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Currently browsing January 2009 monthly archives.
Mortgage Rates Are Falling But Loans Require More “Points”
Another week, another screaming headline about mortgage rates falling to an all-time low.
Freddie Mac published its weekly mortgage rate survey Thursday and found that the “average” mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.
But, if we look beyond the headline, we find that there’s another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not.
Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That’s up from 0.6 percent last week and 0.4 percent a year ago.
A “point” is a fee equal to 1 percent of the loan size.
Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today’s lender would require an extra $200 versus last week and $600 versus last year. Today’s mortgage borrower would be subject to a $1,400 closing cost in addition to the “typical” closing costs accompanying a purchase or refinance.
This is a period of historically low rates — there’s no doubt about that. However, the cost of getting access to low rates is increasing. The press doesn’t always tell that part of the story and it’s one more reason to look deeper than the headlines.
(Image courtesy: The Wall Street Journal)
Brought to you by Tyler Ford and Todd Abelson of Sunstreet Mortgage.
When Is A 5.000 Percent Mortgage Rate Really 3.600 Percent?
An oft-touted benefit of homeownership is its tax benefits. However, like most IRS-related items, understanding how the benefits work is not always clear.
In general, homeowners are entitled to two home-related tax deductions — one for annual mortgage interest paid, and one for real estate tax bills paid.
Not everyone is eligible, though. Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.
The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:
- Sum your annual mortgage interest and real estate taxes paid
- Find your tax rate on the IRS tax bracket schedule
- Multiple your tax rate by the sum from Step 1
This is grossly simplified, but fairly accurate.
As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits.
The availability of mortgage interest tax deductions is one reason why loan officers make reference to “after-tax mortgage rates”. An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:
(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 – Marginal Tax Rate)
The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.
Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions.
Half The Story : The National Housing Inventory Fell In December
Home prices are largely based on Supply and Demand.
- If demand outweighs supply, home prices rise
- If supply outweighs demand, home prices fall
It’s good news for home sellers, therefore, that “used” homes for sale fell 6 percent nationally last month. Less supply often means higher prices.
Of the 29 metropolitan areas tracked in real estate brokerage firm ZipRealty’s survey, only Philadelphia showed an increase.
But the survey isn’t perfect. For example, it doesn’t track the demand side of the equation — buyer activity.
Anecdotally, November and December are slower for buyer foot traffic than, say, March and April. December’s drop in supply, therefore, may reflect the expectation of reduced buyer interest.
In addition, the ZipRealty survey ignores the supply of newly-built homes, and of foreclosed properties. In some cities, that can amount to a quarter of the market supply or more.
And lastly, the survey addresses the nation and not the nation’s neighborhoods. This is an important distinction because real estate is not a nationwide market, nor is it even a citywide market. Real estate is highly local and responsive on a neighborhood-level.
National surveys rarely capture that point.
(Image courtesy: The Wall Street Journal Online)
Mortgage “Ambulance Chasers”
Technology is a fabulous tool, but just like a hammer – if swung wrong results in a very soar thumb.
A new trend in the mortgage industry is imposing its will on unsuspecting homeowners. Lets say you’re looking into the prospects of buying a new home or refinancing an existing loan. You call your debt management partners, Todd Abelson and Tyler Ford at Sunstreet Mortgage. As part of the initial process we pull your credit report and discuss your plans, needs and options. Two hours later your telephone rings or worse SOMEONE ACTUALLY SHOWS UP AT YOUR HOUSE. The caller introduces themself as a “mortgage professional” trying to save you from making a terrible decision. What’s the problem? You didn’t call THEM!!! Just like the Lawyer following around an ambulance rushing to the scene of an accident in hopes of landing a client, these folks are hoping to convince you to work with them.
But how did they know you’re thinking about a mortgage? Technology!!! Unless you’ve “opted-out” with the credit bureaus (TransUnion, Equifax and Experian) they’re SELLING your inquiry information to third parties! So all these Mortgage “ambulance chasers” need do is sit back, wait for the inform to come in and then rush to your “aid”.
One thing we can be certain of – these alleged professionals are nothing but leaches not worthy of your time or attention.
Make sure you’re working with acknowledged professions before proceeding. In the current mine field known as the “Credit Markets” only a truely knowledgeable, experienced advisor can see you safely through to your destination. Call us. We’re here for you!
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