to catch the best rates, and for those who make these decisions in the corner offices of lending institutions to start designing loans that can attract a much larger share of the creditworthy borrowers out there. But all of this could happen more quickly than seems possible. I for one am ready.
by: Bill Fisher
What I want to suggest here is that the inflation hypothesis may not be quite as strong as many advocates have been suggesting. Yes, gold is strong—but it’s primarily because of its status as an “alternative currency” in a time when major currencies may be weakened by one or more of many problems, not least of which is the apparent impossibility of making Greece whole again. (The financing of its sovereign debt is now costing the country nearly 17%.) Oil and silver are sitting on their heels, meantime.
I am just not satisfied with the argument that we have an either/or situation here. Either inflation or something like deflation. Either we should all be hiding from inflation in a cave somewhere with our wealth in the form of gold or we should join Bill Gross with our wealth in the form of Treasury bonds (because we agree they will be hurt the least by the forces of deflation).
I’m not sure I can get away with this, but I’m playing with another hypothesis—that both the Inflationistas and the Deflationistas are right…to a degree. Thus, they are also wrong…to a degree. The prices of a large number of items—oil, gold, raw metals, food—continue to rise. The prices of a large number of other items—houses, high tech items, furniture, department store goods—continue to decline. The key here is that emerging countries, many of which are in the midst of a major battle with speeding economies (and thus, with inflation) are driving up the first set of prices. The second set of prices has no such support and hasn’t found its post-recession legs yet.
But guess what? Housing may soon seem to be the key force in this up-and-down, inflation-vs.-recession economic game. The final stages of its recovery have been very effectively held off by the remnants of the foreclosure fiasco (which are definitely still with us) and the utter confusion among lenders regarding how to qualify buyers who will bring solid profits. It has been—and still is—a mess.
But there may be a light (still rather distant) at the end of this twisting and turning tunnel. No less than the editors of The Economist announced in their most recent newsweekly: “But there are signs this may be the darkest hour just before the dawn. House-ownership is beginning to look more affordable by many measures.”
Now, The Economist isn’t exactly Fast Eddie’s Cut-Rate Economic Forecast Service. It’s the real thing. The magazine notes that “the ratio of house prices to rents has returned to its pre-bubble level”; vacancies among rentals are way down and rents are up; the credit markets have begun to heal themselves, with foreclosures declining (albeit very gradually) and interest rates closing in again on their record lows; and a series of monthly improvements to the number of job formations.
To this, I would add that the worst foreclosure data is weighing heavily on national data. About 24% of recent foreclosures, after all, have been in Florida. It is not that difficult to find areas that have really lightened up, but you have to look past Florida’s figures to find them.
If The Economist is correct—and I’m willing to put my own money on their assertions—then it will still take some time for real estate indicators to look very good. It will take a while for the press to shake its habit of lamenting the slow real estate market, for the public to realize they’d better buy now if they want to catch the best rates, and for those who make these decisions in the corner offices of lending institutions to start designing loans that can attract a much larger share of the creditworthy borrowers out there. But all of this could happen more quickly than seems possible. I for one am ready.
by: Bill Fisher
Friday, May 20, 2011
Week in Review
The Great Indicator, the 10-year Treasury note, for the second week held all of its straight-line gains since early April, from 3.60% to 3.15%.
Despite the Fed mumbling about reversing extraordinary ease, some decade ahead, despite all sorts of positive media spin, despite LinkedIn’s post-IPO value of $10 billion (649 times earnings), global investors are buying US Treasurys for safety.
Low-fee Mortgages touched 4.625% for the first time in six months, refi applications up, purchase ones sinking 3% last week. April housing starts fell 10.6% and permits 4%, both versus expectations for gains. Sales of existing homes fell .8% from March, as reported from NAR’s highly questionable, seasonally adjusted lipstick factory.
Industrial production was flat in April, but distorted by parts-supply interruption in Japan. Although the Philly Fed index crumped from 18.5 in April to near-breakeven 3.9 in May, manufacturing is still a bright spot.
