Why Fannie Mae, the most profitable company in the world, should bail out Detroit
Ok that headline may take a minute or two to digest, so I am going to split this post into sections. (more…)
Are higher mortgage rates slowing the housing recovery?
July often sees a change in market tone. Those who have already sold their home know they need to find somewhere quickly, increasing their urgency. New buyers, however, are now quite likely to decide to wait until the Fall as the chances of being able to move in by Labor Day are diminishing. And sellers have to decide if they want to be on the market in the “dog days” of August, or wait until after Labor Day.
And then this year, of course, there has been the added factor of the jump in mortgage rates. To some extent it would appear that the Federal Reserve was surprised by the big jump in rates after what they thought was a simple statement of their intent to reduce their purchases of Treasuries and mortgage-backed securities as the economy improves. (more…)
My 100th blog post
This morning I published my 100th post since starting Oliver Reports last November.
Prior to starting OR I wrote very lengthy and detailed semi-annual reviews for the Marblehead Reporter and I remember wondering if I would find enough topics to write about on a weekly basis.Well I guess I have answered that question!
My goal remains to publish timely, short articles (and links to relevant articles written by others) in order to help you, the consumer, be better informed. These articles also appear on Facebook, while on OliverReports.com I publish additional information.
If you enjoy my articles please tell your friends!
Is it time to consider an Adjustable Rate Mortgage?
I have a confession to make: I have never used a 30 year fixed rate mortgage in 20 years of owning homes in the US. And my jumbo mortgage, which is based on 1 year LIBOR, has just reset to 3% and would be at the same rate today as the 1 year LIBOR rate has not moved over the last month.
Adjustable Rate Mortgages (ARMs) got a bad reputation because of the shenanigans of unscrupulous lenders and brokers in the boom/bubble. And I strongly believe that these people – starting at the top – should be incarcerated and the key thrown away. On an, of course, completely unrelated topic read this article alleging that Bank of America encouraged their employees to lie to home owners.
Conventional ARMs, however, for those who understand them, are a perfectly feasible financing option. Bear in mind that the average time that a mortgage is held before the house is sold or the loan refinanced is believed to be about 7 years.
According to Freddie Mac’s weekly survey, the average rate, nationally, on a 30 year fixed rate mortgage this week was 4.46%, while that on a 5/1 ARM (meaning that the rate is fixed for 5 years and then resets each year thereafter) was 3.08%.
Now I want to make this simple, so use these numbers as a rough basis on which to work.
Over 5 years, paying 4.46% p.a. makes cumulative payments of 22.3%. At 3.08% the total is 15.4%. So there is a “saving” of 6.9%. Now ARMs adjust based on a certain index but generally cannot increase by more than 2% each year. Let’s assume that the rate goes up the maximum 2% in each of years 6 and 7. The chart below shows the cumulative interest paid:
Source: Freddie Mac; Oliver Reports
What this means is that even if the rate in years 6 and 7 increased by the maximum each year, interest paid over the average 7 year mortgage life would still be significantly less on an ARM than on a 30 year fixed,.
Again, this is very simplistic, not taking into account matters like principal reduction and tax deduction, but it’s the way I start my analysis. And it’s the reason I have never taken a 30 year fixed loan.
You are the only person who knows your life plan and risk tolerance, but an ARM may be an option you want to discuss with your financial advisor.
Putting the recent mortgage rate increase into perspective
One week the headlines are shouting that the recent recovery in home prices is creating the possibility of a new bubble; the next that the spike in mortgage rates is going to kill the recovery in prices and sales.
So perhaps a little perspective is called for.
If you first thought of buying a house when the 30 year rate was 3.5% and you find it is now 4.5% then that is a sharp jump. But many of us have owned houses for much longer. This chart, from Freddie Mac, confirms that mortgage rates are still at historically low levels. What you will note is that mortgage rates were much higher when home prices wee soaring. Mortgage rates are but one factor in the home buying decision.
Source: Freddie Mac; Oliver Reports
Mortgage rates to increase 1%
No, that’s not a forecast starting today, but a reminder of a forecast made by the Mortgage Bankers Association and published here in January. The key sentence read: “We expect that mortgage rates are likely to stay below 4 percent through the middle of 2013, and will increase gradually as the economy improves and finish around 4.4 percent in the fourth quarter of 2013.”
Well, rates did stay below 4% until June. And once rates have got back to that level, a forecast of 4.4% by year end doesn’t sound that scary, even if the speed with which we have got there is. Any angst felt at missing the bargain basement rates of the last year (and rates are back to where they were just over a year ago when they were considered amazingly cheap) is perhaps a reflection of our common desire to snare a bargain.
It is, however, worth remembering that during the boom years of 2005 and 2006 mortgage rates averaged 5.9% and 6.4% respectively.
