Hovnanian: Higher Mortgage Rates Will Just Lead to Smaller Homes

Posted on July 2nd, 2013

During an interview with CNBC this morning, Ara Hovnanian of K. Hovnanian Homes expressed that he’s not worried about higher mortgage rates hurting the housing market.

In fact, the mega home builder’s CEO actually thinks we’re in the “early innings” of the housing recovery, noting that housing starts are still way below the expected average for this decade.

He said we’re currently at a pace of around 900,000 annual starts, up from 500,000 just two years ago, but nowhere close to the 1.5-1.6 million expected.

At the same time, mortgage rates are still insanely cheap, as I pointed out yesterday.

Hovnanian recalled conditions back in 1983, when mortgage rates averaged 13.4% and housing starts were at a staggering 1.7 million.

So if you look at things from a mortgage rate point of view, there’s not enough supply to keep up with demand.

That would explain some of the recent home price gains, which are slated to keep increasing at a steady clip.

All in all, he didn’t seem too concerned about mortgage rates rising, so long as they don’t rise by some obscene amount in a short period of time.

Funnily enough, he actually called for 3% mortgage rates back in 2008 to solve the problem of supply and demand. Looks like he got his wish…

Customers Want Bigger Homes While Rates Are Cheap

At the moment, Hovnanian says customers have been buying the largest of their offerings, perhaps because housing is so affordable.

In fact, they’ve had to design larger homes to add to their lineup to keep up with that trend.

In Houston, customers can buy a 4,000 square foot home for $250,000, which is pretty darn huge (and cheap).

Seeing that rates on the 30-year fixed are averaging close to 4.5%, you’d be looking at a monthly mortgage payment of just over $1,000 if you put 20% down.

So it’s no wonder people will go bigger if they can. But if rates rise to say 5.5%, Hovnanian said the same customer might go with a 3,000 square feet house. If rates really shoot up, he said customers could even settle for a townhouse instead.

In other words, he doesn’t think higher mortgage rates will cool the housing market per se, they will just dictate what prospective buyers can afford.

[Check out my mortgage payment graphs to assess affordability.]

People Need Shelter…

Hovnanian seems to believe that the need for shelter is what’s driving the market recovery, though you have to wonder if it’s just that pesky bubble mentality creeping back in, what with home prices still “on sale” and rates so attractive.

Of course, inventory constraints seem to be the real issue, and Hovnanian is clearly pleased that the private equity funds are buying up scores of single-family homes throughout the United States.

Thanks to the likes of Blackstone and Colony American Homes, demand for his company’s homes is probably that much higher.

And he doesn’t think they’ll flip the homes they buy – conversely, he sees them holding and renting for years to come, and slowly unloading as prices rise.

However, he does think managing such a large number of homes will be challenging.

Finally, Hovnanian weighed in on potential winning real estate markets throughout the country, naming both Northern and Southern California, along with Phoenix and “many of the land-constrained Florida markets.”

Other winners in his eyes included Washington D.C., New Jersey, and suburban New York.

Of course, this should all be taken with a grain of salt, seeing that he’s the head of a major home building company. But he does have some decent points about rates and supply.

Maybe there is a lot more upside ahead, so long as the distressed inventory doesn’t rear its ugly head.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Bank of America Has a Waiting List to Refinance

Last updated on February 2nd, 2018

If you’re interested in refinancing your mortgage with Bank of America, you may be in for a big surprise.

Per Bloomberg, the mega bank has been unable to keep up with demand, thanks in part to HARP Phase II, which is beginning to roll out.

The program, which allows pretty much anyone to refinance, regardless of how deeply underwater they are, has led to everyone and their mother inquiring about a possible refi.

And we all know that the biggest names in the finance world will experience the biggest windfall.

Unfortunately, Bank of America has been making steady moves to get out of the mortgage world in recent times.

In fact, their share of the mortgage market has dwindled to little more than five percent, which is less than it held before it acquired Countrywide.

This is largely because they exited both the wholesale and correspondent mortgage businesses to focus on building relationships at the retail level.

90-Day Wait to Refinance

I hope you’re patient, because Bank of America is telling some customers who call during high volume periods of the day to make a reservation.

And once they do that, it could take anywhere from 60 to 90 days just to hear back. Even then, it’s unclear how much longer it will take to apply for a refinance, get the loan underwritten, and finally get it funded.

By then mortgage rates could rise, though that’s probably not too much of a concern. But in the mean time you’d still be stuck making higher monthly mortgage payments, which is clearly no good.

[Are mortgage rates going to stay low?]

If you do manage to “get in the door,” note that Bank of America also stopped offering cash out refinances last month.

So if you’re looking to tap your home equity, you’ll either have to try a HELOC or go elsewhere.

