Friday, January 23, 2015

It’s Time to Think About Refinancing Your Mortgage

The bond market is a complicated thing, and it is understandable if most people don’t spend a lot of time thinking about it. But even for Americans who don’t want to spend any mental energy on yield curves, convexity and term premia, there is one simple thing to know about the current tumult in the multitrillion dollar market: It’s time to think about refinancing your mortgage.
The average rate on a 30-year fixed-rate mortgage was 3.8 percent at the end of last week. That is down from 4.5 percent as recently as last spring, the lowest since May 2013 and far below the 5 percent-plus rates that prevailed as recently as early 2011.
That raises the possibility that the great American refinancing machine might again chug into motion, leaving Americans with lower monthly payments, more cash in their pockets or both. Homeowners who secured their current mortgage in late 2013 or early 2014, or anytime before mid-2011, may want to at least plug their numbers into an online calculator to see if the potential savings are worthwhile.
A driver preparing to deliver heating oil to a home in Portland, Me., last week. Falling oil prices have been a boon to consumers in obvious ways, but also in less obvious ones. One result: falling interest rates, which can mean lower housing costs. Credit Robert F. Bukaty/Associated Press
The math can be as simple as you want or as complex; here’s how to think of the decision.
When considering whether to refinance, you are exploiting the fact that you can fully repay a home mortgage whenever you want and take out a new one. If rates rise, you can stick with your old one as long as you continue to own your home; if they fall, you can pay off the old mortgage and get a new one. Heads you win, tails your lender loses. Seldom in life does this dynamic apply, so it is worth exploiting whenever the opportunity arises.

Everyone’s details are different, but if the current rate is half a percentage point below the rate on your mortgage, a refinance is potentially compelling. If it is closer to a gap of a full percentage point, it may be a slam dunk unless you expect to move soon.

But taking out a new mortgage comes with costs, such as origination and appraisal fees — typically in the low four figures. The open question is whether you will enjoy the benefits of lower rates for long enough to cover that upfront cost.

As a hypothetical, a family that took out a $400,000, 30-year fixed-rate mortgage in June 2013 at 4.6 percent could save $187 a month by refinancing $400,000 at a 3.8 percent rate. (If instead of taking cash out they borrowed only the $389,826 they should owe on the mortgage at this point, they would save $234 a month, reflecting both the lower interest rate and a smaller principal.)

Mortgage Rates Have Fallen Sharply

With mortgage rates at their lowest levels since May 2013, homeowners may want to explore refinancing options.
Average rate on 30-year, fixed-rate mortgage
Before taking the plunge, though, our family has to decide how long it expects to stay in the home. If transaction fees add up to $4,000, for example, the family needs to stay in the home for at least 21 more months (if borrowing $400,000; 17 months if borrowing $389,826) to justify the transaction (or a bit longer if you also try to account for the tax savings they are not receiving because they are paying less to the bank in mortgage interest).
Or here’s another intriguing possibility. Let’s say our family has seen its income rise since originally taking out the home loan in mid-2013. The interest rate on a 15-year fixed-rate mortgage is now a mere 2.9 percent. An option would be to refinance the $389,825 currently owed into a 15-year mortgage. That would increase the monthly payment by $623 a month — but would result in paying the home loan off entirely in 2030, not 2043 as the family was previously on track to do.

As with all major financial decisions, the details of each family’s situation can add all kinds of complexity that are worth gaming out and analyzing carefully. But for the economy as a whole, this latest shift in rates has a particular silver lining.
In years past, mortgage rates have dipped when it looked as if the United States economy could be falling back toward recession, and the Federal Reserve intervened with easier money to try to stop that from happening. This time, the economy is looking relatively strong and the Fed is making plans to raise interest rates.

This drop in mortgage rates is being driven by a combination of plummeting oil prices, which are reducing investors’ expectations for inflation in the years ahead, and a tumultuous global economic environment, which is leading investors worldwide to plow money into safe American assets. That includes the bonds packaged by the government-sponsored mortgage finance giants Fannie Mae and Freddie Mac, which in turn fund most of the nation’s consumer mortgages.
In other words, global investors are so desperate for a safe place to park cash and so confident that inflation is nowhere to be found that they are flinging money at United States homeowners. Americans now paying significantly above-market rates on their home loan might at least do them the favor of picking it up.
by Neil Irwin

Friday, January 16, 2015

Saving for a Home: How Much Is Enough?

saving money on a new house

It's easy to get caught up in credit scores when considering a home purchase. But as lenders continue to loosen requirements, the need to have money in the bank doesn't get any less acute. Getting prescriptive about how much you need in savings to satisfy a mortgage lender is tough business. The answer can depend on a host of factors, from the type of mortgage and size of the loan to the property itself and more.