This week’s Baghdad Bob Prize to the Mortgage Bankers’ Association economist Jay Brinkman. After announcing no improvement in 1st quarter mortgage delinquencies, he said, “Outlook is good. Market is on the mend.” American troops are not in Baghdad (camera pans around corner, to US M-1s under the crossed swords... Boom!). They are not there at all (Boom!).
We have certainly foreclosed through a lot of the weakest households and worst loans. But, what will happen to the next at-risk layers, given widespread price declines resuming, foreclosure dumping, and limited credit for absorption?
Next, a tale in two parts, sovereign debt in the US and in Europe. All kinds of people now ask, anxiously, if Congress will fail to raise the debt limit. A few hope we won’t. One local real estate proprietor last week, nice man, frustrated, clueless: “They have enough money.”
Of all the devils whom you consult at 3:00AM, parading across your bedroom ceiling, drop that one. The debt-limit hostage crisis dates at least to 1982. Republicans will use the lever as best they can, a Democratic-controlled government paralyzed, both parties afraid of the public -- and then will extend the limit.
Here we have one Treasury, one tax code, one banking system, and a rather large but single-issuer national debt. Treasury (and mortgage) yields are falling partly from successful QE2, partly from economic slowdown, but at the moment in largest part because Europe is making another run at falling apart.
The immediate catalyst: the European Central Bank said yesterday that in the event of any restructuring of Greek debt, even something as mild (and useless) as extending maturities, the ECB would no longer accept Greek bonds as collateral. In addition to the $340 billion in direct debt (largely held by German and French Banks), the ECB has floated $126 billion to support Greek banks. Greek 10-year debt reached 16.5% overnight, and 2-year 25.1%.
The strong in Europe have demanded Greek austerity to protect the banks of the strong, but Greece has reached economic and political exhaustion. We may be a weekend away from a New Drachma trading at 30 cents on the euro, or some can-kicking longer time. The ECB’s panicked threat to pull the plug on Greek banks says shorter is more likely than longer.
In the grand scheme, Greece does not matter. However, dominoes do. The rest of Club Med and the whole European banking system are all lined up.
Here, take heart. A Euro-crater would slow the global economy, but cash would race to the dollar and Treasurys. All currency collapses in a hundred years have helped us.
Draw any lesson you wish about profligate living beyond means, and about financial pretense, but do not assume that Euro-default means the same for us. One nation, one Treasury, one tax-collector, one budget -- we won’t like the sacrifice, we don’t know which party’s ideas will prevail, and the fix will neither be tidy nor final, but we are not headed down Europe’s road to default. We have structure, means and will.
by: Lou Barnes
Despite the Fed mumbling about reversing extraordinary ease, some decade ahead, despite all sorts of positive media spin, despite LinkedIn’s post-IPO value of $10 billion (649 times earnings), global investors are buying US Treasurys for safety.
Low-fee Mortgages touched 4.625% for the first time in six months, refi applications up, purchase ones sinking 3% last week. April housing starts fell 10.6% and permits 4%, both versus expectations for gains. Sales of existing homes fell .8% from March, as reported from NAR’s highly questionable, seasonally adjusted lipstick factory.
Industrial production was flat in April, but distorted by parts-supply interruption in Japan. Although the Philly Fed index crumped from 18.5 in April to near-breakeven 3.9 in May, manufacturing is still a bright spot.
This week’s Baghdad Bob Prize to the Mortgage Bankers’ Association economist Jay Brinkman. After announcing no improvement in 1st quarter mortgage delinquencies, he said, “Outlook is good. Market is on the mend.” American troops are not in Baghdad (camera pans around corner, to US M-1s under the crossed swords... Boom!). They are not there at all (Boom!).
We have certainly foreclosed through a lot of the weakest households and worst loans. But, what will happen to the next at-risk layers, given widespread price declines resuming, foreclosure dumping, and limited credit for absorption?
Next, a tale in two parts, sovereign debt in the US and in Europe. All kinds of people now ask, anxiously, if Congress will fail to raise the debt limit. A few hope we won’t. One local real estate proprietor last week, nice man, frustrated, clueless: “They have enough money.”