BofA Customers Don’t Need to Wait

That said, one of Bloomberg’s sources said those with Bank of America checking accounts, along with those who go to the bank in person, do not need to wait.

Still, you have to wonder about the bank’s urgency in getting your refinance application to the closing department.

If they’re overloaded, the turn times will surely be extremely high, which could put your time-sensitive mortgage application in danger.

This is all the more reason to shop around for your mortgage, as opposed to just going with the bank you know and “trust.”

If you’re only getting one mortgage quote, you’re doing yourself an injustice.

Be sure to contact several banks, along with a few mortgage brokers, to see what kind of mortgage rate you can get your hands on.

And don’t forget to compare fees and closing costs to ensure you receive the best deal on your refinance.

Tip: How to find the best mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Home Buyers Are More Worried About Rising Mortgage Rates than Prices

Posted on July 10th, 2013

A new survey from Trulia revealed that rising mortgage rates are the chief concern among those who plan to buy a home sometime in the future.

The company polled 2,000 people in late June after the uptick in mortgage rates, and found that 41% said their biggest worry was mortgage rates rising before they closed on their home purchase.

Amazingly, it beat out of the next biggest concern, which was rising home prices. Only 37% of respondents listed that as their number one issue, which tells you how important low mortgage rates are to consumers these days.

The third biggest concern for prospective buyers was simply finding a suitable property to purchase, seeing that inventory is so poor at the moment.

13% Believe a Mortgage Rate at 4% Is Already Too Expensive

Perhaps the Fed went too far in its quest to push mortgage rates lower, as it seems to have led to a major distortion of reality.

In fact, 13% of those surveyed by Trulia indicated that a 4% mortgage rate was enough to discourage a home purchase. Talk about being bearish on housing…

For the record, mortgage rates on the 30-year fixed are already around 4.5% or higher, so we know some would-be buyers are apparently out already.

And another fifth of respondents said a 5% mortgage rate would push them out of the game, or at least discourage them.

If rates were to rise to 6%, another 22% said they’d be discouraged to buy a home.

Taken together, more than half of those surveyed (56%) would be lukewarm about a home purchase if rates shot up to 6%, which is a historically low rate and more than realistic over the next several years.

After all, rates hovered around that level for much of the 2000s, so returning to 6% wouldn’t be all that unheard of.

For renters who plan to buy a home eventually, 62% said they’d be discouraged if rates hit 6%.

Talk about spoiling consumers with super low mortgage rates.

[Check out mortgage payments at different rates.]

Did the Low Mortgage Rates Create a False Recovery?

As far as I’m concerned, this calls into question the validity of the supposed housing recovery we’ve all been so convinced about lately.

Yes, housing has improved on a number of fronts, with both distressed and non-distressed inventory down considerably, and mortgage delinquencies lower.

But do we only have the artificially low mortgage rates to thank for that? Did the low rates alone convince more homeowners to stay put, as opposed to walk away? And did they push more would-be buyers to scoop up homes when housing was completely unfashionable?

I hate to say it, but without mortgage rates on the clearance rack, this housing recovery may have never taken flight.

As others have noted, home prices relative to income are still historically high, meaning it is only the low mortgage rates that making housing affordable today.

And if rates rise back to historical norms, monthly mortgage payments wouldn’t be cheap compared to renting in many markets.

Sure, they’d have to rise to 7% to make the median home unaffordable, per Freddie Mac, but that doesn’t mean it would make sense to buy a home. And most hot markets are already unaffordable, even with the low rates.

Unfortunately, home prices have already shot back to recent highs in a lot of markets, so if rates also continue to rise, things won’t be so rosy anymore.

Perhaps we’re looking at a major housing cool-down over the next few years, now that the low rate party is over, and prices aren’t nearly as cheap as they once were.

So if you can come to terms with less-than-stellar home price appreciation, maybe that new home is for you. Just don’t buy with the sole expectation of exponential home price gains. They may have already come and gone.

Read more: Home prices vs. mortgage rates

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Do I Qualify for the National Mortgage Settlement?

Last updated on February 10th, 2012

In case you haven’t heard by now, the so-called “National Mortgage Settlement” was finalized today.

It’s the largest multi-state settlement since the Tobacco Settlement back in 1998, related to robosigning allegations that took place over the past several years.

Essentially, some of the nation’s largest loan servicers routinely signed off on foreclosure documents without doing their due diligence, and/or without the presence of a notary.

It will provide more than $25 billion in assistance to homeowners, participating states and the federal government.

For the record, all 50 states participated except for lonely old Oklahoma.

The offending parties in the National Mortgage Settlement include:

– Ally/GMAC
– Bank of America
– Citi
– JPMorgan Chase
– Wells Fargo

These are the nation’s five largest mortgage loan servicers.

