Rising Rates & Affordability: “How Much Can You Finance with $960/Month?”

March 15, 2017

As rates rise, affordability dwindles.  If you want more home for the same monthly payment, acting before rate rise further may be a direct path to success.

Each example here shows the principal and interest payment for a 30-year, fixed-rate loan.

1) Loan of $200,000 – Interest rate: 4.00% / 4.25% APR – Payment = $955

2) Loan of $180,000 – Interest rate: 5.00% / 5.27% APR – Payment = $966

3) Loan of $160,000 – Interest rate of 6.00% / 6.29% APR – Payment = $959

It’s pretty amazing that a rate increase of just 2% can impact affordability by as much as $40,000.  Rates have been artificially low for some time now due to Fed intervention.  As this stimulus is removed, the usual result is the rates to rise.  Rates have already started rising just in expectation of a change in Feb policy.

Act NOW to buy the house you desire without the risk of losing your opportunity to lock-in these amazing low rates.  I can help you or those you know get a low interest rate loan before further increases go into effect.

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One More Chance to Refinance in 2015?

January 4, 2015

IS NOW A GOOD TIME TO REFINANCE?

2015 shirtHomeowners who missed the last refinancing boom have been given another chance.

According to a weekly survey by Freddie Mac, average interest rates for 30-year fixed mortgages fell last week to their lowest level in over a year and a half last week. Interest rates are the lowest the country has seen since mid-2013, and remain close to their lowest level in 50 years.

Not many experts expect rates to stay low, however.

According to the Mortgage Bankers Association, 30-year fixed mortgage rates are likely to rise as early as 2015’s first quarter; and should end the year at 5%. The mortgage industry trade group also predicts rates at 5.4% by 2016.

With current mortgage rates low (but expected to rise), U.S. homeowners are submitting applications to refinance by the tens of thousands.

Refinancing can be a great way to save money, but there are times a homeowner should choose to say “no”. For example, because there are costs associated with refinancing, sometimes, refinancing to a lower interest rate mortgage can be more expensive than keeping your current one.

So, how should you determine whether refinancing is right for you?

First, you will want to understand how refinancing works. Then, you should consider your current financial situation and what you plan to accomplish with a refinance.

Click to get today’s interest rates.

HOW REFINANCING WORKS

The mechanics of a refinance are basic — you give a new mortgage which pays your original mortgage in full, leaving you with just the “new” mortgage(s) on your home.

The interest rate of your new loan; and the term of your new loan may be different for your original, but the property securing the loan is the same.

Many people find it simpler to refinance a home than to get the loan needed at the time of purchase. This is because refinance transactions typically require less paperwork and documentation as compared to a purchase loan.

Refinance mortgage rates may be higher or lower than rates available on a home purchase.

Click to get today’s interest rates.

FACTORS TO CONSIDER PRIOR TO REFINANCING

Low mortgage rates are an excellent reason to refinance a home; however, for today’s homeowners, there are other considerations as well.

How Much Equity Do You Have In Your Home?

In general, homeowners may find it challenging to refinance without sufficient home equity. In mortgage terms, “sufficient home equity” can be defined as have a loan-to-value on your home of 80 percent or better.

However, there are a number of refinance programs available to homeowners with less than 20% equity. Two popular programs are the VA Streamline Refinance and the FHA Streamline Refinance.

Available to homeowners with existing VA and FHA loans, respectively, these two streamlined refinance plans ignore a homeowner’s home equity percentage and allow refinancing based on recent payment history. Homeowners nearly always qualify for the VA or FHA Streamline Refinance if when they’re current with their loans and the refinance shows benefit.

For homeowners with conventional loans backed by Fannie Mae and Freddie Mac, two options exist. The first option is the Home Affordable Refinance Program (HARP) which allows for unlimited loan-to-value; and the 97% LTV program for homeowners with at least three percent equity in their homes.

The 97% mortgage program is available to all homeowners who meet the program criteria; and can be used by homeowners with existing FHA mortgages to “cancel FHA MIP”.

What Is Your Current Interest Rate?

When you can lower your current interest rate, it may be worthwhile to refinance your home.

