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2013: Experts predict mortgage and housing market trends

January 8th, 2013

In his final press release of 2012, Freddie Mac chief economist Frank Nothaft pulled into stark focus just how good that year had been for home loan borrowers. He observed:

“Mortgage rates ended this year near record lows. The 30-year fixed-rate mortgage averaged 3.66 percent for 2012, the lowest annual average in at least 65 years. Rates on 30-year fixed mortgages were nearly 0.6 percentage points below that of the beginning of the year, which translates into an interest payment savings of nearly $98,600 over the life of a $200,000 loan.”

Mortgage rates set to rise?

That last sentence was especially startling: It means that, if you haven’t refinanced in the last year, you could end up throwing away close to $100,000 in excess interest payments between now and when your mortgage is finally paid off. Exactly how much you could save obviously depends on the amount of your home loan, and how long it still has to run.

But suppose mortgage rates fall even further, you might say. You don’t want to pay closing costs for a refinance now if you could make even bigger savings in 2013.

Good point — especially as nobody knows what’s going to happen to mortgage rates in the future. But some people should be able to make better guesses than others. So what do the experts at the Mortgage Bankers Association (MBA) and Fannie Mae think could happen?

The smart money? Refinance now.

In their December 2012 forecasts, both teams believed those mortgage rates would inch up during the coming year. The economists at the MBA expect those for 30-year fixed-rate mortgages to hold steady during the first quarter, but then to creep up, eventually to an average 4.4 percent in the October - December period. That’s up from a 3.7 percent average for 2012.

Both teams also agree that the “median price of total existing homes” (average house prices, excluding new builds) are likely to edge up, although there could be some volatility that might see prices drop below — as well as rise above — current levels. Fannie Mae’s people believe that those house prices will average $176,000 in 2013, up from $173,000 last year. Using different data, the MBA experts anticipate house prices to average $186,900 this year (and $193,600 in 2014), up from a 2012 average of $178,600.

If these experts are correct — and that’s a big “if” — then you might think it sensible to go ahead and refinance or apply for a new home loan now, rather than to wait longer. There’s no point in hanging around unless you, unlike the experts, believe mortgage rates and/or house prices are going to fall further.


Crazy to take an adjustable-rate mortgage? Crazy like a fox

November 14th, 2012

Conventional wisdom states: Current mortgage rates are close to record lows and, given that eventually they’re pretty much bound to rise, you’d be mad not to choose a fixed-rate mortgage (FRM) that locks your interest rate for the term of your home loan. True for many, but not for everyone — maybe even fewer people than you’d think.

The alternative is an adjustable-rate mortgage (ARM), and most of these are “hybrids.” You may have read about 5/1 ARMs or 7/1 ARMs, and that five or seven represents the number of years during which the initial mortgage rate is fixed before it floats up (or, much less likely, sinks down) to whatever rate is then current. It’s a hybrid of an FRM for the first x years, and an ARM after that.

Home loans should match your plans

It’s usually more advantageous to choose the type of home loan that matches your plans. If you want to apply for a mortgage — or refinance an existing one — on a home you plan to remain in indefinitely, then an FRM makes perfect sense. A quick glance at Freddie Mac’s archive of 30-year FRM rates confirms how much they can go up and down over the term of a loan.

It’s a no-brainer for those settling into their home for decades: fix your rate with an FRM. In the unlikely event interest rates fall by a significant amount, you still have the mortgage refinancing option. But what if you’re likely to move in a few years?

ARM yourself if you’re a frequent mover

According to the U.S. Census Bureau: “In 2010, 37.5 million people 1 year and older changed residences in the U.S. within the past year.” That’s 12.5 percent. So even during a recession, Americans moved on average once every eight years. Look online, and you’ll likely find once every five or seven years frequently quoted.

That’s no surprise. People tend to start off in small houses or apartments and buy bigger homes as kids come along, elderly dependents move in, or they become wealthier and trade up. And, of course, many have to relocate frequently for employment. These people should perhaps explore hybrid ARMs.