Benefits will be provided to both borrowers whose loans are owned by the settling banks as well as to borrowers whose loans they service.

In other words, your mortgage may have been originated by another company and sold to one of these companies to be serviced. So be sure to check your loan documents if you think you may be eligible.

Where the Settlement Money Will Go

The bulk of the money, at least $10 billion, will go toward principal balance reductions. In other words, those who hold underwater mortgages will see their balances drop to get them above water.

But the assistance will only be directed toward those who are either delinquent or at imminent risk of default as of the date of the settlement.

The principal reduction will likely be facilitated via a loan modification, so borrowers will ideally end up with a smaller loan balance and a lower mortgage rate, which will certainly make mortgage payments much more affordable.

State attorneys general believe principal reductions will prove beneficial, and as a result, will be employed by other mortgage lenders not involved in the settlement.

Another $7 billion or more will be used for short sales and transitional services, forbearance of principal for unemployed borrowers, anti-blight programs, and benefits for service members forced to sell their homes at a loss as a result of a “Permanent Change in Station” order.

Loan servicers will also have at least another $3 billion at their fingertips to provide refinancing to borrowers who are current, but underwater on their mortgages.

These homeowners will be able to take advantage of the record low mortgage rates that were previously out of reach due to loan-to-value ratio restraints.

Additionally, $1.5 billion will be distributed to roughly 750,000 borrowers who have already lost their homes to foreclosure.

The states involved will also receive immediate payments of roughly $3.5 billion to help fund consumer protection and state foreclosure protection programs.

How and When Can You Get Help?

If you think you qualify for assistance, you can contact the offending mortgage servicer directly, although they should be contacting you…

For borrowers who lost their homes between January 1, 2008 and December 31, 2011, a claim form should be sent to you for one of those shiny checks.

You can also contact your individual Attorney General’s office to check eligibility, or to provide a current address assuming you moved and/or have been foreclosed on.

Unfortunately, relief won’t be immediate under the settlement. Over the next 30-60 days, settlement negotiators will be selecting an administrator to oversee the program.

And over the next six to nine months, this administrator will work with attorneys general and loan servicers to identify relief recipients.

It is expected to take three years to execute the entire settlement, so patience is a virtue here.

Who is Left Out of the National Mortgage Settlement?

Borrowers with Fannie Mae and Freddie Mac owned mortgages. And those with FHA loans.

This is more than half of the homeowners with mortgages in the United States.

So quite a few borrowers are missing out. But they can still get assistance via HARP 2.0, even if they are severely underwater. Or via the Broad Based Refinancing Plan currently in the works.

Additionally, those that have positive home equity likely won’t see any relief from this settlement.

Essentially, those that paid down their mortgages, or came up with a reasonable down payment, won’t qualify for assistance under this settlement.

While it seems like they’re losing out, they aren’t. This settlement is about shoddy foreclosure practices, so those that weren’t affected obviously wouldn’t receive any benefit.

However, they may receive the indirect benefit of a healthier housing market and higher home prices if the settlement works as it should.

It’s worth noting that the banks involved are still accountable for claims that may arise out of any other wrongdoings committed during the lead up to the mortgage crisis.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Prospective Buyers Are Beginning to Walk Away from Home Purchases

Last updated on August 29th, 2018

Over the past few years, the term “walking away” was synonymous with strategic default. In short, homeowners who were underwater on their mortgages had very little hope of turning things around.

As a result, they would simply walk away from the property (and the mortgage), accepting whatever consequences came with that. Typically, a big fat credit hit and the need to find a new place to dwell.

Interestingly, some of these same borrowers now qualify for mortgages again because so many years have passed since that phenomenon began.

And those able to prove extenuating circumstances, such as a temporary job loss that led to a short sale or foreclosure (or even bankruptcy) can now get an FHA loan just one year later.

So despite many calling the mortgage market too conservative, there are ample opportunities for those with checkered pasts to obtain financing.

The New Walk Away Is an Affordability Thing

I cautioned a while back that affordability was set to fall off a cliff, given the dramatic rise in mortgage rates, coupled with higher asking prices.

And now it’s causing would-be home buyers to walk away from deals. A new Bloomberg report cites several examples where prospective buyers are backing out because of affordability concerns.

One couple in Seattle thought they could afford a $400,000 home because that’s what the math told them back in February when their home search began.

Today, their housing payment is roughly $300 higher than it would have been had they closed before rates surged. As a result, they’re looking at a smaller home instead.

Another family in Portland tried to back out of a home purchase because rates have both increased their proposed housing payment and made it more difficult to sell their existing home. Talk about a double whammy.

This is apparently a trend, according to a Redfin economist cited in the article, who said a lot of agents are dealing with buyers who were in escrow that can no longer afford to buy. All the more reason to make sure your buyer is qualified, even if rates go up.

