Category Archive: Mortgages

2015
12/24

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Mortgages

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Here’s how the Fed’s rate hike affects your mortgage

Shutterstock / prochasson frederic

The Fed made headlines last week when it announced that it will raise its key interest rate for the first time in nearly a decade. While the initial increase is a marginal 0.25 percent, the Fed’s plan to steadily increase rates over the next few years clearly has implications for the broad economy — not to mention individuals like you and me.

Homeowners and prospective homebuyers in particular may be wondering what this news means for mortgage loan rates. Let’s take a look at four different types of mortgage borrowers and how they could be affected.

No impact: Homeowners with fixed mortgages

The beauty of a fixed-rate mortgage is that rising rates will have no effect on what you pay each month. If you have a mortgage with a fixed rate of 4 percent or lower, you can rest easy knowing that you’re enjoying the lowest mortgage rates in decades.

Some impact: Homeowners looking to refinance

Refinance rates aren’t directly tied to the Fed Funds rate, but a rising rate environment will certainly nudge refi rates higher over time. And if the Fed is correct in its forecasts, the cost of capital and short-term rates are only heading higher — and will likely drive up the cost of refinancing soon enough.

Essentially, interest rates aren’t going to get much better than they are today, so if you’ve been thinking of refinancing your mortgage, now is the time to make your move.

More impact: Prospective homebuyers financing with fixed mortgages

Since most mortgages are paid off or refinanced within 10 years, the 10-year Treasury yield is typically a good leading indicator for 30-year fixed mortgage rates. While the 10-year Treasury is primarily influenced by factors in the markets and the economy, it often follows the direction of short-term rates (which are likely going up). And, much like the considerations for refinancing, increased capital costs and a tighter lending environment are likely to gradually push rates higher over time, as well.

For prospective homebuyers, an increase in borrowing rates in the short term should only have a minor effect on monthly payments for new fixed mortgage loans. However, in this environment, acting sooner rather than later is your best bet for locking down the lowest rate possible.

Nick Bastian Tempe, AZ

Most impact: Existing/prospective adjustable rate mortgage (ARM) borrowers

Adjustable rate mortgages will be affected most by rising rates, but the initial effects will likely be minor. Borrowers holding adjustable rate mortgages may not feel the increase in short term rates for months depending on their loan’s interest rate reset date. Even then, the first increase of 0.25 percent will likely only result in a marginal hike of the monthly mortgage payment. For example, on an ARM of $900,000, a bump of 0.25 percent would increase monthly payments by $122.

Likewise, prospective homebuyers contemplating an ARM probably won’t be affected much in the short-term. While the rate increase could immediately raise base rates to a degree, many of the indices that serve as benchmarks for adjustable mortgages have already priced in an interest rate hike, so this initial increase should be muted.

However, prospective and existing ARM borrowers face the greatest risk over the next several years, when the Fed is forecasting a progression of interest rate hikes. The expectation is that the Fed Funds rate will rise to 1.375 percent by the end of 2016, 2.375 at the end of 2017 and 3.25 at the end of 2018.

If adjustable mortgage rates rise in kind during this period, the monthly payment on a $900,000 mortgage would increase by over $500 every year for the next three years. An additional risk exists with adjustable loans that include teaser rates. With these loans, the expiration of the period in which rates are held at artificially low levels can result in automatic interest rate increases of up to 2 percentage points. Between these two rate increases, the monthly payment on a $900,000 adjustable mortgage could increase by about $3,000 by the end of 2018.

The takeaway

While the Fed’s initial rate hike probably won’t make big waves for mortgage borrowers in the near term, now’s a good time to take stock of your situation and decide whether changes should be made — before the series of rate increases that are expected to occur over the next few years. If you’ve been thinking of refinancing to lock in a lower and/or fixed rate, the opportunity is likely better today than it will be in the future.

Read the original article on SoFi. Looking for a better loan experience? SoFi is the second largest marketplace lender providing student loan refinancing, mortgages and personal loans. You can also check out SoFi on Facebook, LinkedIn and Instagram. Copyright 2015. Follow SoFi on Twitter.