Current mortgage rates lower for ARMs

That’s because the initial mortgage rates for these home loans tend to be much lower than those for FRMs. Take weekending October 26, 2012. According to the Mortgage Bankers Association, the rate for 30-year FRMs averaged 3.41 percent, with points of 0.76 (including the origination fee) for 80 percent loan-to-value loans. The equivalent average 5/1 ARM rate was 2.66 percent with points of 0.33.

Of course, if your plans change and you stay put, you might regret opting for an ARM when its initial fixed rate expires. But you may regret even more paying unnecessarily high rates when you’re packing your moving van in five or seven years’ time. Those are risks only you can weigh up.

Peter Andrew

Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business, TheStreet and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.

Do current mortgage rates and housing indicators make this a perfect time to buy?

October 5th, 2012

Until recently, there have been four main reasons people have avoided either buying their first home or trading up to a better house:

  1. They think mortgage rates could go still lower, and have adopted a wait-and-see policy.
  2. They don’t want to buy an asset that’s likely to depreciate in value, and house prices have been falling.
  3. Their current home loan is “underwater” (their home is worth less than the amount they owe on their mortgage).
  4. Their credit score is so damaged they can’t get a mortgage.

Today, all those factors are turning around very quickly and it begs the question: Will there ever be a better time to buy a home?

Current mortgage rates at all-time lows

At the time of writing, current mortgage rates have hit an all-time low. By the time you read this, they may have moved up or down very slightly, but it’s highly likely that you could get a home loan at rates your parents would never have dreamed possible.

Freddie Mac reports that 30-year fixed-rate mortgages averaged 3.36 percent with a 0.6 point during weekending October 4. That compares with 3.94 percent this time last year. Could they go down further? Who knows, but last week they were 3.40 percent. In any event, it seems unlikely they could fall by much and, if they do, you could always refinance.

House prices recovering

After years of traumatic falls, house prices are finally showing signs of a sustained recovery. On September 25, Reuters reported that home prices across the country rose in July for the sixth consecutive month. The report went on: “Six years after its collapse, economists believe the housing market has turned a corner.

One million+ fewer homes underwater

Also in September, CoreLogic published data that showed that 1.3 million American mortgages that were underwater at the end of 2011 “surfaced” during the first six months of this year. That’s a whole lot more people who can now purchase or refinance, and that could well boost the growth in property prices.

Credit scores improving

In yet another September report, Experian, one of the big-three credit bureaus, showed that the creditworthiness of Americans is slowly improving. The average Vantage credit score across the country is now up to 750. Again, this expands the pool of people who stand to be approved for mortgages, which could also help fuel the housing market recovery.

Is now the time to make your move?

Of course, you may be one of those whose home loan is still underwater and/or whose credit score remains badly damaged. However, if you are in a good position and have been putting off buying your first home or trading up, you may see these trends as a unique opportunity. You could now have a chance to cheaply buy an appreciating asset at an incredibly low mortgage rate. Wait, and you may find the best bargains gone and home loan rates rising again.

Of course, if there’s one thing we’ve learned in recent years, it’s that there is no such thing as certainty in financial matters, and trends can quickly reverse. Nevertheless, these indicators point to an exceptional opportunity for home buyers right now, making the thought of acquiring that dream home irresistible.

Peter Andrew

Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business, TheStreet and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.

Refinancing? Cut your term at the same time — and save a small fortune

September 6th, 2012

You may be interested to refinance your current mortgage in order to save money. But for those with sufficient disposable income, an even greater savings could be achieved by also cutting the term of the mortgage.

With current mortgage rates so low, it’s easy to overlook just how interest payments add up. If you can afford to halve the term of your home loan from 30 years to 15 years, you stand to save tens of thousands of dollars. Using LoanBiz.com’s Payment and Amortization Loan Calculator, you can see just how big these savings could be for you.