One Redfin agent said his client is waiting to buy in fall once competition dies down, though there’s the risk that interest rates could be even higher then. And prices.

[First Sign of Mortgage Rate Impact as New Home Sales Disappoint]

Just How Bad Are the Higher Mortgage Rates?

You’d think that a couple hundred dollars wouldn’t derail someone’s ability to qualify for a loan, but apparently it does.

When it comes down to it, DTI ratios limit how much a prospective homeowner can afford, so those on the cusp can easily run into trouble if they don’t lock their rate at the outset when they may have been originally pre-approved.

I created some mortgage payment charts to quickly eyeball interest rate changes and their impact on monthly payments.

For smaller loan amounts, the difference in payment is still pretty minimal. On a $200,000 loan amount, the monthly mortgage payment on a 30-year fixed at 4.5% versus 3.5% is only about $115 more.

On a $500,000 loan, the difference jumps to nearly $300, which is a bit more devastating to the old wallet.

This probably explains why homeowners are either looking for smaller and/or cheaper homes, or considering the use of hybrid ARMs, such as the 5/1 or 10/1 to keep payments at bay.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Pros and Cons of Refinancing Your Mortgage Right Now

Since April 1, 2009, roughly 16.2 million American homeowners have refinanced their mortgages, according to the latest Housing Scorecard released by HUD.

But as you may or may not know, there are still millions of homeowners who have not, for one reason or another.

Some may not be eligible, while others may be going through foreclosure or have simply given up on making payments.

[Reasons why you can’t refinance.]

And hey, some just may have procrastinated, or simply aren’t that interested in their mortgage.

For example, Obama hasn’t refinanced his mortgage in seven years, but Bernanke has been all about it in recent years.

If you look at the chart below, you’ll notice that refinancing has been pretty steady since the lull in 2008 (when lending came to a standstill), but it’s still nowhere close to that seen in 2003 when things were bubbling up toward implosion.

refinanced

Yet, mortgage rates are at all time lows, and continue to fall seemingly every week, month, etc., not that anyone seems to care.

So if you’re on the fence about refinancing, let’s look at a few pros and cons of refinancing now vs. later.

Con: Home Prices Rising

Home prices have been on the rise for a while now, and are expected to keep climbing nationwide.

The Housing Scorecard also noted that rising property values have brought homeowner equity to its highest point since the third quarter of 2008.

That pushed 1.3 million homeowners out of an underwater position. That’s great for those looking to refinance, as it should make it easier.

equity

But higher home prices also make refinancing even more attractive to those with equity because their loan-to-value ratio may fall to a lower threshold, pushing their qualifying mortgage rate even lower.

So for those who believe their home value will keep increasing, pumping the brakes on refinancing might be a good move, especially if you’re right on the cusp of a LTV threshold such as 80%, where you can ditch mortgage insurance.

Pro: Record Low Rates

On the flip side of that argument, one could argue that mortgage rates are at unprecedented levels, and you’d be a fool not to refinance now.

After all, what if mortgage rates tick higher and you “miss your chance” at snagging a 30-year fixed near 3%?

You might kick yourself a few times for missing the boat. And how low can mortgage rates really fall?

Con: Even Lower Rates

Well, the housing pundits have said that month after month, and week after week, only to grab their erasers and pretend they didn’t call a mortgage rate bottom.

I’ll admit that I’ve been one of those people.

Yes, rates are absurdly low, but no, they probably haven’t bottomed. There is still so much uncertainty out there that can push rates even lower.

Europe is still unraveling, and whether there has been much improvement locally is still a big question mark.

With the Fed pledging to buy mortgage securities until the cows come home, waiting could pay off.

Pro: Lower Payments Today

But, the longer you wait to refinance, the more you’ll pay each month in the form of a higher interest rate.

So if you keep riding it out, waiting for that perfect time to refinance, you’re essentially missing out on a lower payment during those months (or years).

Make sure you factor in all that money once you finally make the decision to refinance. The savings could be skewed as a result.

Con: Big Picture Savings

Of course, you might just say, “hey, I might be spending more each month now, but once I get a 2.50% 30-year fixed, I’ll be ahead in no time.”

That could be true, and someone who waits a bit longer could wind up with an even better rate and a lower monthly payment, which could spell bigger savings over the years ahead.

[Locking vs. floating]

After all, refinancing costs money (unless it’s a no cost loan), and serially refinancing isn’t always possible (nor fun), especially if your credit takes a hit or something else makes you ineligible.

Pro: You’re Eligible Now

Speaking of, if you’re eligible now, and the interest rate is dynamite, letting it ride might not be the best move.

What if something does bar your eligibility, such as unemployment, a mindless missed payment that leads to a lower credit score, or simple program changes?

