If you’re like some people, when you hear the mortgage term 5/1 ARM you might say something like, “Ahhhh! Numbers and an acronym—nooooo!!”
Okay, maybe that’s a bit dramatic, but I think it’s fair to say that a 5/1 ARM doesn’t appear to be the friendliest of terms. And that’s really too bad because he’s actually a nice, straightforward guy.
So what is it?
Adjustable-rate mortgages (ARMs) are just that—mortgages with interest rates that adjust depending on market movement. Meaning that if rates go up, your monthly payment will increase, and if they go down, your monthly payment will decrease.
The corresponding numbers tell you how often the rate will change. With a 5/1 ARM, the 5 means that the rate will stay fixed for the first 5 years, and the 1 tells you that it’s subject to change every 1 year after the initial 5.
Don’t wait too long to take advantage of today’s low rate environment. Contact us today to see if we can save you money on your home payments.
The good
One of the best things about 5/1 ARMs is that they usually have significantly lower interest rates than fixed-rate mortgages. For example, our current rate for a 5/1 ARM is 2.375%, while our 30-year fixed rate is at 3.750%. Not only does the lower rate save you money on your monthly payment, but it also gives you the opportunity to take out a larger loan.
* Rates accurate as of 9/23/15. See below for assumptions.
Of course, they do have the potential to adjust to higher levels, whereas fixed-rates stay at the same level for the life of the loan. However, there are ways to take advantage of the low rate without the risk of a rate hike, such as:
You plan to move within 5 years, therefore the potential rate increase wouldn’t apply to you
You think your income will have risen to a level where a rate increase would be insignificant
You want a lower initial monthly payment than is typically offered by fixed-rate mortgages
You plan on refinancing out of the ARM before the rate gets adjusted to a higher level (can be a risky option because you can never be certain what rates will be like when you want to refinance)
You have a crystal ball and it says interest rates will go down in the future
The bad
It’s not always possible to work the system like the above scenarios. And sometimes the rate environment trumps even the cleverest of schemes. So when you’re evaluating your own situation, it’s almost certainly a bad idea to get a 5/1 ARM if:
Rates are rising
You do not expect your income to grow substantially
see more: https://www.totalmortgage.com/blog/adjustable-rate-mortgages/what-is-a-51-arm/29866
Thursday, September 24, 2015
Wednesday, September 16, 2015
'Underwater' residential mortgages in Winston-Salem MSA decline in 2Q
The default rate for first mortgages increased four basis points in August to reach 0.84% of all mortgages in the U.S. - up slightly from July, according to the S&P/Experian Consumer Credit Default index, a comprehensive measure of changes in consumer credit defaults.
Meanwhile, the default rate for auto loans increased four basis points to reach 0.90%, and the default rate for credit cards saw a slight decrease to reach 2.71%, down eight basis points from the previous month, according to the index.
The composite rate in August was 0.96%, up four basis points from July.
The report notes that despite weak wage growth, consumer credit default rates are currently close to pre-financial crisis levels.
"Two economic areas showing strength are auto sales and housing," says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. "Car and light truck sales saw recent gains reaching an annual rate of about 17.5 million units as sales of new homes and housing starts picked up."
Blitzer adds that the growth in credit is "largely due to loosening of credit standards, indicating banks are willing to bear increased risk by approving more subprime consumers." He warns, however, that looser credit could result in higher default rates in the months to come.
Four of the five major cities saw their default rates increase in August, according to the report. New York saw the largest increase, reporting 1.04%, up 12 basis points from July. Dallas saw its default rate increase by seven basis points to 0.71%. Chicago reported its third consecutive increase with a 1.21% rate, up six basis points from the previous month. Miami reported a default rate of 1.46%, up one basis point for the month.
Los Angeles was down 13 basis points to 0.76% - the only city to report a decrease in August.
"With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase," Blitzer adds. "Presumably, the Fed will raise interest rates - the question is whether it will be now, late this year, or sometime in the first half of 2016.
"Little initial impact is expected on consumer use of credit or on default rates," Blitzer says. "A quarter-point increase in the Fed funds rate will not affect fixed-rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable-rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset.
read more: http://www.journalnow.com/business/business_news/local/underwater-residential-mortgages-in-winston-salem-msa-decline-in-q/article_05abf63c-e4a1-569f-b978-94dc8ee7bf08.html
Meanwhile, the default rate for auto loans increased four basis points to reach 0.90%, and the default rate for credit cards saw a slight decrease to reach 2.71%, down eight basis points from the previous month, according to the index.