The bottom line remains: if you want to buy a house and can afford to, do so.
Mortgage rates jump to highest level in a year
According to Freddie Mac the average 30-year rate rose for the fourth consecutive week to 3.81 percent, up from 3.59 percent last week, and nearly 1/2% higher than the 3.35% at the beginning of May. A year ago the rates was 3.75%.
The 15-year rate also increased to 2.98 percent from 2.77 percent.
With much discussion about when and how the Federal Reserve will move to reduce or end the Quantitative Easing policy which has kept interest rates low for an extended time, does the action of the last month indicate that mortgage rates have finally bottomed?
And will home buyers react, as they often do to rising mortgage rates, by rushing to buy now and lock in what is still an historically low rate?
Read Freddie Mac report
Would you like four years of college tuition payments with that mortgage, madam?
What is the difference in interest payments between a 15-year and 30-year mortgage on a $500,000 loan?
Go on, guess. $25,000? $50,000? That sounds like a lot, but it’s not even close. Total interest payments on a 30 year loan at 3 5/8 % come to over $320,000. At today’s rate of 2 7/8 %, the total on a 15 year loan would be just……$116,000. That’s a saving of $204,000 !!! Yay, Harvard for free! (more…)
How to refinance to today’s low mortgage rates when you don’t qualify
Many borrowers would like to refinance to take advantage of today’s low rates but for a variety of reasons – from being under water on their loan to owning a condo in a mixed use building – do not qualify.
Now there’s a Do It Yourself solution, which takes just a few minutes.
Intrigued? Read on. (more…)
Foreclosure rate hits 5-year low
With foreclosure rates dropping sharply, and the likelihood that rising home prices nationally and other measures will prevent many of those entering the process actually going into foreclosure, this Evansville Courier
article is a good summary of a recent report from Realty Trac.
Here is the RealtyTrac article Foreclosure market report
FHA announcements raise costs, lower defaults
In a letter to Sen. Corker, FHA Commissioner Carol Galante committed to “aggressive action”, including raising minimum credit score requirements, raising downpayment requirements on jumbo-sized loans, and restricting access to FHA mortgages after a foreclosure.
The FHA changes may impede your ability to get a loan beginning April 1, 2013.
TheMortgageReports.com March 10, 2013
The most important website for first time and Veteran homebuyers
For many first time home buyers the process can seem intimidating, but information available on the internet can help the buyer become well informed and able to be in control of the process.
This website North Shore Home Programs provides a remarkable amount of information, ranging from a step-by-step guide to home buying, to a list of programs available to help with down payments.
The greatest gift of the internet is the way it empowers the consumer through knowledge. Spending a little time on this website, and then googling “first time home buyer”, will go a long way to giving power to you, the buyer.
Knowledge helps to remove intimidation from the process of buying your first home.
There is no housing bubble. Really?
When I saw this headline I wondered if I had done a mini Rip van Winkle and fallen asleep for a few years. But no, it was a headline this week in an article read here referring to Southern California.
As America appears to be ready to go on a national diet after many years of super-sizing I found myself wondering if housing terminology were going through a similar metamorphosis. (more…)
National Year End Housing Data
Last week’s publication of year end confirmed that 2012 was the year of recovery in the nation’s housing market. Here are the key data:
Existing home sales reached 4.65 million, up 9.2% from 2011, and the highest volume since 2007
Total inventory, or houses for sale, fell to 1.82 million, or 4.4 months of supply, the lowest since May 2005. Inventory is down 21.6% from a year ago, when the supply was 6.4 months.
The median price was $180,800 in December, up 11.5% from a year ago: 10.9% for SFHs and 16% for condos. For the year overall the median price increased 6.3%.
Distressed sales – foreclosures and short sales – accounted for 24% of sales in December, down from 32% a year ago. Foreclosures sold at an average discount of 17% and short sales 16%, according to NAR.
New homes sales: 367,000, up 19.9% from 2011.
The median new home price was $243,600, up 7.2% from 2011.
30 year mortgage rate: 3.35% in December, down from 3.96% a year ago.
Sources: National Association of Realtors; Commerce Department; Freddie Mac
Mortgage Rates forecast to rise 1% by end of 2013
In my November 27 article Refinancing – don’t make just the minimum payment I wrote: “Don’t assume that rates will either go lower still or that they will necessarily stay this low for as long as the Federal Reserve is currently saying. If the economy does strengthen from here, interest rates my move up sooner than expected.”
The Mortgage Bankers Association has just issued a forecast that mortgage rates will increase gradually as the economy improves and finish around 4.4 percent in the fourth quarter of 2013.
MBA_December_Commentary_82991
More reason to consider buying NOW!
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