Rate shoppers naturally gravitate toward the lowest quotes, but a lower rate can lead to financial trouble if you don’t understand your loan terms. It’s important to know the relationship between rates and fixed terms so you can determine when it’s appropriate to use a shorter loan term instead of a longer one.
Why rates are higher for longer-term loans
A 30-year fixed mortgage rate is higher than a five-year adjustable rate mortgage (ARM) rate because a financial institution is taking more risk to lend you the money for a longer period of time.
The reason for this goes to the root concept of how banks operate. A bank’s business model is to ensure that interest they collect on loans exceeds interest they must pay out on deposits.
Interest that banks must pay you on deposits rises as the economy expands, and falls as the economy contracts over time. It’s easier for banks to manage this interest rate risk in the short term.
For example, interest rates paid on checking and savings deposits are very low because you’re free to withdraw your money any time, while rates paid on certificate of deposit (CD) accounts are slightly higher because the bank requires you to keep those funds deposited for periods of one month to five years.
Because banks know their expenses on deposits for periods up to five years, they know how to price mortgage loans up to five years. Today, many banks would pay you about 2.25 percent on a five-year CD, and they’d charge you about 3.25 percent for a five-year ARM.
But if you were getting a 30-year fixed loan, they might charge you about 3.875 percent — although these rates fluctuate. This rate is higher in order to compensate a bank for the interest rate risk they’re taking. Rates they must pay on deposits might be much higher during that 30-year period as the economy fluctuates, but your 3.875-percent mortgage rate is guaranteed.
read more: http://www.king5.com/story/news/features/2015/02/25/adjustable-rate-mortgages-its-all-about-timing/23993903/
Thursday, February 26, 2015
Tuesday, February 24, 2015
Monday Morning Cup of Coffee: Mortgage app decline alarms analysts
Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
The slowdown in mortgage purchase applications is weighing on analysts. Mortgage purchase apps have faltered, and that limits upside risk for mortgage rates, according to the analyst team lead by Chris Flanagan at Bank of America/Merrill Lynch.
This last week's sharp drop in the Mortgage Bankers Association purchase index was reminiscent of the early 2014 drop. Remarkably, purchase application volume is at the same level of early 2014, even though mortgage rates are more than 50 basis points lower.
“Recent bear steepening of rates should give way to flattening, driven by front-end weakness due to looming Fed rate hike. The agency basis still has more tightening potential, as supply and prepay risk subside,” Flanagan wrote in a client note.
“We continue to like down in credit, lower dollar priced non-agency RMBS. We think the reduced risk layering in CRT is often overlooked. We revisit our risk score which captures risk layering,” they write.
Flanagan says that strength in the labor market should lead to a mid-year rate hike by the Fed, but he does not see that strength translating into increased demand for purchase mortgages.
“This leads us to reiterate the view we held for most of 2014: housing is not strong enough to absorb meaningfully higher long-term interest rates, including mortgage rates. As a result, we believe longer-term rates remain biased to the downside, even from today's current low levels,” he says. “Upward momentum could drive long-term rates modestly higher over the near term, but, in our view, the fundamental reality of weak mortgage demand will likely halt the rise before long. We think the chances are good that rates settle into a range over the next few months, similar to the range trade on the 10yr in February-April 2014, and that we are currently near the high end of the range. Similarly, we think the recent yield curve steepening is likely to give way once again to a flattener; we still believe the 2yr-10yr spread will be close to zero by mid to late 2016. We are not fazed by the recent short term steepening; the bull flattening was overdone.”
read more: http://www.housingwire.com/blogs/1-rewired/post/33018-monday-morning-cup-of-coffee-mortgage-app-decline-alarms-analysts
The slowdown in mortgage purchase applications is weighing on analysts. Mortgage purchase apps have faltered, and that limits upside risk for mortgage rates, according to the analyst team lead by Chris Flanagan at Bank of America/Merrill Lynch.
This last week's sharp drop in the Mortgage Bankers Association purchase index was reminiscent of the early 2014 drop. Remarkably, purchase application volume is at the same level of early 2014, even though mortgage rates are more than 50 basis points lower.