Mortgage refinancing + shorter term = huge savings

Suppose you want to refinance a $150,000 mortgage. At a mortgage rate for 30-year fixed loans of 3.29 percent, your monthly payment would be $656.11 and the total amount of interest you would pay over the life of the loan would be $86,198.53. Your house would end up costing $236,198 when you finished paying for it.

But if you shorten the term to 15 years, the mortgage rate drops to 2.72 percent. Even though your monthly payment would be nearly $360 higher at $1,015.79, the total amount of interest you would pay over the life of the loan would be just $32,842.65 — approximately 60 percent less. Your house would cost only $182,842 when you finished paying for it. That’s a savings of over $53,000.

In addition, by shortening your term in this way, you would be free of all mortgage payments in 15 years, and that means you could invest all the money you would otherwise be paying out on your home loan in ways that could seriously improve your retirement.

Mortgage loans and tax relief

When covered this topic for The Los Angeles Times in August 2012, he comprehensively demolished the argument that it’s worth paying mortgage interest because you get tax relief on it. He made two important points:

  1. Your deduction is only worth whatever your tax bracket is. So, if you are paying 15 percent tax, you’re still paying 85 cents of every dollar you spend on mortgage interest out of your own pocket.
  2. There is no guarantee (in spite of what many politicians are saying today) that mortgage interest is going to remain deductible.

Clearly, reducing the term of a mortgage isn’t for everyone. But if you can afford to do so, it may be a good time to explore your options.

Peter Andrew

Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.

Is now the time for mortgage refinancing?

August 8th, 2012

On Aug. 2, Freddie Mac revealed in a press release that most mortgage rates had risen slightly during the week leading up to that date. Normally, that would be of little surprise as home loan rates usually bob up and down. However, with rates having fallen or remained at record lows in 13 of the previous 14 weeks, analysts are likely asking themselves: “Is this a bottoming-out? Is the long-predicted rise in rates finally happening?”

Predicting mortgage rates accurately is difficult

It could be months — possibly even years — before they have a definitive answer to that question. In recent years, we’ve seen mortgage rates rise slightly only to fall again to new record lows, the last of which was observed only a week before Freddie Mac’s press release.

The press release showed that current mortgage rates for 30-year fixed-rate mortgages (FRMs) averaged 3.55 percent with 0.7 points that week. At the same time last year, that same rate was 4.39 percent. Back then, even that was seen as unsustainable, and most commentators were predicting significant rises.

Case in point, in its August 2011 Mortgage Finance Forecast, the Mortgage Bankers Association (MBA) predicted that 30-year FRM rates in Q3 (the third quarter of 2012) would average 5.1 percent. The MBA wasn’t alone. Most others thought that was a realistic expectation as well.

Watch trends to time mortgage refinancing decisions

If expert economists specializing in forecasting mortgage rates can get things so spectacularly wrong, what chance do ordinary homeowners have of judging the right time to refinance? The short answer is that choosing the right moment seems to have more to do with luck than judgment.

However, that shouldn’t be an excuse for not refinancing. Those who were reluctant to refinance over the last three or four years because they weren’t absolutely sure they would get the very best deal would, today, probably find themselves thousands of dollars worse off had they acted at almost any time during that period. They were better off for having waited.

Small wonder, then, that the MBA reported August 1 that refinances represented 81 percent of all new home loan activity during weekending July 27. None of those people could be certain that mortgage refinancing rates wouldn’t fall yet again, but they took the chance anyway — and it’s a choice many commentators would regard as very sensible.

Peter Andrew

Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.

Cousin Bubba wants a mortgage loan — from you!

April 26th, 2012

Whether you’ve won the lottery, profited from investments or just been diligent about building a nest egg, it’s possible that at some point a family member may come looking for some cash. If you’re really rolling in dough, you may even be asked to help with a mortgage loan. But should you get involved with such an important — and sizable — financial transaction?

First-time home buyers

A recent National Association of Realtors survey found that 7 percent of first-time home buyers relied on a loan received from a family member or friend to buy a home. At first glace this may seem like a bad idea all around, but there may be some cases in which becoming a relative’s mortgage lender makes sense. Use this checklist to decide if this is a lucrative financial opportunity or a potential disaster.