2015
11/26

Category:
Mortgages

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2015
11/21

Category:
Mortgages

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Simple Interest Mortgages are Anything but Simple

I represent a couple facing the foreclosure of their home…My clients loan is currently being calculated as a daily simple interest loan which is causing them to be in default…Attached is a copy of the note, deed of trust, and a payment history…

Your clients had terrible payment habits, which made them ill-equipped to handle a simple interest mortgage (henceforth SIM).

A borrower with disciplined payment habits can manage a SIM at virtually the same cost as a standard mortgage with the same rate and term, but few borrowers have the required discipline. Most will slip up now and then, which will cost them more than the standard mortgage would have in the same circumstances. And for some borrowers, the SIM can be a financial quicksand from which they can never extricate themselves. This was the case for your clients.

The Major Issue Is Disclosure: There is nothing wrong with the SIM being an option that the borrower can choose, provided that the differences between the SIM and the standard mortgage are clearly disclosed. The borrower who selected the SIM would then understand the differences, and would adjust her budgetary practices to them. But I have yet to see a SIM being offered in transparent fashion. The practice is to foist the SIM on a borrower who doesnt understand the difference, which is inexcusably sneaky. And in some cases, standard mortgages are converted to SIMs because the note allows it, which is even less excusable and should be illegal.

The Major Difference Is In the Calculation of Interest Due: The calculation of the monthly payment on a SIM and a standard mortgage is the same. For example, on a 30-year loan for $100,000 with a rate of 6%, the monthly payment is $599.56 in both cases.

The major difference is that the interest due is calculated monthly on the standard mortgage, and daily on the SIM. On the standard mortgage, the 6% is divided by 12, converting it to a monthly rate of .5%. The monthly rate is multiplied by the loan balance at the end of the preceding month to obtain the interest due for the month. In the first month, it is $500.

On the SIM version, the annual rate of 6% is divided by 365, converting it to a daily rate of .016438%. The daily rate is multiplied by the loan balance to obtain the interest due for the day. The first day and each day thereafter until the first payment is made, it is $16.44.

The SIM Accrual Account: The $16.44 is recorded in a special accrual account, which increases by that amount every day. No interest accrues on this account, which is why it is called simple interest. When a payment is received on a SIM, it is applied first to the accrual account, and what is left over is used to reduce the balance. When the balance declines, a new and smaller daily interest charge is calculated. But if the payment is not large enough to pay off the accrual account, the balance and interest rate remain unchanged and the accrual account continues to grow.

Budgetary Implications: Borrowers who pay every month on day 1 reduce their loan balance on a SIM almost as well as on a standard mortgage. Over 30 years, they will have to pay a month or two longer, due to leap years which add an extra days interest to the tab.

SIM borrowers who persistently pay early will pay off the balance before the scheduled term. Persistent early payment is the way to beat the SIM. Aside from avoidance, it is the only way.

Borrowers who persistently pay late do much worse with a SIM. The SIM borrower who persistently pays on day 10, for example, wont pay off the 30-year 6% loan until the 32nd year.

Borrowers with erratic payment habits fare the worst of all because of the likelihood that at some point their payment wont cover the amount in the accrual account. That is the quicksand that your clients fell into. They fell so far behind that they could never catch up, and ended up owing far more than they had borrowed originally.

Recognizing a SIM When You See One: Your clients claim that they were never told that they were getting a SIM. I examined their note, and there is nothing in it that indicates it was a SIM. For example, the rate shown in the note is the annual rate divided by 12, which gives the monthly rate. The daily rate used in a SIM is not shown in the note. That it is permissible to show a monthly rate in the note but charge the borrower a daily rate is a glaring deficiency of the disclosure rules.

A Message to the Consumer Financial Protection Bureau (CFPB): Your new mortgage disclosure requirements continue to allow lenders to be ambiguous on whether the mortgage described in their notes is a standard monthly accrual type, or a SIM. This would be really easy to fix.

For more information on Simple Interest Mortgages , mortgages in general, or to shop for a mortgage in an unbiased enviroment, visit my site The Mortgage Professor.

