Financial Regulation Becomes Reality
So much for rates rising
Published in The Daily Record, July 2
OK, so I was wrong.
Everything in the first quarter of the year pointed to a slow rise in mortgage rates. If you didn’t take advantage of the refinance craze in the spring of 2009, when rates for a 30-year fixed rate mortgage touched 4.75 percent, then forget it.
The Federal Reserve’s program of buying mortgage-backed securities was coming to an end in March and the economic outlook was showing some signs of a heartbeat. Talk had already begun on just when the Fed would start targeting a rise in rates.
But then came Greece and its economic problems. Then came worries about the foundering Euro. Worries about a housing bubble in China.
In June, the jobless report showed that only 11,000 private sector jobs were created in May. Not so good.
Now the hangover from the expiration of the federal housing tax credits. In May, new home sales plunged 33 percent — the largest monthly drop on record.
Oh yes, there was the daily coverage of oil liberally gushing into the Gulf of Mexico, spoiling the Gulf Coast region, depressing the livelihoods of the people of that area.
Take all of that into consideration over the last 60 days and what you get is a Consumer Confidence index that came in at 52.9 in June, a falling from 62.7 in May, according to a survey released this past Tuesday by the Conference Board, a private research group. It was the biggest drop since February.
Digest all this woeful news and what would you expect. The stock market swoons and looks for the safest place to put money. The international community, fearful of the European economies, looks for a flight to safety. And where is that: good old U.S. Treasuries.
So much money came into the Treasuries that the yield for the 10-year bond – an indicator for how mortgage rates typically will behave – dropped to its lowest point earlier this week (2.94 percent) since April 2009.
And where did mortgage rates go – they dropped like a rock.
The Mortgage Bankers Association reported this week that applications for new mortgages rose 9 percent over last week and within that number 77 percent were for refinancing as homeowners who may have missed out a year ago were able to get a second chance and even those who did refinance were able to modify their rates downward again.
Rates for just about every kind of mortgage were hitting their historic lows.
You could get a 30-year conventional fixed rate below 4.5 percent.
If your situation was more short term, you could jump into a 5-year adjustable rate mortgage for a point less at around 3.5 percent.
With this kind of cheap money available, anyone who was thinking of using cash to purchase a home should think again – especially since this money comes with the benefit of interest deduction.
So does it make sense to re-examine your mortgage even if you just refinanced 12 to 18 months ago? To determine, use two simple criteria: do the numbers make sense and what do you want the mortgage to do for you.
The best strategy for a borrower who has recently refinanced and wants to take advantage of these low rates (for however long they last) , is to work with a mortgage professional who can lower your rate and monthly payment, while attempting to keep your new loan amount near its current level.
That is typically achieved by a loan officer not using the lowest rate possible, but finding a happy medium between a lower rate than what the borrower currently has and then combining that with a lender credit that will absorb the mortgage company, appraisal and hopefully most of the title company costs.
It’s almost like using points in reverse.
When borrowers seek a lower rate they can buy it down by paying points.
In this instance, the lender is doing the opposite. Using a higher rate will generate what is called premium pricing, which then can be passed on to the borrower as a credit to cover the costs of the transaction.
Let’s say a person has a $400,000 mortgage. Their current rate is 5.125% with a principal and interest payment of $2,177. Now let’s say he gets an offer to move his rate to 4.75% — maybe not the lowest it can be, but it would come with a lender credit of .75 percent of the loan amount — $3,000.
The new principal and interest payment would drop to $2,056, a savings of $121 a month and the $3,000 should cover the majority of the mortgage and title company costs.
The borrower would still have to re-establish their escrow account for taxes and insurance, meaning that they would most likely have to come to the settlement table with those monies. But it can be thought of in the following way. When refinancing, a borrower usually does not make a payment on the first of the month following the refinance. Now, think of it as instead of skipping that month, you will just be making what would have been your regular mortgage payment at the settlement table. And remember, that borrower will get rebated back whatever is remaining in their current escrow account.
The bottom line here is that your mortgage is a financial tool – for better or worse. There is an opportunity right now with rates this low to see if you can lower your monthly payment or move from a 30-year mortgage to a 20-year or even a 15-year term, without tremendously affecting your family budget.
And again, if it makes sense – do it. If not, and if in doubt, then don’t.
Tax credit closing deadline extended to Sept. 30
The National Association of Realtors® on June 30 commended Congress for timely passage of two bills to extend the home buyer tax credit closing deadline and reauthorize the National Flood Insurance Program. Both bills, strongly supported by NAR, had cleared the House earlier and were passed by the Senate late June 30. They now head to the president for his signature.
The tax credit closing deadline and the NFIP reauthorization were extended to September 30. NAR worked closely with congressional leaders on both sides of the aisle to enact these important pieces of legislation. Extending the tax credit closing and flood insurance deadlines will help provide additional stability to real estate markets across the nation, NAR said.
“What a great way to begin celebrating our nation’s most patriotic holiday by opening the door to the American dream of homeownership to thousands of home buyers who would have been shut out of the homes of their dreams through no fault of their own,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox Real Estate in Tucson, Ariz.
“We know that up to 180,000 home buyers eligible for the tax credit are rejoicing this morning. And we all thank both houses of Congress for their work to ensure passage of both bills,” Golder said. She singled out Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), Senator Johnny Isakson (R-Ga.), House Majority Leader Steny Hoyer (D-Md.), Congresswoman Shelley Berkley (D-Nev.) and Congressman Joe Courtney (D-Conn.) for their efforts to extend the tax credit closing deadline.
The passage of H.R. 5623, the Homebuyer Assistance and Improvement Act, applies the homebuyer tax credit closing deadline extension only to homebuyers who have ratified contracts in place as of April 30, 2010, but could not close before June 30. The legislation is designed to create a seamless extension of the new closing deadline for eligible transactions to September 30. There will be no gap between June 30 and the date the president signs the bill into law.