The composite rate in August was 0.96%, up four basis points from July.
The report notes that despite weak wage growth, consumer credit default rates are currently close to pre-financial crisis levels.
"Two economic areas showing strength are auto sales and housing," says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. "Car and light truck sales saw recent gains reaching an annual rate of about 17.5 million units as sales of new homes and housing starts picked up."
Blitzer adds that the growth in credit is "largely due to loosening of credit standards, indicating banks are willing to bear increased risk by approving more subprime consumers." He warns, however, that looser credit could result in higher default rates in the months to come.
Four of the five major cities saw their default rates increase in August, according to the report. New York saw the largest increase, reporting 1.04%, up 12 basis points from July. Dallas saw its default rate increase by seven basis points to 0.71%. Chicago reported its third consecutive increase with a 1.21% rate, up six basis points from the previous month. Miami reported a default rate of 1.46%, up one basis point for the month.
Los Angeles was down 13 basis points to 0.76% - the only city to report a decrease in August.
"With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase," Blitzer adds. "Presumably, the Fed will raise interest rates - the question is whether it will be now, late this year, or sometime in the first half of 2016.
"Little initial impact is expected on consumer use of credit or on default rates," Blitzer says. "A quarter-point increase in the Fed funds rate will not affect fixed-rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable-rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset.
read more: http://www.journalnow.com/business/business_news/local/underwater-residential-mortgages-in-winston-salem-msa-decline-in-q/article_05abf63c-e4a1-569f-b978-94dc8ee7bf08.html
Thursday, September 3, 2015
Refi Apps Account for Nearly 60 Percent of All Mortgage Activity
Mortgage applications increased 11.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 28, 2015. The refinance share of activity increased to 58.7 percent of total applications from 55.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.5 percent of total applications.
The Market Composite Index, a measure of mortgage loan application volume, increased 11.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 10 percent compared with the previous week. The Refinance Index increased 17 percent from the previous week to its highest level since April 2015. The seasonally adjusted Purchase Index increased four percent from one week earlier to its highest level since July 2015. The unadjusted Purchase Index increased two percent compared with the previous week and was 25 percent higher than the same week one year ago.
“Although mortgage rates were unchanged for the week, Treasury rates were down sharply early in the week due to the global stock market rout and this led to a significant increase in application volume,” said Mike Fratantoni, MBA’s chief economist.
The FHA share of total applications decreased to 12.7 percent from 13.1 percent the week prior. The VA share of total applications decreased to 9.8 percent from 11.4 percent the week prior. The USDA share of total applications decreased to 0.7 percent from 0.8 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.08 percent, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.05 percent from 4.00 percent, with points increasing to 0.28 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.87 percent from 3.90 percent, with points increasing to 0.32 from 0.21 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.30 percent from 3.33 percent, with points decreasing to 0.26 from 0.31 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
see more at: http://nationalmortgageprofessional.com/news/55586/refi-apps-account-nearly-60-percent-all-mortgage-activity
The Market Composite Index, a measure of mortgage loan application volume, increased 11.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 10 percent compared with the previous week. The Refinance Index increased 17 percent from the previous week to its highest level since April 2015. The seasonally adjusted Purchase Index increased four percent from one week earlier to its highest level since July 2015. The unadjusted Purchase Index increased two percent compared with the previous week and was 25 percent higher than the same week one year ago.
“Although mortgage rates were unchanged for the week, Treasury rates were down sharply early in the week due to the global stock market rout and this led to a significant increase in application volume,” said Mike Fratantoni, MBA’s chief economist.
The FHA share of total applications decreased to 12.7 percent from 13.1 percent the week prior. The VA share of total applications decreased to 9.8 percent from 11.4 percent the week prior. The USDA share of total applications decreased to 0.7 percent from 0.8 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.08 percent, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.05 percent from 4.00 percent, with points increasing to 0.28 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.87 percent from 3.90 percent, with points increasing to 0.32 from 0.21 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.30 percent from 3.33 percent, with points decreasing to 0.26 from 0.31 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
see more at: http://nationalmortgageprofessional.com/news/55586/refi-apps-account-nearly-60-percent-all-mortgage-activity
Monday, August 31, 2015
Are HECM Reverse Mortgages Overpriced?
HECM reverse mortgages are reputed to carry high upfront fees, which raises two questions addressed here. First, are seniors getting real value in exchange for the high fees? The answer in most cases is "no". Second, can a senior who knows the ropes avoid paying excessive fees? The answer in every case is "yes."