2015
11/10

Category:
Mortgages

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Quicken and Freddie Mac ink deal to offer low-down-payment mortgages

  • Quicken Loans has joined forces with Freddie Mac to offer low-down-payment mortgages and other services to some underserved borrowers.
  • Formalizing the companies’ existing relationship is intended to extend mortgage credit to some currently underserved emerging markets, including millennials, first-time homebuyers and middle-class borrowers.
  • The partnership will allow eligible buyers to secure mortgages with down payments as small as 3 percent, and the partners will also offer homebuyer education.

2015
11/09

Category:
Mortgages

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Why pricier mortgages shouldn’t spook housing

As home selling once again takes its seasonal pause, an eerie pall haunts the real estate community: The specter of higher mortgage rates.

Im not sure its worth the worry.

I tossed into my trusty spreadsheet a 25-year history of mortgage rate movements from the St. Louis Fed, local job growth from the Employment Development Department, and Orange County home price and sales volume data from CoreLogic.

What I found in the interaction between economic forces and homebuying habits is that pricier mortgages often coincide with eras of higher home prices. Since 1990, when mortgage rates have increased over a one-year period, Orange Countys median selling prices have risen by an average 8.7 percent in the same timeframe. And the following year, home prices advanced, on average, by 3.9 percent.

Certainly, thats not the conventional wisdom. But even in the worst case scenarios the 25 months with the largest one-year rate hikes housing fared well: Prices averaged 11.1 percent gains that year and 2.3 percent in the 12 months that followed.

Yes, rising rates scare off some shoppers and chill home buying activity but not in a big way.

Since 1990, when rates are up in a one-year period, Orange County home sales volume falls 2.2 percent on average in those 12 months, then declines 5 percent the following year. Sluggish, but by no means a crash.

And in the worst-case rate hikes, sales slowed modestly on average: down 5.4 percent during the year in question and another 3.9 percent over the next 12 months. Not a reason for panic.

So how can the nightmarish scenario for real estate pros rising interest rates actually be relatively benign, and perhaps even good news, statistically speaking?

Remember the three key words of real estate: Jobs! Jobs! Jobs! Interest rates commonly rise when the economy is hot like todays business climate, in which jobs are growing at a 3 percent annual pace.

Since 1990, mortgage rates have increased in one-year periods when local jobs are growing at a 2.1 percent average annual rate twice the historical norm. Rising rates do increase house payments, however, so a house hunter needs plenty of confidence in the job market to make a leap into home buying mode.

Look what job growth means for housing. Since 1990, in any year when Orange County bosses are in hiring mode that is, they generate year-over-year job growth home prices have averaged 8.3 percent gains and similar size increases the following year. Sales activity is basically flat in the same two years pretty remarkable stability amid a significant jump in pricing.

Then look at boom times. In the 25 months with the largest year-over-year job gains since 1990, Orange Countys average price gain is roughly equal to what was seen in all of those hiring years. But that faster-paced job growth means an average jump of 15.2 percent in homebuying activity the first year and 6.8 percent in the 12 months that follow.

Yes, these results are a bit counter-intuitive. And to be fair, history isnt a perfect guide to the future. For example, home prices rose only 70 percent of the time in a year when mortgage rates moved higher so industry fears of potential trouble arent totally unjustified.

Still, what should really be spooking the local housing market late in 2015? Any risk of a significant slowdown in Orange Countys biggest-since-the-90s hiring spree.

Contact the writer: jlansner@ocregister.com

2015
11/07

Category:
Mortgages

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MoI activates online vehicle mortgages

MoI activates online vehicle mortgages

Electronic linking between banks, financial firms, corporate houses

2015
11/05

Category:
Mortgages

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Reverse Mortgages for Retired Clients: Does the Strategy Fit?

Areversemortgageis essentially a loan that a client can take out against her home equity. The optionalso known as a home equity conversionmortgage(HECM)is available through the US Department of Housing and Urban Development to homeowners who are at least 62 years old. The client must either own the home outright or must have amortgagebalance that is low enough so that it can be paid off with thereversemortgagefunds.