“Recent bear steepening of rates should give way to flattening, driven by front-end weakness due to looming Fed rate hike. The agency basis still has more tightening potential, as supply and prepay risk subside,” Flanagan wrote in a client note.
“We continue to like down in credit, lower dollar priced non-agency RMBS. We think the reduced risk layering in CRT is often overlooked. We revisit our risk score which captures risk layering,” they write.
Flanagan says that strength in the labor market should lead to a mid-year rate hike by the Fed, but he does not see that strength translating into increased demand for purchase mortgages.
“This leads us to reiterate the view we held for most of 2014: housing is not strong enough to absorb meaningfully higher long-term interest rates, including mortgage rates. As a result, we believe longer-term rates remain biased to the downside, even from today's current low levels,” he says. “Upward momentum could drive long-term rates modestly higher over the near term, but, in our view, the fundamental reality of weak mortgage demand will likely halt the rise before long. We think the chances are good that rates settle into a range over the next few months, similar to the range trade on the 10yr in February-April 2014, and that we are currently near the high end of the range. Similarly, we think the recent yield curve steepening is likely to give way once again to a flattener; we still believe the 2yr-10yr spread will be close to zero by mid to late 2016. We are not fazed by the recent short term steepening; the bull flattening was overdone.”
read more: http://www.housingwire.com/blogs/1-rewired/post/33018-monday-morning-cup-of-coffee-mortgage-app-decline-alarms-analysts
Sunday, February 22, 2015
How Not To Get Screwed When Shopping For A Mortgage
Mortgage rates are the lowest they’ve been since May 2013, according to Freddie Mac . The good news is that buyers can now get a 30-year fixed rate mortgage for as little as 3.69%. The bad news is that eager homeowners are wading into a thick sludge of documents, come-ons and deception.
The two most popular styles of mortgages are fixed and adjustable interest. A fixed interest loan remains the same over the (usually) 30-year term. An adjustable interest loan fluctuates annually based on certain indices. So, if the rate on the one-year Treasury Constant Maturity jumps, your interest rate will too. Not surprisingly, in this environment of record low rates, adjustable loans are not very popular. There are also “hybrid” loans which feature a fixed rate for a certain period of time (usually 3-10 years), and an adjustable rate thereafter.
True, most of the more questionable loans, like stated income, interest-only and negative amortization have faded from the scene in the wake of the 2008 financial crisis. Typically unconventional or “hard money” lenders (private individuals lending on the asset rather than the borrower’s ability to repay) will offer these. Consumer finance protection regulations have nearly forced banks and conventional lenders out of this space, but there are still plenty of traps set for unsuspecting mortgage shoppers, especially those in hot pursuit of a bargain.
Whether you’re looking for a $300,000 mortgage or a $3 million mortgage, here’s how to make sure that when shopping for a loan, you don’t overspend.
Cheaper Isn’t Necessarily Better
Mortgages can be risky and secured by the thing that matters most– your home. Rather than search for the cheapest option, focus on reliability. Ads touting low rates from anonymous companies are often bait and switch scams. Reviews are
read more: http://www.forbes.com/sites/vanessagrout/2015/02/19/how-not-to-get-screwed-when-shopping-for-a-mortgage/
The two most popular styles of mortgages are fixed and adjustable interest. A fixed interest loan remains the same over the (usually) 30-year term. An adjustable interest loan fluctuates annually based on certain indices. So, if the rate on the one-year Treasury Constant Maturity jumps, your interest rate will too. Not surprisingly, in this environment of record low rates, adjustable loans are not very popular. There are also “hybrid” loans which feature a fixed rate for a certain period of time (usually 3-10 years), and an adjustable rate thereafter.
True, most of the more questionable loans, like stated income, interest-only and negative amortization have faded from the scene in the wake of the 2008 financial crisis. Typically unconventional or “hard money” lenders (private individuals lending on the asset rather than the borrower’s ability to repay) will offer these. Consumer finance protection regulations have nearly forced banks and conventional lenders out of this space, but there are still plenty of traps set for unsuspecting mortgage shoppers, especially those in hot pursuit of a bargain.
Whether you’re looking for a $300,000 mortgage or a $3 million mortgage, here’s how to make sure that when shopping for a loan, you don’t overspend.
