Category Archives: Mortgage Rates

The $25,000+ Mortgage Mistake Nearly Half of Borrowers Make

When I talk to people planning to purchase a new home with a loan, I always recommend “shopping around” for a lender.  I provide at least three referrals to lenders I’ve worked with in the past who have done a good job, have good rates and a variety of programs.  It’s an important detail in your home purchase plans.  The article below outlines how important.  I consider the lender, along with myself, the title company and inspector part of your home purchase team.

Let me know if I can help you with lender referrals.

Andria


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Did you pay too much for your mortgage? If you’re like millions of Americans, the answer is probably yes — and that means you may be throwing tens of thousands of dollars of your hard-earned money at the bank, when you might not need to.

A report released Tuesday by the Consumer Financial Protection Bureau finds that almost half (47%) of Americans don’t shop around for a mortgage when they purchase a home. “Consumers put great thought into the choice of a home, but the mortgage process continues to be intimidating,” CFPB Director Richard Cordray said in a statement.

Number of lenders Americans seriously consider before applying for a mortgage

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Source: Consumer Financial Protection Bureau

If you don’t shop around for a mortgage, you’re probably leaving free money (and a lot of it) on the table. “Interest rates can span more than half a percent for a conventional mortgage for borrowers with a good credit rating and a 20% down payment,” says Sam Gilford, a spokesperson for the CFPB.

While half a percent may not sound like a lot, it can be a more than $25,000 mistake for the average borrower (as of November 2014, the average price of a home sold in the U.S. was about $321,800, according to data from The Census Bureau), who takes a mortgage that’s half a percent higher than one he could have gotten by shopping around.

Say a borrower accepts a 4.5% interest rate instead of a 4% interest rate on the average home (a sale price of $321,800 and a down payment of 20% means he borrows a total of $257,440). If he gets a 30-year fixed rate loan at 4.5%, he’ll pay a total of $212,148 in interest; for a 4% interest rate, he will pay just $185,021 — a difference of more than $27,000.

For those who buy a home that costs more than average — or who put down a smaller down payment than 20% even on an average home — the results may be even more grim. For example, a person who gets a $500,000 mortgage would pay more than $412,000 in interest over the life of his 4.5% 30-year fixed rate loan, which is roughly $53,000 more than with a 4% rate.

To be sure, many people who don’t shop around may get the best rate anyway — or at least close to it. Others get a mortgage that may be a little too costly, but will later refinance and save themselves money. And still others will sell their home well before the 30-year loan period is up, so they end up paying less in interest.

Still, experts say it’s worth shopping around, as even 1/10th of a percentage point can mean thousands of dollars in extra payments to the mortgage company over the life of a loan. Luckily, doing so is relatively easy. Before shopping around, Greg McBride, the chief financial analyst for Bankrate.com says that you should pull copies of your credit reports from each of the three major credit bureaus (you can get these for free atannualcreditreport.com), consider what type of loan makes the most sense for you (see MarketWatch’s “How to Get a Mortgage” guide) and figure out how large of a loan you can afford (there are dozens of online calculators that can calculate your monthly payments and more).

Once you’ve done that, McBride says that you should get quotes from your local bank and credit union as well as online and apply with up to three lenders on the same day. (Kathleen Campbell, the founder of Campbell Financial Partners in Fort Myers, recommends using Bankrate to check mortgage rates, and considering online lenders like Quicken Loans, CapitalOne 360 and Pentagon Federal Credit Union.) Finally, “compare all lender fees and rates, negotiate to get the best deal, and select the best offer,” McBride says.

This story was originally published Jan. 13 on MarketWatch.com.

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Tapering Begins!

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The Fed announced they would be pulling back some of their stimulus package which has helped the housing market by keeping long term mortgage rates at historic lows for the last few years. This should come as no surprise as the KCM Blog has been warning of this likelihood over the last several months.

We even went against the belief of the vast majority of economists who thought the Fed would wait until next year. In this month’s edition of KCM, we quoted Bill McBride of Calculated Risk:

“Although the consensus is the Fed will wait until 2014 to start to taper asset purchases, December is still possible.”

