News


Are Points Good or Bad for Borrowers?

Oct 5
10:54
AM
2016
Category | General

Our borrowers will often ask their agent, “Are mortgage points good or bad?” For starters, let’s define “points,” as they are often misunderstood. A mortgage point is defined as a percentage of the loan amount, so if you take out a $150,000 mortgage, one (1) mortgage point would be $1,500. That is pretty simple, but there are different definitions of a mortgage point, as both mortgage discount points and loan origination fees are often thrown under the same umbrella and they are not the same nor treated equally.

A mortgage “discount point” is pre-paid interest included in closing costs that lowers your mortgage rate. This occurs when you buy down your interest rate. A loan origination fee is a fee that covers certain closing costs and the loan officer’s commission.

With that in mind, the fewer points you pay the better, right? Not necessarily - if you pay less at closing and more over the life of the loan thanks to a higher mortgage rate, you’re not paying less. Our agents will tell our clients that for those who plan to stay in their home for the long-haul and pay off the mortgage, paying mortgage discount points could be considered a good move. Conversely, if our borrowers plan to stay in their home for just a short period, or think they’ll refinance again in the near future, paying mortgage points is probably bad news.

 

When it comes to loan origination points, paying less is usually better. This is essentially just more commission for the originating bank or mortgage lender, so be sure to discuss fees with your agent. But often a particular loan is more complicated than another, and requires more processing and/or underwriting time. The lender needs to be compensated for their work, but be sure you know how much they’re getting and why.


Advantages of Buying a Home

Sep 30
3:49
PM
2016
Category | General

Most borrowers are very well aware of the stock and bond markets. In fact, most people have a relatively fixed number of investment opportunities available to them. These include keeping their money in cash, buying property, buying bonds, or buying stocks. Currently anyone keeping their money in cash (in the bank, for example, in a savings account) knows that the interest that they are earning is very little – probably near 0%. But it is safe, up to the insured FDIC limits. Of course, no one knows what the stock markets are going to do over the next year, or the next ten years. But currently, if a person was to purchase the 30 stocks that make up the Dow Jones index, the dividend yield on the Dow is approximately 3%. If one were to buy a 10-yr Treasury Note, it pays an interest rate of about 3.00%. Therefore the dividend yield is about the same as the current yield on the benchmark U.S. Treasury note. Of course, both go up and down on a daily basis.

 

But let’s say that one could earn more money in dividends than on the 10-yr Treasury note. What this means is that if the Dow’s stocks, and their dividends, go absolutely nowhere over the next 10 years, and no dividends are cut, they will still outperform Treasury notes. Which doesn’t necessarily make either asset class a good investment: it’s entirely possible that both stocks and bonds are going to go down rather than up over the next decade. So with questions in the stock and bond markets, and cash earning very little, many are returning to examining real estate as a very viable investment. Given what their cash in the bank is owning, borrowers are placing an increased number of calls to lenders and are taking a new look at primary residences, 2nd homes, or investment properties. Given how low mortgage rates are, it is certainly an option worth discussing with any of our highly trained staff.

 

For updates subscribe below

 

Born between 1979 and 2000, “Millennials” also known as “Echo Boomers” or “Generation Y,” are key to today’s purchase market. Based on 2010 U.S. Census data, there’s approximately six million more Millennials in the prime “First Time Homebuyer” age group (ages 20 – 31) than there were Baby Boomers in the same age group in 1977! Because of the sheer size of this entire group – about 89 million total – Millennials represent an enormous first time homebuyer opportunity both today and into the future. So it’s important for any loan agents, builders, Realtors, and potential borrowers, to know a little more about them. After all, agents will want to lend to them, and other borrowers may be competing with them to buy homes.

According to research firms, Millennials are typically cautious when making large purchases – almost half consider themselves “savers,” and about 80% are bargain shoppers that stick within a tight budget.

With their practical economic outlook, obtaining a good deal on a home purchase may be a primary goal for Millennials. Smaller homes with stable financing options may be a good fit; and with the recent trend in favor of government financing, FHA loans may play a large role in their home financing needs.