There’s been talk about all types of stuff on the horizon, like a qualified mortgage, which Romney mentioned in the first presidential debate.

You wouldn’t want to be caught out by a future change or misstep, would you?

In summary, you can’t really go wrong by refinancing right now, assuming it saves you money, but yes, waiting could prove to be better.

In any case, take the time to really think it over!

Source: thetruthaboutmortgage.com

Mortgage Rate History: Check Out These Charts from the Early 1900s

Last updated on February 5th, 2019

Today we’ll take a brief look at some mortgage rate history to gain a little context. It’s always helpful to know what came before so you can better guess what might come after.

Just about everyone knows that mortgage rates hit all-time record lows over the past year. But do you know what mortgage rates were like in the 1900s?

The 30-year fixed averaged 3.31% during the week ending November 21, 2012, its lowest point in history.

Later, the 15-year fixed hit the lowest point ever, sinking to 2.56% during the week ending May 2, 2013.

Freddie Mac’s Mortgage Rate Statistics Started in 1971

historic mortgage rates

  • Most mortgage rate statistics are tied to Freddie Mac’s archive
  • Unfortunately, it only goes back to the year 1971
  • I wanted to drill down a bit deeper to see what things were like
  • Prior to the 70s and earlier on the century to gain more perspective

Both figures above come from Freddie Mac’s Primary Mortgage Market Survey, which only dates back to 1971.

For the record, back in April of 1971, the first month they began tracking 30-year fixed mortgage rates, the national average was 7.31%.

It went as high as 18.45% in October 1981 and as low as 3.31% in November 2012. That’s quite a range.

Note that the graph above charts rates based on their January average of each year, so it appears they don’t exceed 18%.

The 15-year fixed has only been tracked by Freddie Mac since September 1991, when rates averaged 8.69%.  In that same month the 30-year fixed averaged 9.01%.

Anyway, I remember a while back when fixed rates were in the low 4% range that the media was going on about how rates hadn’t been this low since the 1950s.

I never really took the time to see how low rates were back then, but I finally decided to do some digging to get a little more information.

A Little Bit of Mortgage Rate History

  • Mortgage rate history stretches back nearly a century
  • But the best records only go back to the early 1970s
  • The 30-year fixed gained in popularity around the 1950s
  • And rates reached a low around 1945 before hitting new lows in 2012

That brought me to several out-of-print volumes from the National Bureau of Economic Research, which seems to have the best records out there.

Unfortunately, the details are still quite murky at best. You see, back then there were different types of mortgages, not like the ones used today.

While I don’t know when the very first 30-year fixed mortgage was created and issued (someone please tell me), they were believed to become widespread in the 1950s, which is why media references that decade.

Before that time, it was common for entities like commercial banks and life insurance companies to issue short-term balloon mortgages, often with terms as short as three to five years, which would be continually refinanced and never paid off.

These loans were also underwritten at LTV ratios around 50%, meaning it was pretty difficult to get a home loan.

Later, once the Great Depression struck, home prices nosedived and scores of foreclosures flooded the housing market because no one could afford to make large payments on their mortgages, especially if they didn’t have jobs.

Then came FDR’s New Deal, which included the Home Owners’ Loan Corporation (HOLC) and the National Housing Act of 1934, both of which aimed to make housing more affordable.

The HOLC, established in 1933, could explain why long-term fixed-rate mortgages are in existence today.

The purpose of the HOLC was to refinance those old balloon mortgages into long-term, fully amortized loans, with terms typically ranging from 20 to 25 years.

Rates Came Down as Loan Terms and LTVs Increased

  • Homeownership became more affordable over time
  • Thanks to lower interest rates
  • Longer loan terms
  • And higher LTVs (lower down payments)

A year later, the FHA and the Federal Savings and Loan Insurance Corporation were created, and in 1938, Fannie Mae was born. All of these entities essentially expanded credit availability and led to more liberal lending standards.

Over time, mortgage interest rates came down while LTV ratios and loan terms increased, as you can see from the charts below.

Historical Mortgage Rates

early 1900s lending

While it’s hard to get an apples-to-apples comparison of mortgage rates before the advent of the 30-year fixed, the National Bureau of Economic Research does have a chart detailing rates from 1920 to 1956.

From about 1920 until 1934, conventional mortgage rates averaged close to 6%, and then began to decline to a low point of just under 4.5%. This is probably the reference point the media uses when they say rates haven’t been this low in 60 years.

Mortgage Rates in the 1920s to 1950s

  • We see a steady drop in interest rates
  • From around 1935 to 1945
  • Before rates began their ascent
  • Perhaps as the result of World War II ending

early 1900s mortgage rates

However, it’s unclear what types of mortgages these were over this extensive time period, and when the 30-year fixed actually became the standard. But it does provide for a little bit of context.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Watch the Holiday Spending If You Plan to Refinance

Well, believe it or not, the holidays are upon us again. It seems like just yesterday I was cursing the fact that I didn’t have an air conditioner, and now I wish I had a better heater. Go figure.