  1. Do you really have enough cash on hand to help your relative pay for a house? Do you have a hefty retirement fund and college savings for your kids? Are you going to struggle to pay daily expenses? Will you make more off the interest than with current savings and investments? A financial adviser can help review your situation to determine whether giving a relative a mortgage is a smart move or financial suicide.
  2. Is your relative responsible with money? If everyone in the family knows that Cousin Bubba is a deadbeat who is constantly dodging creditors, run the other way when approached for a home loan. Sure, you may want to help out your relative, but do you really want to get tangled up in his financial messes?
  3. Will a mortgage loan negatively affect your relationship? Just because you become your relative’s mortgage lender doesn’t mean you’ll have a say in how they maintain their home. Can you bite your tongue when he makes home improvements you absolutely can’t stand? Refrain from constantly making suggestions about what needs to be done in order to keep the peace.

Make it legal

If you feel confident about giving a relative a mortgage loan, make sure you have a solid legal agreement in place. An attorney can help with that. Another option is to set up an agreement through peer-to-peer lending organization National Family Mortgage, which says it has helped with more than $30 million in loans between relatives.

Mortgage applications rise as refinances fall

March 23rd, 2012

The number of borrowers applying for mortgages to purchase homes jumped earlier this month, but refinancing applications declined, according to the Mortgage Bankers Association (MBA). Applications for home purchases rose 4.4 percent for the week ending March 9 while those for refinancing fell 4.1 percent from the previous week.

“(Home) purchase applications are now almost 12 percent above the level one month ago, even after adjusting for typical seasonal patterns,” Michael Fratantoni, MBA’s Vice President of Research and Economics, said in a statement. “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30 percent of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.”

The increase in mortgage applications for purchase came as the Bureau of Labor Statistics reported that the unemployment rate improved. The unemployment rate fell in 45 states, setting the national unemployment rate for the U.S. at 8.3 percent.

But despite this positive economic news, mortgage rates have remained near record lows. The average for a 30-year fixed-rate mortgage is 3.89 percent, and the 15-year loan sits at 3.2 percent. For purchasers shopping for a good deal, home prices fell to the lowest levels since the housing crisis began, according to the most recent S&P/Case-Shiller Home Price Indices, indicating that the time may be right for shoppers to go in search of real estate deals.

Delinquent home loan percentage decreases in Q4

March 1st, 2012

The mortgage delinquency rate fell to a seasonally adjusted rate of 7.58 percent to close the fourth quarter of 2011, according to the Mortgage Bankers Association (MBA). The serious delinquency rate, the percentage of loans 90 or more days past due or in the foreclosure process, also fell to 7.73 percent.

Mortgages helped by employment

Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Education:

Mortgage performance continued to improve in the fourth quarter, reflecting the improvement we saw in the job market and broader economy,”┬áJay Brinkmann, the MBA’s chief economist, said in a statement. “The total delinquency rate and foreclosure starts rate decreased and are back down to levels from three years ago.

“A major reason is that the loans that are seriously delinquent are predominantly made up of loans originated prior to 2008 and this pool is steadily growing smaller as a percent of total loans outstanding. In addition, employment is the key driver of mortgage performance and the mortgage delinquency rate is actually falling faster than the unemployment rate is declining.”

The MBA survey also found that the percentage of mortgage loans in foreclosure at the end of the fourth quarter was 4.38 percent, down from 4.64 percent the previous year. Total delinquency rates and foreclosure starts fell from the previous quarter for most types of home loans, including prime fixed, prime adjustable-rate mortgage (ARM), sub-prime fixed and sub-prime ARM. FHA loans, however, saw an increase in delinquency and foreclosure rates.

Is help for mortgages on the way?