Lower mortgage rates can mean lower payments but, for many homeowners, the deciding factor in refinancing to lower rates is going to be some variation of “how long it will take recoup your loan closing costs?” For example, if your refinance carries total closing costs of $3,000, and you save $100 monthly with the transaction, the general thinking is that you should not refinance unless you’ll be in your home for at least 30 months.

However, there are other considerations with a refinance including getting “cash out”, and the value of having access to extra money today.

Choosing a lower mortgage rate can be a good reason to refinance — it just shouldn’t be the only reason.

Click to get today’s interest rates.

What Are The Closing Costs To Refinance?

Closing costs are an important consideration when deciding whether to refinance and there are three ways to handle your costs.

The first way to handle your costs is to pay the minimum at closing, in cash or as part of your loan balance. For example, if your closing costs total $2,500, you can opt to bring $2,500 to your closing in the form of a check; or you can add $2,500 to your loan balance.

In both instances, you are paying closing costs from your own money — either as cash or in the form of home equity.

The second way to handle your costs is to elect to pay discount points, which lowers your mortgage rate below “standard” market rates, in cash or as part of your loan balance. 1 discount point costs 1% of your loan size such that a $250,000 loan with 1 point will carry an additional loan fee of $2,500.

In general, paying 1 point will lower your mortgage rate 25 basis points (0.25%). This will result in lower monthly payments and, eventually, you will save more on your payments than you paid in points at your closing. Recouping your discount points could take as few as 12 months or as many as 60.

The third way to handle your closing costs is via a zero-closing cost mortgage. With a zero-closing cost, you willingly accept a slightly higher mortgage rate from your lender in exchange for having all of your loan closing costs paid on your behalf. In general, on a $250,000 loan, a mortgage rate increase of 25 basis points (0.25%) will convert your loan into a zero-closing cost mortgage.

Zero-closing costs mortgages can be sensible for homeowners whom expect to move from their homes in the next few years; or whom expect to refinance within the next 24 months.

For homeowners planning to make their next refinance last 30 years, zero-closing cost loans can be the most expensive route. Mortgage calculators can be a helpful tool to determine which program works best.

Do You Want To “Own Your Home Sooner”

Another consideration for refinancing households is whether you want to extend or reduce the number of years until your mortgage is paid in full.

For homeowners with an existing 30-year mortgage, refinancing to a new 30-year mortgage may yield tremendous monthly savings. However, the new loan will reset your years of indebtedness to thirty. Long-term, you’ll still save money, but you’ll be paying on your loan for more years overall.

Not wanting to “start over” is one reason why the 15-year mortgage is a popular refinance choice. 15-year mortgage offer low mortgage rates and fewer years to repay in full. It should be noted that payments on a 15-year mortgage are higher as compared to 30-year loans, but over the life of the loan, today’s 15-year mortgages save homeowners 65% in mortgage interest costs.

With its huge long-term savings, the 15-year mortgage can be an excellent way to save for homeowners to plan to retirement or to save for college tuition costs.

GET TODAY’S REFINANCE MORTGAGE RATES

Deciding whether to refinance is a personal decision. Consider how long you’ll be in your home, how much you’ll save each month, and how long it will take to recoup your costs. Thankfully, with mortgage rates low, the market is ripe for homeowners to take action.

Click to get started. 


4 Reasons to Buy a Home in 2010: Affordability returns to housing, and buyers have loads of negotiating power.

September 13, 2010

 

Brian Short, CMC, CRMS, GMA – Licensed Mortgage Professional

Many people are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you’re brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.

 Ask for price reductions, improvements, closing costs — whatever — and the seller, desperate to get a contract, is likely to work with you but when the market starts improving, your negotiating power will start to diminish.

 If you’re qualified to buy a home now, and the purchase makes sense for your situation, and you’re prepared to live in that home for at least five years, there are four reasons you may be headed for a great deal:

 1. Affordability is better than ever.

According to the National Association of Realtors’ housing affordability index, homes are more affordable now than at any other point since the group started the index in 1970. The NAR’s affordability index is a measure of the relationship between home prices, mortgage interest rates and family income.

 

 

 What’s your home worth?

 Not all markets have experienced huge drops, however, so it’s wise to take a look at how far prices have fallen in your area. The Federal Housing Finance Agency’s Web site has a house price calculator that can help. Visit the calculator. http://www.fhfa.gov/

I have plugged in the information regarding my house in the Nashville market to see how values are beginning to turn in my favor as a homeowner.  This means that values are starting to go back up and will never be as cheap as they are now.