Cheaper Isn’t Necessarily Better
Mortgages can be risky and secured by the thing that matters most– your home. Rather than search for the cheapest option, focus on reliability. Ads touting low rates from anonymous companies are often bait and switch scams. Reviews are
read more: http://www.forbes.com/sites/vanessagrout/2015/02/19/how-not-to-get-screwed-when-shopping-for-a-mortgage/
Friday, February 20, 2015
Reverse Mortgages: The Rewards And Risks
One of the greatest challenges facing retirees, particularly in today’s low-interest rate environment, is generating sufficient income for everyday living expenses. And for the 41% of Americans aged 55 to 64 with no retirement savings, their home may become their most effective way to fund retirement.
The combination of those two trends makes reverse mortgages so appealing to so many people. With a reverse mortgage, a homeowner age 62 or older can turn the value of his or her home into cash, without having to make monthly payments or moving. You can take the cash as a lump sum, in equal installments, or as needed through a line of credit.
As Walter Updegrave recently noted in his RealDealRetirement blog, a 65-year-old with a $250,000 home might be able to borrow up to $127,000 through a reverse mortgage, according to the Boston College Center for Retirement Research.
But reverse mortgages have drawbacks, too.
A reverse mortgage can be an extremely expensive and tricky way to borrow, so you need to understand the risks and costs before proceeding. It ensures that a significant portion of your home equity will be given to the bank in the form of fees and interest, rather than to your own retirement funds or your estate.
Implications For Your Family
A reverse mortgage can also have serious implications for your surviving spouse and family after you die — a family member living in the house who didn’t go in on the loan could be forced to move out — so you’ll need to factor this in when deciding whether to sign up.
It’s not too surprising that The Consumer Financial Protection Bureau (CFPB) has received 1,200 reverse mortgage complaints since December 2011, according to the federal agency’s recent report about them. As the report said: “Many older consumers and their families are confused and frustrated by the terms and conditions of reverse mortgages.”
read more http://www.forbes.com/sites/nextavenue/2015/02/19/reverse-mortgages-the-rewards-and-risks/
The combination of those two trends makes reverse mortgages so appealing to so many people. With a reverse mortgage, a homeowner age 62 or older can turn the value of his or her home into cash, without having to make monthly payments or moving. You can take the cash as a lump sum, in equal installments, or as needed through a line of credit.
As Walter Updegrave recently noted in his RealDealRetirement blog, a 65-year-old with a $250,000 home might be able to borrow up to $127,000 through a reverse mortgage, according to the Boston College Center for Retirement Research.
But reverse mortgages have drawbacks, too.
A reverse mortgage can be an extremely expensive and tricky way to borrow, so you need to understand the risks and costs before proceeding. It ensures that a significant portion of your home equity will be given to the bank in the form of fees and interest, rather than to your own retirement funds or your estate.
Implications For Your Family
A reverse mortgage can also have serious implications for your surviving spouse and family after you die — a family member living in the house who didn’t go in on the loan could be forced to move out — so you’ll need to factor this in when deciding whether to sign up.
It’s not too surprising that The Consumer Financial Protection Bureau (CFPB) has received 1,200 reverse mortgage complaints since December 2011, according to the federal agency’s recent report about them. As the report said: “Many older consumers and their families are confused and frustrated by the terms and conditions of reverse mortgages.”
read more http://www.forbes.com/sites/nextavenue/2015/02/19/reverse-mortgages-the-rewards-and-risks/
Monday, February 16, 2015
Another Winter Storm Slams The Northeast
The fourth winter storm in the Northeast this year was adding to the 6 feet of snow already on the ground in some areas, bringing with it hurricane-force winds and near-white-out conditions.
In Massachusetts, Gov. Charlie Baker said at a news conference early today that snowfalls had already "significantly exceeded" expectations. Accumulation in the northern half of the state exceeded a foot in some places.
According to The Boston Globe, Baker "urged residents to stay off the roadways through early Sunday afternoon, when the worst part of the storm was expected to pass."
Baker said the storm was "officially a blizzard," the Globe said, but National Weather Service meteorologist Alan Dunham said the weather service likely would wait until the end of the storm to declare the storm a blizzard, according to the newspaper.