To compound that, I now need to get out (or stay online) and do my holiday shopping. The good news is that family and friends have to do the same thing for me, assuming they actually bother buying me gifts this year.

Anyway, I got to thinking about a possible problem that can arise from aggressive holiday shopping.

If you spend and spend and spend in the next few weeks, make sure you can actually pay for all your purchases.

Otherwise you’ll rack up credit card debt, which can obviously lead to costly finance charges.

Unintended Consequences

We all know credit card debt is bad; after all, the APR on credit cards is sky-high compared to pretty much every other type of loan, especially mortgages.

So you’ll be wasting away money via outrageous finance charges if you don’t pay off your bad gift giving debt.

But worse are the unintended consequences of carrying said debt.

Let’s assume you’ve got a “great plan” to tidy up your finances and finally get around to that refinance once the in-laws are forcibly removed from your home after the holidays.

Come January, you apply for a refinance at your local bank or via an online lender, with grand plans to save tons of money via an über-low mortgage rate.

You know you’ve got a good credit score, a well paying job, and plenty of assets. Heck, you’ve even got a fair amount of home equity, which will make your low-LTV loan bulletproof.

As you’re daydreaming about your stellar borrower profile, the phone rings, and it’s your loan officer.

Remember your awesome credit score? Well, it dropped 30 points, thanks to all that new credit card debt.

Even though you intend to pay it, or even if you paid it, your credit score got hit because your credit utilization spiked and the credit bureaus took notice.

[What mortgage rate can I get with my credit score?]

You’ve Still Got the Green Light

As you begin to panic, your loan officer reassures you, and lets you know that you can still refinance!

There’s just one little catch. The mortgage rate you were quoted when you originally spoke isn’t going to be as low, thanks to that credit score ding.

That 30-point hit was enough to push you into a lower credit score tier, which increased a pricing adjustment, and subsequently, your interest rate.

Sure, you can still refinance. But you’ll have a higher-than-expected monthly mortgage payment, and pay that much more in interest each month.

All because you were reckless with your spending before going out and getting a mortgage.

[The refinance rule of thumb.]

It Could Be Worse

While perhaps a lot less likely, if you go nuts and rack up a ton of holiday debt, buying heart-shaped pendants from Kay Jewelers, it could be enough to kill your loan completely.

Put simply, if the debt is large enough to where the minimum monthly payment pushes your debt-to-income ratio beyond acceptable limits, you could be out of luck.

So think those big purchases through if you’ve got ambitious plans to get a mortgage in the New Year.

After all, you wouldn’t want to miss out on securing one of the lowest rates in history thanks to some cheesy diamond-stud earrings.

Your loved ones should understand. Once the refi is done you can shop to your hearts delight and make up for any unmet expectations.

Tip: When holiday shopping, avoid opening up a store credit card or any other line of credit if you plan to refinance in the near future, as doing so can really knock your credit score out of whack.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Freddie Chief Economist ‘Pretty Certain’ 30-Year Fixed Mortgage Rates Will Hit 5% by Mid-2014

Last updated on August 27th, 2018

During the latest radio interview with Real Estate Today Radio, Freddie Mac Vice President and Chief Economist Frank Nothaft weighed in on the direction of mortgage rates, as he normally does for his own company.

While he typically speaks about rates in the past tense, host Gil Gross pressed him to make a prediction about where mortgage rates might be headed in the near future, in an edition fittingly titled, “The Five Percent Show.”

Specifically, he asked Nothaft if mortgage rates would hit five percent, a seemingly important psychological threshold, and if so, when.

Here’s what Nothaft said, after joking that it’d be a lot easier to simply answer the first part of the question, and not so much the when part:

I don’t believe it will be this year. But I do feel pretty certain that it will be sometime in 2014. So if you were to try to pin me down, I would say by the middle of 2014 we will already see 30-year fixed rate mortgage rates up around five percent.

Nothaft sounded pretty confident that long-term fixed mortgage rates would make their way up to 5% by next year, though he did hold out hope for the rest of 2013.

Even if they do rise to 5%, it would mean less than a half a percentage point (0.43%) increase from current levels, which certainly isn’t the end of the world given how low rates are.

However, it’s important to note that 30-year fixed mortgage rates haven’t averaged more than 5% since April of 2010.  On a $300,000 mortgage, the difference in monthly payment would be about $100.

Nothaft’s sentiment echoed that of Fannie Mae chief economist Doug Duncan, who cautioned back in June that mortgage rates wouldn’t come back down.

But Could Mortgage Rates Actually Fall Again?