Finding the right help can be a game-changer if you are struggling with paying a mortgage on time. Whether you are hoping to refinance a home loan or think you may be eligible for help through the government’s recent settlement with mortgage loan servicers, it is important to check out all options that may be available to you. Talk with your mortgage lender or a housing counselor to find out what you can do to save your home.

Key facts on foreclosure

January 24th, 2012

These days the news is full of stories of distressed homeowners landing in foreclosure. Mortgage borrowers can face foreclosure for a variety of reasons — CNNMoney recently wrote about a family who ended up in foreclosure because their title company went under and interrupted their refinance proceedings — but it’s a process you typically want to avoid no matter the cause.

While the foreclosure process differs from state to state, there are some general guidelines to know about foreclosure. Knowing these can help if you find yourself slipping behind on your mortgage.

The cost of missed payments

It usually takes about three to six months of missed mortgage loan payments to get the foreclosure process started. Late fees for a missed payment are likely to kick in after 10-15 days, and once you go 30 days without a payment, you will be considered in default on your home loan.

While you may be inclined to avoid your mortgage lender in the event of late or nonexistent payments, that’s not a wise approach. Contacting your mortgage lender as soon as you begin having financial problems can give you more options for help than if you wait. Avoiding your lender and falling further behind on payments is actually likely to speed up the foreclosure process and deepen your troubles.

Types of foreclosures

If you find yourself in the unfortunate situation of defaulting on your mortgage, there are three types of foreclosures you might suffer.

The first is a judicial foreclosure, which involves the mortgage lender filing suit with the judicial system. In these cases, you would receive a note in the mail demanding payment and have 30 days to respond. If you don’t make a payment in specified time frame, the property can then be auctioned to the highest bidder by a local court or sheriff’s office.

Similarly, a power of sale foreclosure can occur if you’ve defaulted on a home loan and have not responded to demands for payment over a specific period of time. But in this case, the mortgage company can carry out an auction of the property rather than having the sheriff ’s office or local courts do it, which is what distinguishes it from a judicial foreclosure.

The last type is strict foreclosure, which is not allowed in all states. In this type of foreclosure, when you default on a mortgage loan, the lender files a lawsuit against you. Then if you don’t make payments within a time specified by the court, the mortgage lender can take ownership of the property. This type of foreclosure is most commonly associated with homes where the loan amount is higher than the value of the property.

While foreclosures can come in different types, the end result of all is still likely to be unpleasant. The best defense against foreclosure, outside of staying out of default in the first place, is working closely with your lender to manage any difficulties you encounter in making your payments.

Should older borrowers refinance?

December 21st, 2011

How old is too old to refinance? A recent Reuters article weighed in on the wisdom of Federal Reserve Chairman Ben Bernanke refinancing his mortgage loan at the age of 57, just two years after his last refinance. With interest rates near historic lows, some baby boomers may be thinking about refinancing their mortgage loans to improve their financial situation. Here are some things to consider before applying for a refinance when you are near — or even past — retirement age.

  1. How many years do you have left on your current mortgage? Each time you refinance you are setting back the clock on your mortgage loan amortization schedule. Starting over with a new loan means that most of your monthly payments will go toward interest payments during the early years of the loan. So decide whether it is worth it to refinance your current loan and stretch out the payment for a longer period of time.
  2. Can you refinance into a shorter term? Refinancing into a 15-year term could make sense if you have already paid down a lot of principal on your current home loan. Depending upon how much principal you owe, your monthly payments could actually increase with a 15-year mortgage.
  3. Are you still working? Being employed with a healthy income can improve your chance of getting approved for refinancing. Mortgage lenders are scrutinizing financial information of potential borrowers to determine if they are a good risk. Your credit score and other information such as savings and assets will factor into whether you get approved for a loan. If you have already retired, it will likely to tough to get approved for refinancing, but you may qualify for reverse mortgage. Reverse loans allow people aged 62 and up to convert some of their home equity to cash.

Refinancing a mortgage loan can work for some older people. But take time to compare several mortgage quotes to get all the information you need about doing a refinance so you don’t end up struggling to make monthly payments well into your golden years.