Price Differences Do Not Necessarily Reflect Over-Pricing
In the early part of the previous century, when Coney Island was a playground for both the rich and famous and those who were neither, there were two restaurants that specialized in hot dogs. One was Nathans which charged 5 cents, the other was Feldmans which charged 10 cents. My father, who is the source of this information on Coney Island history, dealt only with Nathans. But Feldman had better furnishings and the clientele were better dressed, which induced many to pay the higher price for the hot dog.
The Feldman hot dog was not over-priced, at least for many years, because the information consumers needed to make a decision between a 5 cent dog delivered in cheap surroundings and a 10 cent dog delivered in elegant surroundings was available at no cost at the moment it was needed. The market worked. Ultimately, consumers reacted against paying for the elegance of a hot dog vendor, and Feldmans failed, while Nathans survived to this day.
Price Differences on HECM Reverse Mortgages
The price differences that prevail on HECM reverse mortgages are enormous by any standard. For example, consider the borrower of 70 with a home worth $600,000 and an existing mortgage balance of $200,000 who is looking to pay off that balance in order to rid himself of the required monthly payment. If on August 14 he responded to an advertisement on TV or on the internet, in all likelihood he would be offered a fixed-rate mortgage at 5.06% with a $6,000 origination fee. This is the market price on that day estimated by NRMLA, the trade association of reverse mortgage lenders, as quoted on www.nrmlaonline.org. If instead he shopped for the same HECM among a group of competitive lenders, he would have found the same loan available at 3.99% with a zero origination fee.
HECM Price Differences Reflect Over-Pricing
Unlike the hot dog case, there is no way that the price differences cited above could reflect a difference in the value that some borrowers attach to the different HECM delivery systems. While the hot dog buyer had all the information needed to decide between the 5 cent and 10 cent dogs, the HECM borrower does not for a variety of reasons.
One-Time Versus Recurring Transactions: In contrast to the purchase of a hot dog, a HECM transaction is a big one and the borrower has no opportunity to learn from repeated exposures. Very few HECMs are refinanced.
Multiple Price Dimensions: Where a hot dog has a single price, HECMs have two prices, the interest rate and origination fee, which can complicate the decision process.
The Focus of Consumers on Draw Amounts Allows Lenders to Obfuscate the Price: The major focus of most consumers is the amount they can draw on a HECM. Much of the advertising has this focus, especially the on-line advertising which invites the consumer to fill out a form on the basis of which the consumer is told how much they can draw. If the consumer does not ask for the price used in the calculation of the draw amount, she may not see it until receiving the various documents that require her signature.
read more at: http://www.huffingtonpost.com/jack-m-guttentag/are-hecm-reverse-mortgage_b_8061770.html
Price Differences Do Not Necessarily Reflect Over-Pricing
In the early part of the previous century, when Coney Island was a playground for both the rich and famous and those who were neither, there were two restaurants that specialized in hot dogs. One was Nathans which charged 5 cents, the other was Feldmans which charged 10 cents. My father, who is the source of this information on Coney Island history, dealt only with Nathans. But Feldman had better furnishings and the clientele were better dressed, which induced many to pay the higher price for the hot dog.
The Feldman hot dog was not over-priced, at least for many years, because the information consumers needed to make a decision between a 5 cent dog delivered in cheap surroundings and a 10 cent dog delivered in elegant surroundings was available at no cost at the moment it was needed. The market worked. Ultimately, consumers reacted against paying for the elegance of a hot dog vendor, and Feldmans failed, while Nathans survived to this day.
Price Differences on HECM Reverse Mortgages
The price differences that prevail on HECM reverse mortgages are enormous by any standard. For example, consider the borrower of 70 with a home worth $600,000 and an existing mortgage balance of $200,000 who is looking to pay off that balance in order to rid himself of the required monthly payment. If on August 14 he responded to an advertisement on TV or on the internet, in all likelihood he would be offered a fixed-rate mortgage at 5.06% with a $6,000 origination fee. This is the market price on that day estimated by NRMLA, the trade association of reverse mortgage lenders, as quoted on www.nrmlaonline.org. If instead he shopped for the same HECM among a group of competitive lenders, he would have found the same loan available at 3.99% with a zero origination fee.
HECM Price Differences Reflect Over-Pricing
Unlike the hot dog case, there is no way that the price differences cited above could reflect a difference in the value that some borrowers attach to the different HECM delivery systems. While the hot dog buyer had all the information needed to decide between the 5 cent and 10 cent dogs, the HECM borrower does not for a variety of reasons.