MSA: Nashville-Davidson-Murfreesboro-Franklin, TN

Purchase Date: Second Quarter 2000

Valuation Date: Second Quarter 2010

Purchase Price: $225,000

Extimated Value: $314,781

   
   
   
   
   
 

When using the House Price Calculator, please note that it does not project the actual value of any particular house. Rather, it projects what a given house purchased at a point in time would be worth today if it appreciated at the average appreciation rate of all homes in the area. The actual value of any house will depend on the local real estate market, house condition and age, home improvements made and needed, and many other factors. Consult a qualified real estate appraiser in your area to obtain a professional estimate of the current value of your home. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 requires that any appraisal used in connection with a federally related transaction must be performed by a competent individual whose professional conduct is subject to supervision and regulation. Appraisers must be licensed or certified according to state law.The House Price Calculator uses the FHFA Purchase-Only House Price Index for all states, including the District of Columbia, and for the largest 25 Metropolitan Statistical Areas and Divisions.


 

 The median existing single-family home price was $184,200 in June, up 1.3 percent from a year ago. Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas reported in June in comparison with June 2009. The median existing condo price was $180,100 in June, which is 1.4 percent below a year ago. The national median existing-home price for all housing types was $183,700 in June, which is 1.0 percent higher than a year ago.

 2. You have a large inventory to choose from.

In many places it is taking months to sell a home, creating loads of inventory — from new homes to existing homes to foreclosures.   A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture.

 Total housing inventory at the end of June rose 2.5 percent to 3.99 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.3-month supply in May. This is the largest amount of existing homes for sale, in terms of months of supply, since August 2009. Raw unsold inventory remains 12.7 percent below the record of 4.58 million in July 2008.

 

It’s fair to say that home sellers have become increasingly desperate.  People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation.   Buyers can take advantage.

 But if you put off a purchase until inventory shrinks substantially, you might not get as good a price.  And be forewarned: It’s nearly impossible to time the exact bottom of the housing market, and even if you do, there’s no guarantee you’ll make a killing.

 Buy for quality of life . . . don’t buy on speculation.  I wouldn’t buy a home expecting the housing market to rebound quickly in the next 10 years, and expect moderate gains in values when the turnaround does happen.

Historically, real estate appreciates about 5% a year over the long term. But as the country crawls out of a recession, many markets probably won’t see huge home-price gains any time soon.

3. Builders are offering big discounts.

Home builders are getting even more aggressive with their pricing.  You may consider looking at completed new homes first because builders are offering such steep discounts. Plus, you’d have a warranty not only on the home itself, but also on the home’s appliances, he said.

Builders want to save their credit, save their brand, save their reputation and clear out inventory.  They can go buy cheap land today with that cash.

My advice:  Walk in with a pre-approval for a mortgage, make an offer, and then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away.

4. Mortgage rates are historically low.

It’s not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000.)

Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks.

More mortgage help could also be on the way. Recently, President Obama said that his new economic plan would help lower the cost of mortgages for home buyers, although he did not give specifics.

But low rates don’t mean lenders are handing out mortgages easily. You’ll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates.


Rates for 30-year mortgages fall for second week in a row

November 14, 2008
30 Yr Mortgage Interest RatesThe Associated Press
Published: November 14th, 2008

WASHINGTON – Mortgage rates dropped for a second straight week, reflecting the impact the weakening economy is having on financial markets.Mortgage giant Freddie Mac reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.14 percent this week, down from 6.20 percent last week. It marked a sharp decline since rates hit a high of 6.46 percent two weeks ago.

Analysts attributed the back-to-back decreases to financial markets growing more confident that the Federal Reserve will cut rates again at its final meeting of the year in December in an effort to combat a severe slowdown many economists fear could deepen into a prolonged recession.

“Long-term mortgage rates fell slightly this week as signs the overall economy is weakening brought interest rates down market-wide,” said Frank Nothaft, chief economist for Freddie Mac.

Thirty-year mortgage rates hit a high for the year of 6.63 percent in late July and then dropped to a seven-month low of 5.78 percent for the week ending Sept. 18.

Copyright 2008 Associated Press.