Of all the devils whom you consult at 3:00AM, parading across your bedroom ceiling, drop that one. The debt-limit hostage crisis dates at least to 1982. Republicans will use the lever as best they can, a Democratic-controlled government paralyzed, both parties afraid of the public -- and then will extend the limit.
Here we have one Treasury, one tax code, one banking system, and a rather large but single-issuer national debt. Treasury (and mortgage) yields are falling partly from successful QE2, partly from economic slowdown, but at the moment in largest part because Europe is making another run at falling apart.
The immediate catalyst: the European Central Bank said yesterday that in the event of any restructuring of Greek debt, even something as mild (and useless) as extending maturities, the ECB would no longer accept Greek bonds as collateral. In addition to the $340 billion in direct debt (largely held by German and French Banks), the ECB has floated $126 billion to support Greek banks. Greek 10-year debt reached 16.5% overnight, and 2-year 25.1%.
The strong in Europe have demanded Greek austerity to protect the banks of the strong, but Greece has reached economic and political exhaustion. We may be a weekend away from a New Drachma trading at 30 cents on the euro, or some can-kicking longer time. The ECB’s panicked threat to pull the plug on Greek banks says shorter is more likely than longer.
In the grand scheme, Greece does not matter. However, dominoes do. The rest of Club Med and the whole European banking system are all lined up.
Here, take heart. A Euro-crater would slow the global economy, but cash would race to the dollar and Treasurys. All currency collapses in a hundred years have helped us.
Draw any lesson you wish about profligate living beyond means, and about financial pretense, but do not assume that Euro-default means the same for us. One nation, one Treasury, one tax-collector, one budget -- we won’t like the sacrifice, we don’t know which party’s ideas will prevail, and the fix will neither be tidy nor final, but we are not headed down Europe’s road to default. We have structure, means and will.
by: Lou Barnes
Monday, May 16, 2011
Must Have Information.
4 Questions your Lender ABSOLUTELY MUST answer correctly.
1) What are mortgage interest rates based on?
2) What is the next Economic Report or event that could cause interest rate movement?
3) When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates?
4) Do you have access to live, real time, mortgage bond quotes?
5 Truths About Mortgage Financing.
First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS. But you didn’t really need me to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?
Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and I wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – I am not the cheapest. Of course my rates and costs are very competitive, but I have also invested in the systems and team I need to ensure the top quality experience that you deserve.
Third, MAKE CORRECT COMPARISONS. When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since there are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.
Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.
Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.
Again, my advice to you is to be smart. Ask questions. Get answers.
As you can imagine, I wouldn’t be encouraging you to shop around if I weren’t pretty confident that Ican give you a great value and serve you the very best.
Please call me with any further questions you may have at this time – I am ready to work for your best interest!
Friday, May 13, 2011
This week in review and a strong case to buy now.
Financial markets have been on hold for the past week as a result of across the board uncertainty about the US and global economies. We've seen mortgage rates slide almost 1/2% over the course of the last month and movement that big is in and of itself reason to avoid the "wait and see if things go lower" approach. Further downward movement in rates (or upward movement in price of mortgage bonds) would require some new fuel. (Weaker than expected economic data, Europe being repossessed.....etc., some additional catalyst would be needed to further push mortgage rates down.
We'll see where things go but I'm locking loans right now at rates that make it hard to argue against moving forward with a transaction be it a refinance if you haven't already, a first time home purchase, or making the jump to more square footage that you either already need but have been hesitant to pull the trigger on or on the upgrade you know you will need in the next few years. I can assure you a lot of people out there will be making an upgrade purchase 3 years down the road and will say to themselves "I REALLY should have done this in 2011 when rates were so low and this house I'm buying for $300,000 could have been had at $260,000...would have saved a lot of money...." I promise that will be frequently uttered in the coming years.