Despite most pundits taking the safe route and betting on higher rates, one website that tracks mortgage rates actually forecasts them to drop fairly significantly.

The website Forecasts.org tracks Freddie Mac’s rates using what they say is independent, objective, and global data, which relies on a “long-range economic dataset” to generate forecasts using artificial intelligence.  Got all that?

Their latest forecast for 30-year fixed rates puts them at 4.02% in February 2014, down about a half-point from current levels.

And in the preceding months, rates are forecast to slowly trickle down from current levels throughout the rest of the year.

I thought this was a bit hard to believe, so I used the Wayback Machine to look at archives of prior predictions on Forecasts.org.

What I found was a June 1 snapshot that forecast the 30-year fixed to average 3.26% in August and 3.17% in September.

We all know that didn’t happen, not even close. Other forecasts were also kind of off as well. But if it were that easy to predict the future, the world would be a very different place.

So is Nothaft smarter than the computer? I guess we’ll have to wait and see.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Last updated on December 8th, 2020

Looking for the best mortgage rates? We’ve all heard about the super-low mortgage rates available, but how do you actually get your hands on them?

When it’s all said and done, it never seems to be as low as the bank originally claimed, which can be pretty frustrating or even problematic for your loan closing.

But instead of worrying, let’s try to find solutions so you too can take advantage of these remarkable interest rates.

There are a number of ways to find the best mortgage rates, though a little bit of legwork on your behalf is definitely required.

After all, you’re not buying a TV, you’re buying a home or refinancing an existing, probably large home loan.

best mortgage rate

If you’re not willing to put in the work, you might be disappointed with the rate you receive. But if you are up for the challenge, the savings can make the relatively little time you put in well worth it.

The biggest takeaway is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Many prospective and existing homeowners simply gather one quote, typically from a friend or real estate agent’s reference, and then kick themselves later for not seeing what else is out there.

Below are 10 tips aimed at helping you better navigate the shopping experience and ideally save some money.

1. Advertised mortgage rates generally include points and are best-case scenario

You know those mortgage rates you see on TV, hear about on the radio, or see online. Well, most of the time they require you to pay mortgage points.

So if your loan amount is $200,000, and the rate is 3.75% with 1 point, you have to pay $2,000 to get that rate. And there may also be additional lender fees on top of that.

It’s important to understand that you’re not always comparing apples to apples if you look at interest rate alone.

For example, lenders don’t charge the same amount of fees, so clearly rate isn’t the only thing you should look at when shopping.

Additionally, these advertised mortgage rates are typically best-case scenario, meaning they expect you to have a 760+ credit score and a 20% down payment. They also expect the property to be a single-family home that will be your primary residence.

If any of the above are not true, you can expect a much higher mortgage rate than advertised.

Are you showing the lender you deserve the lowest rate, or simply demanding it because you feel entitled to it? Those who actually present the least risk to lenders are the ones with the best chance of securing a great rate.

2. The lowest mortgage rate may not be the best

Most home loan shoppers are probably looking for the lowest interest rate, but at what cost? As noted above, the lowest interest rate may have steep fees and/or require discount points, which will push the APR higher and make the effective rate less desirable.

Be sure you know exactly what is being charged for the rate provided to accurately determine if it’s a good deal. And consider the APR vs. interest rate to accurately gauge the cost of the loan over the full loan term.

Lenders are required to display the APR next to the interest rate so you know how much the rate actually costs. Of course, APR has its limitations, but it’s yet another tool at your disposal to take note of.

3. Compare the costs of the rate offered

Along those same lines, you need to compare the costs of securing the loan at the par rate, versus paying to buy down the rate.

For example, it may be in your best interest to take a slightly higher rate to cover all your closing costs, especially if you’re cash-poor or simply don’t plan on staying in the home very long.

If you won’t be keeping the mortgage for more than a year or two, why pay points and a bunch of closing costs out of pocket. Might as well take a slightly higher rate and pay a tiny bit more each month, then you can get rid of the loan. [See: No cost refinance]

Conversely, if you plan to hunker down in your forever home and can obtain a really low rate, it might make sense to pay the fees out-of-pocket and pay points to lower your rate even more. After all, you’ll enjoy a lower monthly payment as a result for many years to come.

4. Compare different loan types

When comparing pricing, you should also look at different loan types, such as a 30-year vs. 15-year. If it’s a small loan amount, you might be able to refinance to a lower rate and barely raise your monthly payment.

For example, if you’re currently in a 30-year home loan at 6%, dropping the rate to 2.75% on a 15-year fixed won’t bump your mortgage payment up a whole lot. And you’ll save a ton in interest and own the home much sooner, assuming that’s your goal.

