HELOCs – why EVERYONE should have one!

By Todd Abelson NMLS #180858 on .

helic imageIf you could have access to the equity in your home, regardless of whether or not you EVER tapped it, why would you not want it?

I’ve had this discussion with literally thousands of homeowners over the past 10 years and will continue to shout it from the mountain top!

The objections I hear are always the same: “I want to pay OFF my mortgage so why would I want another mortgage?” and “what on earth would I do with it?”. There are obvious disadvantages to the abuse of debt but the concept that most people continue to miss is that debt is a part of our financial life and managed wisely is GOOD.

Let’s look at the ADVANTAGES of just being able to access your equity, but first some basic assumptions:

1. Home Equity, in and of itself, earns 0% rate of return. The proof:  property appreciation is based on the physical value alone (regardless of any underlying liens).

2. Home Equity, in and of itself, is NOT safe. The proof: look at the declining property values in California, Florida and Nevada.

3. Home Equity, in and of itself, is NOT accessible: The proof: try to take out a new loan after you lose your job or have a financial crisis. (more…)

How Prepaid Items Can Make Your “Closing Costs” Look Inflated

By Todd Abelson NMLS #180858 on .

Prepaid items are monies that are related to the home itself, and are not payable to third-parties faciliating the transaction
When buying a home, you pay for more than just physical property at the closing table.  You also pay a series of charges.  Commonly, homebuyers lump all of these charges under the heading of “closing costs”. That’s a miscategorization.

Many changes on a HUD-1 Settlement Statement are specifically not  closing costs. They are more appropriately designated as “reserves” or monies “paid in advance”.

These “prepaid items” include:

  • Advance mortgage interest paid from the closing date to month-end
  • Real estate taxes paid into an escrow account
  • Homeowners insurance paid into an escrow account


Making English Out Of Fed-Speak (January 2008 Edition)

By Todd Abelson NMLS #180858 on .

January 30, 2008 : The Federal Reserve lowered the Fed Funds Rate by 50 basis points to 3.000%
The Fed lowered the Fed Funds Rate by 0.500% to 3.000% yesterday.  The move was widely anticipated and so Wall Street’s reaction was muted.

Because it is tied to the Fed Funds Rate, Prime Rate also fell by 0.500% yesterday.  Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month’s statements.

In the statement above — as explained by The Wall Street Journal — the Fed expresses concern about the housing and jobs markets, while noting that inflation is less of a worry.  This leaves the possibility of future Fed Funds Rate cuts open.

Parsing the Fed Statement
The Wall Street Journal Online
January 30, 2008

History Is A Teacher: Cuts To The Fed Funds Rate Lead To Mortgage Rate Hikes

By Todd Abelson NMLS #180858 on .

When the Fed cuts the Fed Funds Rate, mortgage rates tend to rise

When the Federal Open Market Committee adjourns from its two-day meeting today, it is widely expected to lower the Fed Funds Rate.

This does not mean that mortgage rates will fall.

In fact, using history as an indicator, we should expect mortgage rates to rise if the Fed Funds Rate falls.

Remember: The Fed Funds Rate is an overnight interest rate between banks; mortgage rates are long-term rates based on the bond market.  These are two very different animals.
The FOMC’s press release hits the wires at 2:15 P.M. ET.

Homeowners Rejoice! New Homes Sales Data Is Weak.

By Todd Abelson NMLS #180858 on .

New Home Sales are down because there was less supply on the market

If you only read headlines this past week, you may have missed two very important points.

The first story relates to Housing Starts.  Housing Starts measure the number of new homes entering the construction phase.  The headline blared “Housing starts plunge to 16-year low”.

If you are a homeowner, this is terrific news. 

Because home values are governed by Supply and Demand, fewer homes built means that home demand has a chance to rebalance against home supply. 

This places upward pressure on home prices nationwide.

When Housing Starts drop, it says more about weakness in builder sentiment that it does about the state of the housing nationwide.  Housing Starts are at all-time lows because builders want to sell the product they have before putting more product on the market.

