How Today’s Mortgage Rates Impact Home Affordability

By Todd Abelson NMLS #180858 on .

Mortgage rates are trolling near their all-time lowsComparing July’s conforming mortgage rates to today’s average rates, there’s a 1.5 percent difference in favor of homeowners. 

Rate drops like that make big differences in a household budget.  Look at these before-and-after payments, based on rates from the chart:

$150,000 mortgage ($144 savings/month)

  • July 2008: $958 monthly
  • February 2009: $814 monthly

$250,000 mortgage ($240 savings/month)

  • July 2008: $1,597 monthly
  • February 2009: $1,357 monthly

$350,000 mortgage ($335 savings/month)

  • July 2008: $2,235 monthly
  • February 2009: $1,900 monthly

Of course, the other side of the story is that while mortgage rates fell in late-2008, the mandatory lender fees that accompanied them rose.  That lessened some of the benefits of getting lower rates, but certainly not all of them.

According to recent housing data, buyers are back writing contracts and listed homes are selling quickly.  Considering how mortgage rates have led monthly payments lower, maybe it shouldn’t be much of a surprise.

(Image courtesy: The Wall Street Journal)

Low Mortgage Rates: 7 Things You Need to Know to Refinance

By Todd Abelson NMLS #180858 on .

Mortgage rates have declined sharply in recent months. Here’s how to take advantage

With mortgage rates dropping to record lows, it’s no surprise that more and more homeowners are looking to refinance. Earlier this month, the Mortgage Bankers Association’s refinance index–which tracks application volume–hit its highest level in more than five years. This wave of refinancing applications was sparked by record-low interest rates on 30-year fixed mortgages, which fell to an average of 4.89 percent for the week ending January 9. And although mortgage rates have increased modestly since then–hitting 5.24 percent last week– interest in refinancing remains elevated. But while some borrowers will be able to turn these compelling rates into real savings, not everyone can get in on the action. To better understand the refinancing process, here are seven things you need to know to refinance in today’s market.

1. Percentage point break: Despite the attractive rates, homeowners will have to thoroughly analyze their financial position before determining whether or not now is the time to refinance. A good rule of thumb, however, is if your mortgage rate is a full percentage point or more higher than current rates, you should consider refinancing, says Orawin Velz of the Mortgage Bankers Association. “If your rate is about 6 percent currently, then it is a good time to think about it,” Velz says. (Keep in mind that anyone trying to refinance a so-called “jumbo loan”–one that’s too large for Fannie Mae and Freddie Mac to purchase–will face sharply higher rates, says Keith Gumbinger of HSH Associates.) The transaction fees lenders charge are another major consideration. Higher fees, of course, eat into the potential savings of a reduced mortgage rate. So the lower the fees, the better. “The fees that you should be paying need to be low enough so that you can recoup your money through the break in the interest rate in a reasonable period of time–usually under four years,” Gumbinger says. (More on fees below.)      


Mortgage Rates Are Falling But Loans Require More “Points”

By Todd Abelson NMLS #180858 on .

Mortgage rates are down, but closing costs are upAnother 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?

By Todd Abelson NMLS #180858 on .
Mortgage interest may be tax-deductible

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:

  1. Sum your annual mortgage interest and real estate taxes paid
  2. Find your tax rate on the IRS tax bracket schedule
  3. 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

By Todd Abelson NMLS #180858 on .

The number of existing homes for sale fell in December 2008Home 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”

By Todd Abelson NMLS #180858 on .


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!

It’s Semi-Official : New Conforming Mortgage Fees Go Into Effect Monday

By Todd Abelson NMLS #180858 on .

Fannie Mae LLPA go into effect Monday, January 12, 2009Even though its effective date is April 1, 2009, mortgage applicants should start seeing Fannie Mae’s new fee structure from lenders beginning this Monday, January 12.

The reason why Fannie Mae’s mandatory loan fees are hitting lender pricing so far in advance is because lenders can take up to 30 days to package and sell a loan to Fannie Mae post-closing.  In effect, this moves the April 1 start date to March 1.

Then, figuring that March 1 is roughly 45 days from now and that 45 days is a normal window on which to close on a home or on a refinance, the start date again pushes back, this time to January 15.

Given lenders’ typical timeframe to close, fund, and sell a loan to Fannie Mae, in other words, it’s normal that pricing reflects the fee changes two-and-a-half months in advance.  Homebuyers and would-be refinancers would do well to take notice.

If you are floating a mortgage rate today — or shopping for one — consider locking it in before the close of business.  Effective Monday, any number of traits in your home loan could increase your closing costs:

  • Your credit score
  • Your downpayment / equity percentage
  • Your home’s property type
  • Your reason for wanting a mortgage
  • Your loan type

For a complete look at Fannie Mae’s new, mandated loan fees, visit the Fannie Mae web site.  If you have trouble interpreting the worksheet, call or email me and we can talk about it together.

Sure, Mortgage Rates Are Lower, But Mandatory Fees Are Not

By Todd Abelson NMLS #180858 on .

Mortgage rates are down but mortgage fees are upWith respect to mortgage rates, you can’t always believe what you read in the papers.  Or what you see.

A terrific example is the chart at right.

Published by Freddie Mac, it shows the 30-year fixed mortgage’s “going rate” as reported by the nation’s mortgage lenders. On December 30, 2008, that rate was 5.1 percent.

But 5.1 percent is only half of the relevant information.  There’s a mandated fee schedule that accompanies the Freddie Mac-reported rate survey.

Currently, the published fee required to get a 5.1 percent mortgage rates is 0.7% of the borrowed amount, or $700 per $100,000 borrowed.  This fee is more commonly known as “points” and versus last year, it’s nearly doubled from 0.4 points.

So, yes, conforming mortgage rates are low and they have fallen near all-time lows but there’s more to the story than just the interest rate — there are the fees that go with them, too.

Mortgage rates and loan fees often move in opposite directions so to get lower rates, consider paying additional points.  Conversely, to face fewer fees, accept a higher rate.  It’s a trade-off and we can help you best understand the choices.

Give Tyler Ford and Todd Abelson of Sunstreet Mortgage a call to discuss your refinancing options.

(Image courtesy: The Wall Street Journal)

Predictions For 2009? Keep ‘Em To Yourself.

By Todd Abelson NMLS #180858 on .

You can't predict the future of housing or mortgage ratesThe New Year is not yet one week old but that’s not stopping market “experts” from predicting what’s in store for 2009.

The calls on housing and mortgage rates run the gamut:

Put it all together and it’s clear that the experts have no better idea about the future than you or I.  Their guesses are educated ones, but they’re guesses nonetheless.

A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds. 

In 2008, only one earned a positive return.  That one fund represents zero-point-zero-six percent of all tracked mutual funds.  Surely, the fund managers of the other 99.94% didn’t expect to post negative returns on the year.

So, before you use predictions about the demise (or recovery) of the broader economy to make “personal economy” decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.

All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too.  By 2010, both could be lower still.

Or they may not.

Tucson mortgage rates are at an all time low at Sunstreet Mortgage.