Big booms are always followed by big busts.....just look at the last few years. The flip side of that is also true though, busts are always followed by a smaller boom. It's the way the market does and always has worked. So that said, if we've seen a 14% drop (pulling that out of the air, all markets are unique to themselves so it's pointless to put a factually accurate number on it, this is more for example.) But lets say home prices are down 14% over the last 2 years, the inevitable flip side will be a period of rapid appreciation to "catch back up to" the average. It will happen, that's for sure. What isn't sure is the "when" part of that. To take that one step further, the recovery of housing will be coupled with and caused by a recovery in the overall economy and more importantly with a recovery in the unemployment numbers. Economic rebound + more people working + more money being made = More money being spent. That leads inevitably to inflation concerns and therefore to increased interest rates. So to summarize this point, not only in my scenario of the "2014 Home buyer making the upgrade purchase" will they be paying a sales price based on a hyper-appreciation market to balance out with our recent decline, the very nature of why that will be will also mean an interest rate of 7% as opposed to 4.75%.....so the money will be more expensive and it will require more of it. Do that math and you'll see a number larger than most peoples salary in the form of short term savings. With college to pay for, retirement to plan for, whatever your case is, I can't think of anyone I know that would prefer to spend exponentially larger amounts of money when they have the option not to.
Sometimes it makes so much sense, that no one seems to get it!
We'll see where things go but I'm locking loans right now at rates that make it hard to argue against moving forward with a transaction be it a refinance if you haven't already, a first time home purchase, or making the jump to more square footage that you either already need but have been hesitant to pull the trigger on or on the upgrade you know you will need in the next few years. I can assure you a lot of people out there will be making an upgrade purchase 3 years down the road and will say to themselves "I REALLY should have done this in 2011 when rates were so low and this house I'm buying for $300,000 could have been had at $260,000...would have saved a lot of money...." I promise that will be frequently uttered in the coming years.
Big booms are always followed by big busts.....just look at the last few years. The flip side of that is also true though, busts are always followed by a smaller boom. It's the way the market does and always has worked. So that said, if we've seen a 14% drop (pulling that out of the air, all markets are unique to themselves so it's pointless to put a factually accurate number on it, this is more for example.) But lets say home prices are down 14% over the last 2 years, the inevitable flip side will be a period of rapid appreciation to "catch back up to" the average. It will happen, that's for sure. What isn't sure is the "when" part of that. To take that one step further, the recovery of housing will be coupled with and caused by a recovery in the overall economy and more importantly with a recovery in the unemployment numbers. Economic rebound + more people working + more money being made = More money being spent. That leads inevitably to inflation concerns and therefore to increased interest rates. So to summarize this point, not only in my scenario of the "2014 Home buyer making the upgrade purchase" will they be paying a sales price based on a hyper-appreciation market to balance out with our recent decline, the very nature of why that will be will also mean an interest rate of 7% as opposed to 4.75%.....so the money will be more expensive and it will require more of it. Do that math and you'll see a number larger than most peoples salary in the form of short term savings. With college to pay for, retirement to plan for, whatever your case is, I can't think of anyone I know that would prefer to spend exponentially larger amounts of money when they have the option not to.
Sometimes it makes so much sense, that no one seems to get it!
Tuesday, May 10, 2011
Plan your mortgage around a strategy, don't shop for rates.
How important is interest rate? How important is amortization period? How important is principal reduction with your mortgage?
See below........
Bottom line is this, is rate important? Yes, always. Is the most important? Nope, I might consider it 3rd or 4th most important factor in shopping for a home loan. Proper game planning is A-#1 on the list. Level of service and reliablity is 2nd and I would put out of pocket and upfront costs at the third spot with Rate maybe coming in 4th. (I could make an argument for product being number 4 and rate being 5.....)
Point is this and it's pretty simple: A low rate is worthless if the loan doesn't close or the loan closes at this low rate but is contradictory to your desired financial outcome.
See below........
Bottom line is this, is rate important? Yes, always. Is the most important? Nope, I might consider it 3rd or 4th most important factor in shopping for a home loan. Proper game planning is A-#1 on the list. Level of service and reliablity is 2nd and I would put out of pocket and upfront costs at the third spot with Rate maybe coming in 4th. (I could make an argument for product being number 4 and rate being 5.....)