You'll most likely need a solid chunk of change upfront to cover a down payment and closing costs. Lenders might also want to see a stockpile of "reserves," which often translates to a certain number
Buyers are putting down an average of 20 percent for conventional loans and 5 percent for FHA loans.
of months' worth of mortgage payments. The bottom line is that it's tough to talk specifics about your bottom line. That's why it's important to get a solid understanding of your mortgage options and seek clear guidance from lenders.

Credit scores are critical, but so are income and assets when you're applying for a home loan. Here are some of the important savings you'll need to accumulate first.

Down Payment Needs: Down payments are inescapable for the vast majority of non-cash homebuyers. Outside of state or local programs, only government-backed VA and USDA rural development home loans allow qualified borrowers to purchase with no money down. Conventional and FHA loans typically require minimum down payments of 5 percent and 3.5 percent, respectively. On a $200,000 mortgage, that's $10,000 for conventional and $7,000 down for FHA. But buyers often put even more skin in the game.

Conventional borrowers last month had an average loan-to-value ratio of 80 percent, according to mortgage software firm Ellie Mae. For FHA loans, it was 95 percent. That means buyers are putting down an average of 20 percent for conventional loans and 5% for FHA loans.

Existing homeowners often have an advantage because they're able to put the proceeds of a home sale toward a new purchase. It can take first-time buyers years to scrape together enough money for a down payment.

That's partly why home sales among first-time buyers hit their lowest point last month since the National Association of Realtors began tracking the figure in October 2008.

Reserves: Paying the upfront costs of homebuying represents one pool of money. Lenders want to make sure you've got plenty left over to keep the monthly payments rolling in long after closing day.

One way they hedge risk is by requiring a certain amount of reserves. Guidelines can vary by lender, loan type and borrower. One month of reserves is usually equal to your monthly mortgage payment, including property taxes and insurance.

Conventional lenders typically seek from two to six months of reserves, but it could be as many as a year's worth, depending on your risk factors.

Neither FHA nor VA loans have a reserve requirement for single-family homes. But purchasing multi-unit properties under these programs typically requires three to six months' worth of reserves. Reserve requirements will also vary for jumbo loans.

A healthy amount of reserves can help homebuyers on the edge. Lenders can consider these assets as a positive compensating factor, which can help a spotty loan file overcome credit or debt issues and help the mortgage process move along faster.

Residual Income: Lenders will take a close look at the ratio of your major monthly debts against your gross monthly income. This is known as debt-to-income (DTI) ratio, and different loan programs have different requirements. Money-wise, it's not just the income stream some borrowers need to worry about.

Some lenders and loan types may require you to have a certain amount of money left over each month after paying major expenses. The VA loan program has pioneered this requirement, known as residual income. VA borrowers must meet a monthly residual income benchmark that can vary based on where you live and your family size.

For example, a family of five in the Northeast needs at least $1,062 left over each month after paying those major bills (think mortgage, student loan, child care). The FHA recently adopted the VA's residual income requirement as a test for borrowers with higher debt-to-income ratios. The change takes effect in late April.

Residual income doesn't necessarily represent funds you need to earmark for savings. But knowing how to budget and save are key traits of successful homeowners. While you save for a home loan, it's important to make sure you're maintaining or building good credit so you can qualify for the best rate possible. You can pull free credit reports every year from each of the major credit reporting agencies to see your full credit history. Also, the Credit Report Card is a free tool that gives you two of your credit scores and a breakdown of what's impacting your scores.

By Chris Birk   

Friday, January 9, 2015

A Good Start to 2015

A Good Start to 2015

A strong Jobs Report raised hopes of a stronger economy to start 2015. According to Labor Department figures released in December, employers added 321,000 jobs in November, the most in one month since January 2012. New job creations for September and October were also revised higher. The unemployment rate stood at 5.8 percent, which was unchanged from October but down from 7 percent one year ago.

In early December, the Wall Street Journal reported that wage growth, which has been slow during the recovery, is accelerating. "This is another sign that says we’re taking off," said Beth Ann Bovino, the U.S. Chief Economist at Standard & Poor’s Ratings Services. As more people find work and income stability or income growth, the housing industry will likely benefit. Stay tuned to see how the Federal Reserve will react as the economy improves.

The housing market is ending the year better off than a year ago. Revised figures from October, as reported by the National Association of REALTORS® (NAR), showed that pending home sales fell 1.1 percent from an upwardly revised September reading, but were still 2.2 percent higher than this time last year. The inventory of homes for sale was also 5 percent higher in October than a year ago.

Sales of existing homes also rose in October to the highest level in a year, as home price gains continue to ease. Home loan rates are still hovering near historic lows.