Analysts believe that this is the most likely group to purchase a home in the next two years in comparison to any other age group, although many of them are still in college. They’ll start hitting the home buying market en masse in 2015, and by 2017 they’re in the peak time for home buying. Just in terms of numbers, this group is hugely important. They, unlike their parents, are choosing lifestyle over work style. They’re the ones that are likely to choose a home based on their ability to canoe on the weekends, if that’s what they do. They’re also choosing transit and close-in locations much more than their parents did, preferring urban locations or at least denser environments to the suburbs.

 


“Do you think an adjustable rate mortgage is a good idea?” The answer, of course, is, “It depends.”

Over the long term (years) rates are expected to creep higher. So a key factor in deciding upon an adjustable rate mortgage is how long a borrower will be paying a higher rate of interest in the future with the ARM versus what a borrower would pay with a fixed rate mortgage today.

The obvious advantage of the ARM is the lower interest rate and payment for the initial period the rate is fixed before it converts to an adjustable rate. Note that the straight ARM, one that can adjust every month, is pretty much gone from the market place. The ARMs that are available in the current market are what are known as hybrid-ARMs in that the initial rate is fixed for a period of time, 3, 5, 7 or 10 years, and then adjust annually thereafter.

Borrowers should be asked, “Are you a good money manager?”, “Are you in a profession where your income is not always the same, perhaps commission based or self-employed?”, “Is your intention to take advantage of the lower initial rate to pay down your mortgage more rapidly than the fixed rate mortgage?”, and “Is there a reasonably strong certainty you will be selling the home before the fixed rate term of the ARM expires?”

The payment on an ARM is typically significantly lower than on a 30 year fixed – often hundreds less every month depending on loan amount and rate. And if this savings is carried out over several years, the savings would be in the thousands. But after five years, or seven years, will the borrower still be in the home? And will they able to afford the higher payments IF rates move higher and IF they didn’t refinance?

ARMs received a bad reputation as part of the housing and mortgage market melt downs, but much of this was due to the misuse of the ARMs by lenders and borrowers. For many who took out ARMS prior to the meltdown they have benefited from very low rates as their loans convert(ed) from fixed to adjustable and were a good tool. For others who miscalculated on future income, future appreciation or used the ARM to highly leverage into a property they otherwise would not have been able to afford the choice was perhaps not the best one.

Every borrower should discuss their options with an experienced loan officer.


Still Puzzled By Mortgage Rates and Pricing?

Jul 27
3:46
PM
2016
Category | General

Despite the government’s best efforts, borrowers still are occasionally puzzled by mortgage rates and pricing. They are not as simple as comparing the price of a gallon of regular unleaded gas. (But when gas companies advertise their additives for higher grades, things become more complicated.) But is there an easy way to discuss rates?

When a borrower shops for a home loan, they want to know about mortgage rates and should look at the “APR” or annual percentage rate. The APR includes both the annual interest rate as well as some — but maybe not all — non-interest charges paid at closing. The APR will be higher than the nominal interest rate because it includes additional costs. Most loan quotes include both the interest rate and points (the cost of doing the loan, often considered the up-front compensation to the lender). Points are paid up-front, in cash (or a higher loan amount) at closing. If the borrower expects to be a short-term owner then maybe the loan with a higher rate and fewer points is better; if the borrower expects to be a long-term owner then paying points and having a lower fixed-rate can be very attractive.

Experts and those in the industry usually prefer “par pricing” – par is a price of 100.00 (nothing paid, and nothing to be paid). In this situation all loan quotes show the interest rate with zero points. Now it’s very easy to compare rates. An FHA mortgage at 4.4 percent and an FHA mortgage at 4.6 percent are the same financial product with different costs. Why would you pay more?

So borrowers should ask lenders for a mortgage quote at par; that is, an interest rate with no points. Par pricing remains the easiest way to compare similar loan products, say a conventional loan from ABC Mortgage versus a conventional loan from XYZ Mortgage. The loans are the same, so the only issue is which lender can offer a better price.


Showing results 61 - 65 of 95

BLOG DISCLAIMER

Content on this site is for informational purposes only. It is not to be construed as legal, financial, personal or other advice. Information and opinions offered are those of independent sources and may not be endorsed by American Mortgage Service Company and/or AmericanMortgage.com. We make no representations as to the suitability or validity of information in a blog on this site. We are not liable for any errors or content of blogs or for any losses, injuries or damages arising from its display or use. There is no obligation to update information provided in a blog on this site.