Point is this and it's pretty simple: A low rate is worthless if the loan doesn't close or the loan closes at this low rate but is contradictory to your desired financial outcome.
Saturday, April 9, 2011
What does 2011 Hold for Mortgage Rates?
According to a Reuters poll of dealers, bankers, brokers.....not too many folks share our outlook for another run lower in rates.
It looks like 2011 is going to be one giant range trade. Such a wide variety of expectations....
A 10yr note yield at 4.00% would put "Best Execution" C30 mortgage rates between 5.375% and 5.625%
Obviously there is never a "definite" when you are talking about the markets and how they will behave under unknown conditions. (i.e.- no one could have predicted the horrible events in Japan recently and therefore no predictions could or would be made on how that may impact world markets.) So these polls are useful only in that they indicate "what should happen based on what we know as things are today." So to keep in perspective, this may be a gross overstatement of where rates will sit and it could be as big or bigger error on the other side and rates could be much higher. Either way, conventional wisdom does tell us that rates cannot sustain the low levels that we've all become accustomed to the last few years. In reality, without government intervention and their aggressive easing policies since January of 2009, we may have already seen rates rise substantially over where they currently are. It's obvious that we have been in a trend of rising rates for the last two weeks and things are never a straight line. For every .25% increase in rates, there will be a .125% decline in the short run. So a rising rate environment will STILL create brief windows of opportunity for homeowners and home buyers to take advantage of those little corrective blips and get a rate locked in.
The most important piece of information and advice is simple but the best advice always is simple. Work with someone on your home financing options that you trust, that you know is keeping tabs on the volatile market, and is doing so with your best interest at heart. In order to do that, a game plan has to be laid out and then stick to your guns and you will always make out ahead in the long run.
Call or email today and it's a very simple process; we determine a time that is convenient for you to come by the office with the list of documentation I will provide for you when we talk. We set aside 30 minutes to discuss a plan of action and then we put it into place once we determine the most cost efficient means of achieving what is most important to you and your family. It may or may not result in a mortgage transaction at all but I think you will find it beneficial and informative and if nothing else, you will know that you are working toward a bigger goal and doing so with confidence that you may otherwise not have.
Hope to see you soon.
It looks like 2011 is going to be one giant range trade. Such a wide variety of expectations....
A 10yr note yield at 4.00% would put "Best Execution" C30 mortgage rates between 5.375% and 5.625%
Obviously there is never a "definite" when you are talking about the markets and how they will behave under unknown conditions. (i.e.- no one could have predicted the horrible events in Japan recently and therefore no predictions could or would be made on how that may impact world markets.) So these polls are useful only in that they indicate "what should happen based on what we know as things are today." So to keep in perspective, this may be a gross overstatement of where rates will sit and it could be as big or bigger error on the other side and rates could be much higher. Either way, conventional wisdom does tell us that rates cannot sustain the low levels that we've all become accustomed to the last few years. In reality, without government intervention and their aggressive easing policies since January of 2009, we may have already seen rates rise substantially over where they currently are. It's obvious that we have been in a trend of rising rates for the last two weeks and things are never a straight line. For every .25% increase in rates, there will be a .125% decline in the short run. So a rising rate environment will STILL create brief windows of opportunity for homeowners and home buyers to take advantage of those little corrective blips and get a rate locked in.
The most important piece of information and advice is simple but the best advice always is simple. Work with someone on your home financing options that you trust, that you know is keeping tabs on the volatile market, and is doing so with your best interest at heart. In order to do that, a game plan has to be laid out and then stick to your guns and you will always make out ahead in the long run.
Call or email today and it's a very simple process; we determine a time that is convenient for you to come by the office with the list of documentation I will provide for you when we talk. We set aside 30 minutes to discuss a plan of action and then we put it into place once we determine the most cost efficient means of achieving what is most important to you and your family. It may or may not result in a mortgage transaction at all but I think you will find it beneficial and informative and if nothing else, you will know that you are working toward a bigger goal and doing so with confidence that you may otherwise not have.
Hope to see you soon.