We also gave our members the following grouping of slides to help them explain the ramifications of the Fed’s decision during meetings with buyers and sellers.

Tapering

What it Means to the Consumer

In an article in MarketWatch today, Lawrence Yun, the Chief Economist at NAR, explained that sellers looking to move-up (to a better school district or larger home) “need to realize that it could be more challenging a year from now.” Yun stated the average 30-year mortgage rate currently hovers at 4.3%, but that could rise to 5% or 5.5% next year.

What it Does NOT Mean to the Housing Market

Some reports will now claim that housing prices will have to drop as interest rates begin to rise. There is no historical evidence of this. Below is a chart showing the last four instances of mortgage rates rising dramatically and what happened to home values at the time.

12-23 Rates and Prices

Bottom Line

If a client is either a first time buyer or a move-up buyer, they should make the move earlier in 2014 instead of later as mortgage rates will probably increase as the year goes on.

Have All The Bad Loans Already Been Foreclosed?

U.S. foreclosure starts dropped to a six-year low in January, another strong indication that the U.S. housing market is recovering and the worst of the foreclosure crisis is behind us.

But what specifically is driving this decreasing foreclosure activity? Is it simply a matter of rising home prices pulling more troubled homeowners back from the brink of foreclosure? Or should the numerous foreclosure prevention efforts at the national, state and local level get the lion’s share of the credit for the slowdown in foreclosure activity?

foreclosure_rates_by_loan_vintage

While both of these are certainly helping to speed the descent, the fundamental factor driving the drop in foreclosures is better lending guidelines that don’t allow anyone with a reflection to qualify for a loan — not to mention anyone who can fog that reflection.

Since the financial crisis hit in full force in 2008 — triggered by loans gone bad in big numbers — the mortgage industry has got religion in a big way. And it’s not just talking the talk, it’s walking the walk as well, as evidenced by the declining foreclosure rate on loans originated in 2009 and later.

Investor_Survey_2013_Outlook

More than 5 percent of still-active loans originated in 2006 were in some stage of foreclosure as of the fourth quarter of 2012 — the highest foreclosure rate of any year going back to 2000. That was followed by 2007 vintage loans with a 4.75 percent foreclosure rate, 2005 vintage loans with a 3.52 percent foreclosure rate, and 2008 vintage loans with a 2.95 percent foreclosure rate. The only other loan vintage with a foreclosure rate above 2 percent was 2004, with a 2.16 percent foreclosure rate.

The foreclosure rate on 2009 vintage loans dropped to 1.11 percent, and the foreclosure rate steadily decreases on loans originated in the three years since — all of which have foreclosure rates below 1 percent.

Of course a slightly lower foreclosure rate on more recently originated loans is to be expected all things being equal. Borrowers on these newer vintage loans have simply not had as much time to get into trouble and stop making mortgage payments. Still, the sharp drop from 2008 to 2009 foreclosure rates indicates a much higher quality of loan product.

So certainly the drop in foreclosure starts can in large part be attributed to better quality loans in recent years, providing less fuel for the foreclosure fire going forward. But the other side of that good news is the bad news that the housing market has not yet dealt with many of the risky loans originated during the dark ages of lending.

Bad loans lingering in foreclosure
To the contrary, 75 percent of all loans that are actively in the foreclosure process were originated from 2004 to 2008, while only 14 percent were originated from 2009 to 2012, and only 11 percent were originated in 2003 or earlier.

The mortgage servicing industry has not yet resolved these bad loans. And if the mortgage servicing industry has not fully dealt with those bad loans, it also means the housing market has not fully absorbed the impact of those bad loans.

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Some of those non-performing loans will be directed into one of the many foreclosure alternatives now available to lenders: from loan modification to short sale to even sale of the loan at a discount to another entity who then can try to get that loan performing again.

But some are destined for foreclosure and will need to be foreclosed in the coming years, not to mention that some going into the loan modification bucket or nonperforming loan sale bucket will end up as foreclosures eventually.

That means foreclosure sales will continue to account for a historically high percentage of all residential sales in 2013 and 2014 — even after foreclosure starts have returned to historically normal levels.