One-Time Versus Recurring Transactions: In contrast to the purchase of a hot dog, a HECM transaction is a big one and the borrower has no opportunity to learn from repeated exposures. Very few HECMs are refinanced.
Multiple Price Dimensions: Where a hot dog has a single price, HECMs have two prices, the interest rate and origination fee, which can complicate the decision process.
The Focus of Consumers on Draw Amounts Allows Lenders to Obfuscate the Price: The major focus of most consumers is the amount they can draw on a HECM. Much of the advertising has this focus, especially the on-line advertising which invites the consumer to fill out a form on the basis of which the consumer is told how much they can draw. If the consumer does not ask for the price used in the calculation of the draw amount, she may not see it until receiving the various documents that require her signature.
read more at: http://www.huffingtonpost.com/jack-m-guttentag/are-hecm-reverse-mortgage_b_8061770.html
Monday, August 24, 2015
When your mortgage feels like a life sentence
That is because the traditional 25-year mortgage term is becoming a thing of the past as desperate buyers stretch their terms to 30 or even 35 years in a bid to make their repayments affordable.
Both first-time buyers and home movers are being forced to borrow larger sums to keep up with spiralling house prices.
While a longer mortgage term will save money at first, it can ultimately cost tens of thousands of pounds extra in total interest repayments.
Despite the dangers, the appetite for longer-term mortgages is soaring, according to new figures from the Mortgage Advice Bureau.
Some 21 per cent of homebuyers are now searching for mortgages lasting 30 years or longer, up from just eight per cent a year ago.
Brian Murphy, head of lending at Mortgage Advice Bureau, says: “Homebuyers are tearing up the rule book by searching for longer-term mortgages to secure cheaper monthly repayments.” He warns that extending your mortgage term will save you money at first but will ultimately cost you dear.
“The added interest that comes with repaying your debt over a longer period can add up to tens of thousands of pounds.”
Murphy says that stretching the repayment of the average mortgage of £151,668 over 30 years rather than 25 would cut payments by £83 a month but ultimately cost an extra £23,297 in total interest by the end of the loan.
Increasing the term to 35 years will cut initial repayments by £141 a month but cost an extra £47,707 over the lifetime of the mortgage.
red more: http://www.express.co.uk/finance/personalfinance/600127/When-your-mortgage-feels-like-life-sentence
Both first-time buyers and home movers are being forced to borrow larger sums to keep up with spiralling house prices.
While a longer mortgage term will save money at first, it can ultimately cost tens of thousands of pounds extra in total interest repayments.
Despite the dangers, the appetite for longer-term mortgages is soaring, according to new figures from the Mortgage Advice Bureau.
Some 21 per cent of homebuyers are now searching for mortgages lasting 30 years or longer, up from just eight per cent a year ago.
Brian Murphy, head of lending at Mortgage Advice Bureau, says: “Homebuyers are tearing up the rule book by searching for longer-term mortgages to secure cheaper monthly repayments.” He warns that extending your mortgage term will save you money at first but will ultimately cost you dear.
“The added interest that comes with repaying your debt over a longer period can add up to tens of thousands of pounds.”
Murphy says that stretching the repayment of the average mortgage of £151,668 over 30 years rather than 25 would cut payments by £83 a month but ultimately cost an extra £23,297 in total interest by the end of the loan.
Increasing the term to 35 years will cut initial repayments by £141 a month but cost an extra £47,707 over the lifetime of the mortgage.
red more: http://www.express.co.uk/finance/personalfinance/600127/When-your-mortgage-feels-like-life-sentence
Tuesday, August 18, 2015
N.J. has highest rate of distressed mortgages in nation, study shows
A greater share of residential mortgages in New Jersey were distressed at the end of the second quarter of this year than any other state in the nation, new data shows.
The data from the Mortgage Bankers Association's National Delinquency Survey shows 10.2 percent of mortgages in the state are either in foreclosure or at least three months behind on payments, according to Patrick O'Keefe, director of economic research with CohnReznick. The national rate stood at 3.95 percent.
O'Keefe wrote in a memo that New Jersey's distressed mortgage rate was the "highest among all states for the seventh consecutive quarter."
The association's survey also shows the percentage of mortgages in New Jersey in the foreclosure process remained top in the nation despite a drop in the state's foreclosure inventory.
"As has been the case since the fourth quarter of 2012, New Jersey, New York, and Florida had the highest percentage of loans in foreclosure in the nation," Marina Walsh, the Mortgage Bankers Association's vice president of industry analysis, said in a statement.
