Well the numbers are in and once again mortgage rates are setting records. Rates are as low as they have been for over 50 years. That’s pretty impressive, but what about all of us who refinanced months ago when rates were setting yearly records? The answer for a lot of Americans may be refinancing again.
As 2010 has rolled on, a wave of cash-in refinances was seen. Consumers eager to tackle their mortgage problem found that adding money directly into their loan and capitalizing on low interest rates was the best way to lower their monthly payments as well as their debt-to-income (DTI) and loan-to-value (LTV) ratios. This has put many Americans in an advantageous position: the position to refinance again.
Since housing prices have been holding fairly steady over the past several months, anyone who is on top of their mortgage situation can step out and grab a hold of low, low interest rates. One of the things that could be holding many homeowners back is the thought of rates dropping again to all time lows.
While it is true that rates may continue to fall for a time, they cannot slump eternally. Beginning the process of refinancing does not mean closing tomorrow. Finding out what your options are will give you a good idea of whether refinancing is right for you. I would not be surprised to see a lot of those who took advantage of low interest rates in January and February to begin looking at refinancing again.
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In today’s housing market, closing on a loan or a refinance is a long process. The longer it takes, the greater the chances are of something going wrong. This is why I believe that borrowers these days need to be on top of their personal financial situation, at all times, not just when they apply for a loan initially.
There are several things that you can do that can cause your loan to be delayed in closing or not close at all:
- Major increases in credit card debt could have you waiting longer than you had wanted to close on your loan. This may mean waiting to buy your new furniture and household appliances until after you’ve closed on your loan.
- New credit can also have an effect on your closing proceedings. If you recently attained a new credit card or even a loan for a vehicle, your lender is going to want to have another look at your application.
- A job change, even a promotion, can be a stumbling block for anyone closing in today’s market. Change is not something your lender wants to hear, especially when it comes to your income. Avoid moving jobs or changing job status during your closing period if you want things to go smoothly.
These aren’t the only problems that could have you waiting longer and paying more at your closing than you’d like. In order to stay on top of all the aspects of your mortgage or refinance readiness, I recommend you check your Mortgage Grade.
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Eight times a year the Federal Reserve meets to discuss interest rates. Each time they meet, a statement is given to the public. Last week the latest of these statements was issued. While that is pretty easy to understand, the document they deliver isn’t. The Fed’s report often leaves many consumers wondering why they bother to try and understand financial news at all. Because of this, I thought it would be a good idea to touch on a few aspects of this report that relate to you, the consumer:
- Unemployment has kept inflation down on many products, services, and energy.
- This will also help keep interest rates low as the Fed decides to keep targets at the same levels they have been at since 2008.
- Unless something changes dramatically, expect rates to stay low for a while.
While this may not be surprising news to everyone, I think we can all agree that there is going to be little done on the side of the Federal Reserve to hike interest rates in the near future. This of course doesn’t mean that anyone should bank on rates staying low just because the Fed isn’t doing anything about it.
Just like the financial problems in Europe affected our local markets, so can many other world events. Do not take the report from the Federal Reserve to say that rates will not go up. This may well happen before anyone expects. If you are a consumer looking to get a mortgage or refinance, do not make the mistake of thinking you have forever to close without the need for a rate lock. While nothing is likely to happen to markets, being prepared is the best way to safe guard from disaster.
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The Department of Housing and Urban Development (HUD) announced last week that it will give Asset Management contracts to 23 companies to help with the increasing number of FHA loan foreclosures. It will also be granting the title of Field Service Manager to 32 other firms to help with the growing problem. See the full report here.
The reason that there are two types of positions being filled by HUD is because of a glaring mistake in the initial program to deal with HUD-owned foreclosures. Previously, both the fixing and selling of these properties remained the duty of one body. Now the Field Service Managers will be in charge of maintenance while the Asset Managers will take care of the resale. Currently, HUD holds about 44,000 FHA foreclosures. Typically that number is under 40,000. The idea is that the influx of manpower will help to allow more homes to be back on the market more quickly.
The question homeowners are asking about all this is what, if anything, does it mean for me?
The answer is likely not much. The affect of 44,000 homes hitting various markets around the country shouldn’t have a large impact on home prices, though it may mean more competition if you are looking to sell. On the other side of this coin, as contractors fix up these homes to make them ready to sell, they may have a small positive impact on home values in certain areas.
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Lately refinancing has become pretty popular. Low interest rates combined with a host of government programs and incentives means that many people can find a better deal than what they currently have. When you are looking to refinance, you have two options. You can either refinance with your existing lender, or you can go with what another lender has to offer. In order to get a better look at these options let’s examine their differences:
- Your current lender knows you as well as your finances.
- Looking at other lenders increases your chances of getting the best deal.
- Your lender knows the most about your current mortgage.
- More lenders equal more choices. (For example: Some programs or government incentives may not be available from your lender.)
As you can see, there are several key differences. On one hand there is the comfort factor in going to someone who already knows you. On the other, there is a good chance of getting a better deal and saving more money if you shop around. If you have further questions about this choice or any other mortgage related matter, I recommend you talk with our resident Mortgage Professor, Jack Guttentag.
The truth is that the only way you are going to be able to find out what is the best for you is by understanding your options. This means either canvassing many lenders individually or finding some way to rate yourself for all of them. Today, there is no better way to do this than by getting a Mortgage Grade.