Wednesday, April 6, 2011
Perspective
In this village, a little boy was given a gift of a horse. The villagers all said, "Isn't that fabulous? Isn't that wonderful? What a wonderful gift!"
The Zen master said "we'll see."
A couple years later the boy falls off the horse and breaks his leg. The villagers all said "Isn't that terrible? The horse is cursed! That's horrible!"
The Zen master said, "We'll see."
A few years later the country goes to war and the government conscripts all the males into the army, but the boys leg is so messed up, he doesn't have to go. The villagers all said "Isn't that fabulous? Isn't that wonderful?"
The Zen master said "We'll see."
The Zen master said "we'll see."
A couple years later the boy falls off the horse and breaks his leg. The villagers all said "Isn't that terrible? The horse is cursed! That's horrible!"
The Zen master said, "We'll see."
A few years later the country goes to war and the government conscripts all the males into the army, but the boys leg is so messed up, he doesn't have to go. The villagers all said "Isn't that fabulous? Isn't that wonderful?"
The Zen master said "We'll see."
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Saturday, April 2, 2011
Volatility in March and How to Properly Shop for a Mortgage.
This long but worth the read, the March market summary lends itself perfectly to the topic of “how to properly shop for mortgage financing.”
March was a little nutty to say the least. Bonds roared in like a lion going from 101.94 for the FNMA 4.5% bond up to 102.81 on 3/16/2011. Of course in sticking with the cliché, they went out like a lamb a saw that go from the 102.81 down to touch a low price point of 101.34 and then close the month at 101.69. So there was a 1.47 swing between the high and the low, or 147bps. To put that in context to rates, that means that for every $100,000 borrowed on a home loan, the cost of borrowing that same amount of money would have been $1,470 more expensive to borrow on the day that prices hit the low 101.34 than it was on the day prices hit the high of 102.81. That cost may have translated to a higher rate or to higher up front cost or some balanced combination of the two. Either way, I’m sure you can understand that in only a 31 day window, $1,470 swing in cost for the same amount of money borrowed by the same person is a pretty big swing!
That would be like the cost of gas going from $2.50/gal on day 1, dropping to $1/gal half way through the month, hitting a new high of $5/gal before settling back around $3/gal at the end of the month. Now gas prices have certainly been volatile as of late but they don’t hold a candle to the mortgage rate environment. Especially when you look at a day like March 21 where to translate to the gas analogy it would be like seeing gas for $1.80/gal on your way to work, $2.50/gal on your way to lunch, $3.25/gal on your way back from lunch, and then $4.00/gal on your way home. That is literally what mortgage rates did on that one day.
That’s a prime example of how foolish it is when you are mortgage shopping to get a rate quote from someone, then call someone else the next day to get a quote, then a 3rd one the following day….what are you comparing? NOTHING! The number way to properly choose your mortgage lender are by asking these questions and making sure the lender answers all correctly. The questions are below, the answers are in red.
1) What dictates mortgage rates? The price of mortgage backed securities. Not the 10 yr Tbill, not Fed Funds Rate, not the Discount rate, not Prime, not anything else. MBS and that's it.
2) Do you have a system in place to monitor the market because I understand it’s been very volatile lately? Obviously you want them to say "yes." Ask them what that system is and how accurately have they predicted recent movements in the bond market.
3) What is the next piece of economic news that may influence mortgage rates? This obviously will vary but if they stammer, they're making it up so just use your intuition here and then check them against this blog. (Economic calendar for the month will be posted the first week of each month.)
4) What are your set costs? Common sense, this is the one place where lenders will vary and that cost in most circumstances is fixed regardless of what the rest of the market is doing.
5) What adjustments are going to come to my interest rates based on my credit, the property, the amount I’m borrowing, etc.? Check this blog for information on "Loan Level Pricing Adjustments" and you can guage the accuracy of their answer.
6) What options can you give me for various ways to structure my home loan that will help me achieve the goals and objectives that I have set to ensure my family’s financial well-being? This is the most personal of the questions so make sure you like what the answer is.
1) What dictates mortgage rates? The price of mortgage backed securities. Not the 10 yr Tbill, not Fed Funds Rate, not the Discount rate, not Prime, not anything else. MBS and that's it.