And as mentioned, if you only plan to stay in the home for a few years, you can look at lower-rate options, such as the 5/1 ARM, which come with rates that can be much lower than the 30-year fixed. If you’ll be out of there before the loan ever adjusts, why pay for the 30-year fixed?

5. Watch out for bad recommendations

However, don’t overextend yourself just because the bank or broker says you’ll be able to pay off your mortgage in no time at all.

They may recommend something that isn’t really ideal for your situation, so do your research before shopping. You should have a good idea as to what loan program will work best for you, instead of blindly following the loan officer’s opinion.

It’s not uncommon to be pitched an adjustable-rate mortgage when you’re looking for a fixed loan, simply because the ultra-low rate and payment will sound enticing. Or told the 30-year fixed is a no-brainer, even though you plan to move in just a few years.

6. Consider banks, online lenders, credit unions, and brokers

I always recommend that you shop around and compare lenders as much as possible. This means comparing mortgage rates online, calling your local bank, a credit union, and contacting a handful of mortgage brokers.

If you stop at just one or two quotes, you may miss out on a much better opportunity. Put simply, don’t spend more time shopping for your new couch or stainless-steel refrigerator. This is a way bigger deal and deserves a lot more time and energy on your part.

Your mortgage term is probably going to be 30 years, so the decision you make today can affect your wallet for the next 360 months, assuming you hold your loan to term. Even if you don’t, it can affect you for years to come!

7. Research the mortgage companies

Shopping around will require doing some homework about the mortgage companies in question. When comparing their interest rates, also do research about the companies to ensure you’re dealing with a legitimate, reliable lender that can actually get your loan closed.

A low rate is great, but only if it actually funds! There are lenders that consistently get it done, and others that will give you the runaround or bait and switch you, or just fail to make it to the closing table because they don’t know what they’re doing.

Fortunately, there are plenty of readily accessible reviews online that should make this process pretty simple. Just note that results will vary from loan to loan, as no two mortgage loans or borrowers are the same.

You can probably take more chances with a refinance, but if it’s a purchase, you’ll want to ensure you’re working with someone who can close your loan in a timely manner. Otherwise a seemingly good deal could turn bad instantly.

8. Mind your credit scores

Understand that shopping around may require multiple credit pulls. This shouldn’t hurt your credit so long as you shop within a certain period of time. In other words, it’s okay to apply more than once, especially if it leads to a lower mortgage rate.

More importantly, do not apply for any other types of loans before or while shopping for a mortgage. The last thing you’d want is for a meaningless credit card application to take you out of the running completely.

Additionally, don’t go swiping your credit card and racking up lots of debt, as that too can sink your credit score in a hurry. It’s best to just pay cash for things and keep your credit cards untouched before, during, and up until the loan funds.

Without question, your credit score can move your mortgage rate significantly (in both directions), and it’s one of the few things you can actually fully control, so keep a close eye on it. I’d say it’s the most important factor and shouldn’t be taken lightly.

If your credit scores aren’t very good, you might want to work on them for a bit before you apply for a mortgage. It could mean the difference between a bad rate and a good rate, and hundreds or even thousands of dollars.

9. Lock your rate

This is a biggie. Just because you found a good mortgage rate, or were quoted a great rate, doesn’t mean it’s yours.

You still need to lock the rate (if you’re happy with it) and get the confirmation in writing. Without the lock, it’s merely a quote and nothing more. That means it’s subject to change.

The loan also needs to fund. So if you’re dealing with an unreliable lender who promises a low rate, but can’t actually deliver and close the loan, the rate means absolutely nothing.

Again, watch out for the bait and switch where you’re told one thing and offered something entirely different when it comes time to lock.

Either way, know that you can negotiate during the process.  Don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate mortgage rates!

10. Be patient

Lastly, take your time. This isn’t a decision that should be taken lightly, so do your homework and consult with family, friends, co-workers, and whoever else may have your best interests in mind.

If a company is aggressively asking for your sensitive information, or trying to run your credit report right out of the gate, tell them you’re just looking for a ballpark quote. Don’t ever feel obligated to work with someone, especially if they’re pushy.

You should feel comfortable with the bank or broker in question, and if you don’t, feel free to move on until you find the right fit. Trust your gut.

Also keep an eye on mortgage rates over time so you have a better idea of when to lock. No one knows what the future holds, but if you’re actively engaged, you’ll have a leg up on the competition.

One thing I can say is, on average, mortgage rates tend to be lowest in December, all else being equal.

In summary, be sure to look beyond the mortgage rate itself – while your goal will be to secure the lowest rate possible, you have to factor in the closing costs, your plans with the property/mortgage, and the lender’s ability to close your loan successfully.

Tip: Even if you get it wrong the first time around, you can always look into refinancing your mortgage to lower your current interest rate. You aren’t stuck if you can qualify for another mortgage down the road!

Source: thetruthaboutmortgage.com