The second story was yesterday’s New Home Sales figures.

The headline read that “US new-home sales slide in record plunge” but, again, let’s look a little deeper.

New Home Sales are defined as homes that are newly built.  Stated differently, it specifically counts the number of homes sold that were once classified as “Housing Starts”.

If Housing Starts falls, therefore, we can expect New Home Sales to fall, too.  The two data points count the same housing inventory at two different points along a timeline.

These two stories are related but neither should be construed as bad news.  As builders cut back on the supply of homes, it should create an increase in relative demand.

For homeowners, this is a positive development.

(Image courtesy: New York Times)

The Week In Review (January 28, 2008) : What To Watch For

By Todd Abelson NMLS #180858 on .

Consumer Confidence plunged at the end of 2007

Mortgage rates change from day-to-day, but last week’s volatility was a record-breaker. 

After drooping through Tuesday and then skyrocketing Wednesday and Thursday, mortgage rates retreated slightly on Friday. 

By weeks’ end, rates were at their same levels from mid-December.

This is in contrast to Tuesday, just after the Fed’s rate cut and before the stock market rally.  Mortgage rates had been touching near four-year lows for some home loan products.

This week could be equally hectic because heavy economic data it hitting the wires, and because the Federal Open Market Committee is meeting.

The major activity gets started Tuesday with the Consumer Confidence report. 

Markets care about this survey because recessions tend to be self-fulfilling prophecies — if people believe it will happen, it generally does.  Therefore, if average Americans are feeling worse about the economy, it may cause stocks to sell-off to the benefit of mortgage rates. 

Notice from the graph above how confidence plunged through the second half of last year. (more…)

So-called “No Cost Loans” where is the catch?

By Todd Abelson NMLS #180858 on .

There’s a lot of marketing out there to help make some loan-jockey’s phone ring but nothing brings them in faster than the “no cost loan”. I’ve got news for everyone and it’s a secret no one will share with you: There’s no such thing as a no cost loan!

I’ve been in the mortgage business for 13 years and I pay closing costs on my own loans! The last time I checked, neither the Title Company, the Appraiser, nor the Credit Reporting Agencies worked for free. So where does this alleged “no cost loan” jargon come from? I’ve developed and simple yet strikingly easy chart to explain the process.


In a nutshell, there are only three variables to consider: Loan Amount, Interest Rate, and Cash in/out. Assuming you agree there are in fact closing costs to deal with, you get to pick two sides and the remaining side defines how your costs will be handled.


1. LOAN AMOUNT: You can increase the loan amount if you have enough equity to roll all the closing costs into your loan; doing so allows you to bring in NO cash at closing. Hence the words ‘no cost loan.’

2. INTEREST RATE: If you want the lowest rate, there will be extra fees called origination fees or discount points. If you’re willing to accept a higher rate, it will be used to cover some or all of the closing costs.

3. CASH: If you’re willing to pay closing costs in cash at closing, you can get the lowest rate and/or loan amount.


How The Stock Market Rally Was Terrible For Mortgage Rates

By Todd Abelson NMLS #180858 on .

The Dow Jones Industrial Average surged 631.86 points in the last three hours of trading yesterday as traders piled into equities

The Dow Jones Industrial Average surged 631.86 points in the last three hours of trading yesterday as traders piled into equities.

Fueling the rally?  The bond market. 

For as much as stocks gained today, bonds lost.  Including mortgage bonds.  The dramatic sell-off created a huge swing in mortgage rates and erased nearly all of 2008’s rate improvements.

This is one reason why it pays to be aware of your home loan.  That way, when markets change and a doorway to payment reduction opens, you can quickly step through it. 

As yesterday illustrated, with mortgage rates, opportunity is often fleeting.

With stocks poised to rise again today, it should likely happen at the expense of bonds.  Mortgage rates are trending higher, too.

(Image courtesy: The Wall Street Journal Online)

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