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I heard this story about a client a friend of mine dealt with and I thought it was something worth talking about:
To give you some background, the couple in question had owned their mortgage for 15 years and had not refinanced before. They were looking to refinance to a 15 year mortgage with a much lower interest rate and also add some cash at the time of the close to lower their monthly payment. Assuming everything was in order, they did not check their credit before going into the bank. They soon found out that a bad credit report left them with a higher than expected interest rate and less savings than they had been told.
After some investigating, the reason for the credit problem became clear. Last fall their son had gone away to college. They had co-signed for a credit card so that their son could begin to build credit as well as have a safety net for emergencies. What they didn’t know is that he had been failing to make his payments on time.
Once they sorted out the problem and had a rapid rescore completed, they were able to get the loan they wanted. This however took an extra week of headaches, not to mention the family turmoil that ensued. This is why I’m always consumers, friends and even family to be more informed. Just because you can’t see something wrong, doesn’t always mean that everything is okay.
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There has been little movement in mortgage rates over the past week. There are many reasons for the overall stability of the market. International affairs, housing prices, the unemployment rates, and the stock market all have the ability to affect interest rates. The sum of all these areas of our economy has been neutral over the past week and that is why rates have stayed the same.
More interesting than consistency in the markets is the trend of refinancing that it has brought. Now that the tax credit is over for those without sale agreements and summer is nearly here, many Americans have decided that now is the time to look into refinancing. According to the MBA (Mortgage Bankers Association) applications for refinances rose over 20%. I wonder why?
For a long time economists and mortgage professionals have been arguing about the turnaround of the housing market and the eventual increase of interest rates. Everyone understands that it is only a matter of time, but there are many different ideas about when it’s going to happen. Most of these onlookers agree that the turnaround will begin with stability - like we have seen over the past week. Now that the proof of our housing market recovery is easy to see with steady rates and steady unemployment findings, I think we will see more and more consumers looking to capitalize before rates rise.
It is important to remember that no one can predict the future. Even if you are tentative about refinancing now, the best step you can take is to find out what your options are. If you already know what is available for you, maybe it’s time to think about a rate lock. Certainly consumers agree that now is the time to act.
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In a Press Release from the HUD (Department of Housing and Urban Development) website last Thursday it was announced that, “Secretary Shaun Donovan… awarded more than $2.3 billion to 3,131 public housing authorities across the U.S, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.” This comes as a response to the growing need for assistance with public housing. I am happy to support such initiatives because it offers a chance for low income families to get back on track. For a full list of cities and their granted funds, click here.
According to HUD, there is a growing need for these grants across America .To properly support the over 1 million housing projects across the nation, HUD would need 10 times the amount donated here. This need however cannot be met by the current Capital Fund Program. This is why there is also a recommendation that comes with this grant.
The recommendation is that a new program entitled PETRA (Preservation, Enhancement and Transforming Rental Assistance) be put into place next year. This program would enable HUD to increase 2011 funding by more than 3 times this year’s amount and, “…preserve 300,000 units of public and assisted housing; streamline and increase program administrative efficiency; and enhance housing choice for residents.”
For homeowners, programs like this mean increased economic stability in your areas. This should translate into faster increases in both interest rates as well as housing prices. Depending on where you’re at, this could be a good thing for the future, or a sign that you need to move quickly.
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When it comes to your mortgage, there are a lot of ways you can pay it off. If you want to stay in your home and would like to pay off your mortgage more quickly, you have two basic options. You can either make extra mortgage payments, or you can refinance your mortgage and add cash at the time of your close to decrease your overall loan. Our resident Mortgage Professor Jack Guttentag would agree that the decision should be made on your own.
I think the best way to make the decision is to look at the differences between the two options. If you refinance your mortgage, you will be able to accomplish several things:
- You can lower your overall loan by adding cash.
- You can reduce your monthly payment if you can lower your interest rate.
- You can change the length of time you will repay the loan in.
If you simply make extra mortgage payments you can also repay you loan more quickly:
- You will not have closing costs to worry about.
- You will not need a lot of cash on hand to make the payment.
- You will lower the amount of time it takes to pay off your loan.
Owning your home more quickly is a good idea and how you do it is up to you. I believe in making informed choices so if you still have questions, I’m sure the Mortgage Professor has your answer.
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Interest rates keep dropping and housing prices remain low. Yes, it’s a great time to look at purchasing a second property. If you are looking to invest in real estate, now is the time to get a great deal. If you are smart, you may also find that your investment is paying dividends much sooner than expected. The way to maximize your investment is by finding housing markets that are on the rebound.
If you want to know whether a housing market is ready to recover or continuing to slump, you have to look at two important things:
- First, you need to look at the supply. In real estate this means the total number of houses on the market. If you find out that housing is becoming more available, it might not be the best time to invest in that market. If houses are becoming harder to find, it may be a good time to jump in. Ask a realtor how many unsold homes are in your desired investment area.
- The second thing that you will want to look at is the demand. This means looking at the job market. If there are an increasing number of jobs available or if the overall unemployment rate in your area is decreasing, the demand for houses will rise. Especially if housing prices are low.
By looking at these key factors, you will be able to find out whether the second home you want is going to pay off sooner or later. Obviously, if you aren’t planning on selling this home anytime soon, you won’t mind waiting longer for the market to turn around.
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