While interest is charged on the loan, no repayments are due until the client dies or moves out of the home. If the house is sold, the proceeds must be used to pay off thereversemortgage.

The value of the loan depends upon the overall value of the home, though a total cap of $625,000 applies. Generally, the reverse mortgage may be available as a line or credit, through monthly payments or as a lump sum, though new restrictions apply in order to limit the amount that can be accessed within the first year of closing on the reverse mortgage.

Further, borrowers must now comply with new financial assessment rules that look at the borrowers credit history, income streams, bank statements, tax returns and other documentation in order to ensure that the borrower will have sufficient funds to maintain the home after the reverse mortgage is completed.

The Upside Potential

A reverse mortgage can be a useful solution for an older client who is planning to remain in the home until death. The reverse mortgage will eliminate any existing mortgage payments and, with proper planning, can provide necessary income to allow the client to remain in the home indefinitely.

Further, a reverse mortgage can allow a client who intends to remain in the home indefinitely to avoid drawing on retirement assets, or to defer Social Security benefits in order to receive a higher future benefit.

Clients with substantial investments in the equity markets may also view a reverse mortgage as an attractive solution in a down market, when investments can be left to regain value by tapping a reverse mortgage line of credit to make up for the shortfall.

In this situation, interest on the reverse mortgage will only accrue to the extent that the line of credit is drawn upon in order to equalize the clients income in anticipation of an eventual market rebound.

Potential Pitfalls

One of the most widespread problems associated with the use of a reverse mortgage is that homeowners take the risk that they will be unable to continue to pay expenses associated with maintaining the home. A client who takes out a reverse mortgage remains liable for paying expenses such as taxes, homeowners fees and insurance associated with the home in order to avoid foreclosure.

2015
11/03

Category:
Mortgages

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On the House: Examining changes for FHA mortgages

FHA mortgages, with their low down payments and recently reduced insurance rates, continue to be the choice of many, especially first-time home buyers.

But the Federal Housing Administration makes changes periodically in the rules.

For example, effective Sept. 14, the US Department of Housing and Urban Development requires mortgage lenders at first contact to advise borrowers to get home inspections.

On Sept. 15 came changes that can affect borrower eligibility. Because large numbers of buyers use FHA, I thought I would talk about some of those new rules:

2015
10/30

Category:
Mortgages

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First time buyers getting high risk mortgages at a rate not seen since the …

One in seven first time buyers has taken out a potentially risky mortgage this year, the highest proportion since the financial crisis.

Across the UK, 14.2% of first time buyer loans in the first half of the year were based on a high income multiple and low deposit, putting borrowers at risk of struggling to repay their loans if interest rates rise.

A total of 18,723 mortgages were approved in the first six months of 2015, according to figures, released through a Freedom of Information request to the Financial Conduct Authority.

The proportion of first time buyer loans that are potentially risky is at its highest since 20.6% of loans were advanced on this basis in 2008, at the height of the financial crisis. They dropped to just 1.7% of first time buyer loans in 2011.

What counts as risky?

High income multiple, low deposit mortgages are defined by the FCA as a combination of borrowing 3.5 or more times a single income or 2.75 times a joint income and borrowing 90%+ of the homes value.

High house prices, low interest rates and Help to Buy may be behind the revival in popularity of the loans.

First time buyers in the UK are 2.5 times more likely to take out a high risk mortgage, with 14.2% taking out a high income multiple, low deposit loan in the first half of 2015, compared to 5.8% of all mortgage lending.

In terms of all mortgage lending, high income multiple, low deposit loans now made up a higher proportion of the mortgage market than at any point since 2007, when they accounted for 7.4% of loans.

A loan worth more than the house

2015
10/29

Category:
Mortgages

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Digital mortgages could be key to survival in post-TRID world

  • Know Before You Owe compliance has been less painful for companies that offer digital mortgages.
  • The legal and regulatory changes necessary to allow for the acceptance of emortgages have been a major barrier to adoption.
  • The importance of lenders, title companies, settlement agents, real estate agents and others being able to collaborate to close a loan and communicate efficiently and effectively with each other is paramount to complying with Know Before You Owe, especially over time.