2) Do you have a system in place to monitor the market because I understand it’s been very volatile lately? Obviously you want them to say "yes." Ask them what that system is and how accurately have they predicted recent movements in the bond market.
3) What is the next piece of economic news that may influence mortgage rates? This obviously will vary but if they stammer, they're making it up so just use your intuition here and then check them against this blog. (Economic calendar for the month will be posted the first week of each month.)
4) What are your set costs? Common sense, this is the one place where lenders will vary and that cost in most circumstances is fixed regardless of what the rest of the market is doing.
5) What adjustments are going to come to my interest rates based on my credit, the property, the amount I’m borrowing, etc.? Check this blog for information on "Loan Level Pricing Adjustments" and you can guage the accuracy of their answer.
6) What options can you give me for various ways to structure my home loan that will help me achieve the goals and objectives that I have set to ensure my family’s financial well-being? This is the most personal of the questions so make sure you like what the answer is.
Your only real option if you are 100% rate shopping is to get those 3 lenders to agree to a conference call and have them simultaneously quote rates for your very specific and unique profile. (They will all need specifics on the property, your credit report (not you giving them the score, they will need their own report!), the time frame you wish to close, the intended use of the property, if it’s a refinance they will need to know the nature of the transaction (is it rate and term or are you taking cash out?) and the list goes on and on. So it’s very difficult to actually quote a rate without any information and it’s very difficult to compare a rate if you have been given a quote from someone and there is no background information at what was used for that quote.
I am constantly amazed by people that will give their mortgage business over to the lowest bidder when they are driving a $70,000 car, wearing $500 shoes, and do all their shopping at high end stores….they obviously pay for quality, or perceived quality, in all other facets of their life but yet when it comes to their $417,000 mortgage loan on their $600,000 house they are going to farm it out to the lowest bidder. I’m not suggesting you pay no attention to rate and fees, I’m simply suggesting that some value has to be given to guarantee of funding, gold standard service, expertise of the markets to properly position and structure debt favorably, etc. For a test case, pick the mortgage you want and remember your answer:
3.5% without a 1% origination fee.
4.25% without a 1% origination fee.
4.75% with a 1% origination fee.
4.25% without a 1% origination fee.
4.75% with a 1% origination fee.
Have your answer?
Well if you went with 3.5% and no upfront cost, that’s fantastic. It’s a 5/1 ARM and it might be your best fit but it may not because of the uncertainty of that rate after the 5 years is over. Do you have a plan in place? Have you discussed this plan with your mortgage professional and feel good about your ability to execute it and keep this plan in place so that the ARM works best for you? Maybe, but if you went with just the lowest bidder, you may be in trouble.
How about 4.25% without the upfront? Might be the way to go but it’s a 15 year fixed so it’s going to have a substantially higher monthly payment. Does it fit in your budget? Does it work with your other investment strategies? How does your financial planner feel about the reduced monthly cash flow that might be taking away from your IRA contributions? Hope you didn’t go with the lowest bidder.
If you went with 4.75% and 1% up front, that might be good because it’s a 30 year fixed. But what if you’re in medical school and you know that in 3 years you’re moving to do your residency? On just a $150,000 loan amount, you’re going to be paying $108.90/mo more, times 60 months = $6,534 total + $1,500 = $8,034 total that you would have paid that you otherwise wouldn’t have had you been talking to a true professional.
The point is, every person reading this may have come to a different conclusion as to which would make sense for their situation. This is why it is of the utmost importance to be dealing with a true professional rather than the lowest bidder.
Often the “lowest bidder” can’t deliver the rate but can’t deliver the actual closing period and that means earnest money lost, additional expenses for rentals on storage/trucks/existing apartment/etc., not to mention the sheer disappointment that comes with being sold a bill of goods and then finding out too late that whole thing not only fell apart, but never really existed everything was based on the lowest bidder setting expectations that were never going to be met. Of course the chances of you getting in touch with them to ask why is right around the slim to none range..... The moral of the story is very simple, you get what you pay for!
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