Good "Starts" for the Year
A good sign for new home construction in early 2015: in October of last year, builders were granted 4.8 percent more permits to break ground—the highest amount in six years. Total starts of single-family houses also advanced 4.2 percent annually in October to 696,000, according to the Commerce Department. While total housing starts fell 1.6 percent in November, the number of approved permits for new construction provides an optimistic start to the new year.

The Bottom Line
Rates are still at advantageous annual lows. If you have any questions regarding housing or know of friends, family or colleagues who are renting and wish to discuss buying a home this year, please get in touch. 

By Taum Hemmingsen
Marketline Mortgage

Monday, January 5, 2015

Money Market Recap & Forecast

Money Market Recap and Forecast
MMRecap for January 5th
Last week was a bad one for stocks. Fortunately, there were only three days featuring economic reports due to schedule changes brought about by the holidays.
Monday there were no economic reports, but MarketWatch, an economic news site, reported that employers are unlikely to release current employees. This, in turn, should lead to a stronger labor market and increased economic growth, but the markets remained oblivious.
Tuesday was a little livelier, but the results were disappointing. The Case-Shiller report on home prices in the nation’s 20 largest cities showed October prices dipped to 4.5% from 4.8% the previous month. However, consumer confidence rose to 92.6 -- from its 88.7 in December. The 10-year Treasury went down a couple of basis points, closing at 2.20%.
There were a few reports on Wednesday starting with the weekly jobless claims. For the week ended on December 27, the initial jobless claims went up to 298K, a sharp rise from the 281K claims from the week before. The Chicago PMI decreased a bit in December, registering a 58.3. This was down from 60.8 in November. Pending home sales seemed to do well in November showing a 0.8% rise, compared to a 1.1% decline from the month before. On Wednesday the traders at all of the indices decided to take their year-end profits and sell. The 10-year Treasury note dropped three more points to end the day at 2.17%.
Markets were, of course, closed New Year’s Day, and to no one’s surprise, nothing much happened on Friday. The 10-Treasury note waved goodbye to 2014 with a smile. It closed at 2.12%!
There was no report from the MBA last week, but they’ll be back on the job this Wednesday.
After a light week last week, this week has many reports, but none to speak of for today.
Tomorrow, however, we get factory orders for November, which are expected to come in at -0.3% -- better than the previous -0.7%. It will be followed by the ISM index on the service sector for December, which should come in a tad above 58.5. We will also get the employment change report from ADP, the payroll processing giant. They expect 245K to be added to the work force versus 208K in December.
Wednesday is a relatively light day; the only report that might move the markets will be the FOMC minutes for the week ended December 17th.
We’re back to a normal schedule with the initial and continuing jobless claims reports coming out on Thursday. The forecasters are expecting continuing claims to go up a bit for the week ended December 27, with a prediction of 2375K. This compares to 2353K from the week before. This might be due to the end of seasonal work for 2014. Initial claims for the week ended on January 3 might go down to 290K, which would be an improvement from the 298K reported the previous week. On Thursday we also get the consumer credit report for November. Not surprisingly, consumer credit is expected to hit $16.0B, up from $13.2B in October. In a sense, this is a good sign that people were a little more confident as we went into the holiday season.
On Friday the nonfarm payrolls report for December will be released. Analysts are looking for 240K workers to have been added. This compares with 321K jobs added in November. The unemployment rate report follows and is expected to hold at 5.8%.
A Happy and Prosperous New Year to all!
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Friday, January 2, 2015

Don't Wait For a Foreclosure to Get a Loan Modification

One of the most common misconceptions homeowners have is that you need to be on the verge of foreclosure to be able to apply for a loan modification. This is simply not true. Basically, what a loan modification does is adjust your monthly mortgage payment in accordance with your present financial circumstance. Also, a modified loan may entail a reduction in the interest rate, thereby making your monthly mortgage payment more affordable.


If there’s anything to be learned from the recession it’s that financial conditions can change at any time. Several hardship reasons can put a strain on a family’s or individual’s finances, prompting homeowners to seek a loan modification. They don’t necessarily need to be at risk of losing their homes to qualify for a modified loan.

For homeowners who have received a notice of foreclosure, getting a mortgage modification may be crucial to save the property. But time is essential. By law, lending services are required to give several months’ notice before foreclosing on a home. Applying for a modified loan early on is the best option because lenders need sufficient time to evaluate the case whether to approve it or not.
In the event of a foreclosure, a borrower can still apply for a mortgage modification at any point during the process. But there’s no guarantee that it can save the property on time. So borrowers need to act quickly and study their options.

Aside from a loan modification, they can also avail of a deed in lieu of foreclosure, a short sale or a forbearance agreement. Typically, a lender can postpone the upcoming foreclosure sale if some kinds of assistance have been applied for. Again, however, it may take several days for the application to be placed in the system. In any case, it is best to be knowledgeable about any updates about modification of loan and other alternatives to protect your best interests.

By  Eric  Smith