New Jersey's foreclosure inventory rate was 7.31 percent, according to the report, while New York had the second highest rate at 5.31 percent. The report also noted that both states have a judicial foreclosure process.
"New Jersey's relatively slow pace in reducing it distressed mortgage inventory is partially attributable to its status as a 'judicial foreclosure' state," O'Keefe wrote. "Court supervised foreclosures entail procedures that are more rigorous – and time consuming – than administrative actions."
read more: http://www.nj.com/business/index.ssf/2015/08/nj_distressed_mortgages.html
The data from the Mortgage Bankers Association's National Delinquency Survey shows 10.2 percent of mortgages in the state are either in foreclosure or at least three months behind on payments, according to Patrick O'Keefe, director of economic research with CohnReznick. The national rate stood at 3.95 percent.
O'Keefe wrote in a memo that New Jersey's distressed mortgage rate was the "highest among all states for the seventh consecutive quarter."
The association's survey also shows the percentage of mortgages in New Jersey in the foreclosure process remained top in the nation despite a drop in the state's foreclosure inventory.
"As has been the case since the fourth quarter of 2012, New Jersey, New York, and Florida had the highest percentage of loans in foreclosure in the nation," Marina Walsh, the Mortgage Bankers Association's vice president of industry analysis, said in a statement.
New Jersey's foreclosure inventory rate was 7.31 percent, according to the report, while New York had the second highest rate at 5.31 percent. The report also noted that both states have a judicial foreclosure process.
"New Jersey's relatively slow pace in reducing it distressed mortgage inventory is partially attributable to its status as a 'judicial foreclosure' state," O'Keefe wrote. "Court supervised foreclosures entail procedures that are more rigorous – and time consuming – than administrative actions."
read more: http://www.nj.com/business/index.ssf/2015/08/nj_distressed_mortgages.html
Thursday, August 13, 2015
Weekly mortgage applications up just 0.1% as rates stall
Mortgage applications eked out the slightest of gains as interest rates barely budged from a week ago, according to the latest survey from the Mortgage Bankers Association. Total applications increased 0.1 percent from a week ago but are nearly 18 percent above year ago levels.
Refinance applications were the driver, increasing 3 percent from the previous week to the highest level since May, 2015.
"As rates declined over the past few weeks, refinance activity picked up in terms of share and volume in the most recent week's data.The refi share, at 53 percent, was the highest refi share since April and the refi index increased 3.1 percent to reach its highest level since May," said Lynn Fisher, the MBA's vice president of research and economics.
Purchase applications decreased 4 percent from the prior week, but are 20 percent higher than a year ago.
Interest rates for the popular 30-year fixed rate mortgages were unchanged at 4.13 percent for loans for $417,000 or less, known as conforming and stayed at 4.08 percent for jumbo loans (greater than $417,000).
Mortgage lenders say clients are watching rates closely as the Federal Reserve has clearly signals it will move rates higher as the economy improves. Tolbert Rowe, VP with Bay Capital Mortgage in Easton,Maryland, says there's a question if the Fed talk has already been priced into mortgage rates, "I've been telling my clients that it's an event, how it impacts rates, if at all, I'll let you know after it happens."
read more: http://www.cnbc.com/2015/08/12/weekly-mortgage-applications-edge-up-as-rates-stall.html
Refinance applications were the driver, increasing 3 percent from the previous week to the highest level since May, 2015.
"As rates declined over the past few weeks, refinance activity picked up in terms of share and volume in the most recent week's data.The refi share, at 53 percent, was the highest refi share since April and the refi index increased 3.1 percent to reach its highest level since May," said Lynn Fisher, the MBA's vice president of research and economics.
Purchase applications decreased 4 percent from the prior week, but are 20 percent higher than a year ago.
Interest rates for the popular 30-year fixed rate mortgages were unchanged at 4.13 percent for loans for $417,000 or less, known as conforming and stayed at 4.08 percent for jumbo loans (greater than $417,000).
Mortgage lenders say clients are watching rates closely as the Federal Reserve has clearly signals it will move rates higher as the economy improves. Tolbert Rowe, VP with Bay Capital Mortgage in Easton,Maryland, says there's a question if the Fed talk has already been priced into mortgage rates, "I've been telling my clients that it's an event, how it impacts rates, if at all, I'll let you know after it happens."
read more: http://www.cnbc.com/2015/08/12/weekly-mortgage-applications-edge-up-as-rates-stall.html
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