Foreclosure sales are on track to account for about 20 percent of all sales in 2012, and I would expect a similar percentage for 2013. Only when that percentage drops below 5 percent can we conclude that the housing market has fully absorbed all the distress created during those dark days of the housing market in the mid-2010s.

Recap of 2012 Housing Market – What to expect in 2013

Happy New Year to all of you. I hope you had a wonderful, relaxing holiday season!

I thought I’d give you a little recap of the 2012 housing market and what we could expect in 2013. Please remember that housing is a very localized market. While national statistics depict one picture, local statistics may depict another. So, here we go – a bit lengthy but worth the read.
The 5 Biggest Real Estate Stories of 2012
At Keeping Current Matters (KCM) they concentrate on the trends that impact the housing market. Here is what they believe were the biggest stories of 2012.

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Housing Was a Tailwind not a Headwind to the National Economy
Over the last several years, many experts claimed that the housing market would not recover until the overall economy recovered. Others, including us here at KCM, believed the exact opposite – the overall economy would not recover until housing recovered. This past year, housing has been one of the only bright spots in an otherwise lethargic economic recovery.
The Fed Remained Committed to Historically Low Mortgage Rates
At the end of 2011, 30-year mortgage rates were at 3.95%. Many, including us, believed that rates had only one way to go – UP! We were wrong. Mr. Bernanke and the Fed continued policies which supported keeping rates at historical lows. This resulted in rates dropping to below 3.4% by year’s end.
Demand Remained Strong throughout the Year
Home sales numbers continued to increase throughout the year suggesting that the country’s belief in homeownership still remains strong. Even the last Existing Homes Sales Report of the year from the National Association of Realtors revealed that home sales were up 5.9% from the previous month and 14.5% from the same time last year.
Inventory Began Shrinking
Housing inventory is at its lowest level (4.8 months) since September of 2005. This represents 22.5% decrease as compared to the same time last year. Shadow Inventory, the inventory of distressed properties coming to market, is also shrinking. This is for two reasons:
1.    we are clearing more foreclosures and short sales

2.    less families are falling behind in their mortgage payments
Prices First Stabilized and then Increased
Perhaps the biggest story of 2012 is that home values turned the corner and headed upward. By the end of the year, home values were up 10.1% nationally compared to the end of 2011.
Now for the five biggest real estate stories for 2013
The bust of the housing market five years ago created one of the cheapest times to buy. Across many parts of the U.S., even in some of the priciest markets including New York and Honolulu, it has become cheaper to purchase a home than rent, according to Trulia’s Rent vs Buy report. Record-low interest rates on mortgages have also made buying more affordable.
That’s changing, however. In 2012, prices hit bottom. Finally! While that tells us the market is healing, it could also mean buying will be less affordable in 2013.
Asking prices for homes for sale rose 3.8% in November from a year earlier — one of the biggest gains since the housing market crashed in 2007.
While rents nationwide are still rising faster than home prices, the trend has reversed in 14 of Trulia’s 25 biggest rental markets including Denver, Seattle and San Francisco.
Mortgage rates remain at an all time low. 10 year mortgage rates are still available for less than 3 percent.
Home inventory is at a record low. There simply are not enough homes on the market to satisfy the demand. In many areas, there are multiple competing bids for one home within hours of going on the market.
So, there you have it. If you’re a buyer, be prepared! Know what you can spend and have a lender lined up. Be prepared to make an offer immediately when you find the right house, especially if it’s new on the market. Changes are, if you like it, someone else will too.
Sellers – now is a great time to sell if your home is ready to sell and you’re prepared to price within local standards.

Mortgage rates currently near record lows

According to the mortgage corporation Freddie Mac, the average rate of 15-year, fixed-rate mortgages fell to 2.66% earlier this week.  Freddie Mac concludes that this week’s rate has hit a new low. 15-year, fixed-rate mortgages are popular especially with homeowners who are looking to refinance their old mortgages to a lower rate while paying off their new mortgages more quickly.  First-time homebuyers are commonly using 30-year loans, which averaged another low rate this week of 3.37% interest rates.

What does this tell us about mortgages and home buying during this time?

Now is a particular good time to think about buying a new home!

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Photo courtesy of mjperry.blogspot.com.