The Associated Press writes:
"Before it is all over, southern New England could get several more inches and Maine could see up to 2 feet, weather forecasters said.
"Transportation officials in the region had taken precautions. Nearly 400 Sunday flights were canceled at Boston's Logan International Airport, and none was scheduled Sunday morning. The Massachusetts Bay Transportation Authority canceled all rail, bus and ferry service in the Boston area on Sunday."
In Massachusetts, Gov. Charlie Baker said at a news conference early today that snowfalls had already "significantly exceeded" expectations. Accumulation in the northern half of the state exceeded a foot in some places.
According to The Boston Globe, Baker "urged residents to stay off the roadways through early Sunday afternoon, when the worst part of the storm was expected to pass."
Baker said the storm was "officially a blizzard," the Globe said, but National Weather Service meteorologist Alan Dunham said the weather service likely would wait until the end of the storm to declare the storm a blizzard, according to the newspaper.
The Associated Press writes:
"Before it is all over, southern New England could get several more inches and Maine could see up to 2 feet, weather forecasters said.
"Transportation officials in the region had taken precautions. Nearly 400 Sunday flights were canceled at Boston's Logan International Airport, and none was scheduled Sunday morning. The Massachusetts Bay Transportation Authority canceled all rail, bus and ferry service in the Boston area on Sunday."
read more: http://www.npr.org/blogs/thetwo-way/2015/02/15/386454272/another-winter-storm-slams-the-northeast
Friday, February 13, 2015
CFPB Details Reverse Mortgage Complaints
In a paper on the issue, the Consumer Financial Protection Bureau (CFPB) says that "Many older consumers and their families are confused and frustrated by the terms and conditions of reverse mortgages." Since it began accepting them in December 2011 CFPB says it has received over 1,200 complaints about reverse mortgages, 1 percent of all mortgage complaints. As of September 30, 2014 there were an estimated 628,000 reverse mortgages outstanding.
Most reverse mortgages are sponsored through the Federal Housing Administration's (FHA's) Home Equity Conversion Mortgage (HECM) program and CFPB said while these mortgages represent only 1 percent of the mortgage market today it expects their popularity to increase in coming years. In addition to the large numbers of baby boomers reaching the eligible age for the program (62) there are other factors expected to contribute to the increase. Forty-one percent of Americans age 55-64 have no retirement savings accounts and those who do have a median account balance of only $103,200. Also more and more Americans are retiring without pensions and the Employee Benefit Research Institute (EBRI) finds that 44 percent of baby boomers will not have enough income in retirement for basic expenses and uninsured health care costs. Women, in particular, have an increased likelihood of outliving assets due to, among other things, lower savings and lower private pension coverage.
The homeownership rate for Americans aged 55-64 is 74 percent and homeowners aged 62 and older hold a combined $3.84 trillion in equity in their homes. This equity will likely play an increasing role in supplementing retirement income for many older homeowners.
The Bureau's Office of Older Americans just published Snapshot of reverse mortgage complains December 2011 - December 2014 highlighting some of the problems they see seniors having with the mortgages and some suggestions of ways elders and their families should protect themselves against problems with the products.
Much of the frustration noted by CFPB grows out of ways in which reverse mortgages (also referred to here as HECM) differ from the regular mortgages to which homeowners are accustomed. Rather than the credit and income-based underwriting used in traditional mortgages, a borrower's age (62) and the amount of equity in the home are the primary factors used to qualify for a HECM. (As of March 2, 2015, the underwriting for HECMs will consider credit history and financial assessments of prospective borrowers, though loan qualification will remain primarily equity-driven.)
Unlike traditional "forward" mortgages, reverse mortgages do not require a borrower to make monthly mortgage payments although borrowers are required to pay property taxes and maintain homeowners insurance. Loan proceeds are generally given to borrowers as a lump sum, monthly payments, or as a line of credit and the interest and fees on the mortgage are added to the loan balance each month. The total loan balance becomes due upon the sale of the home, death of the borrower(s), or if the borrower(s) permanently move from the home. In addition, a payment deferral period may be available to some non-borrowing spouses following the borrowing spouse's death. Mandatory housing counseling is required before the borrowers are given the mortgage.
read more http://www.mortgagenewsdaily.com/02102015_cfpb_hecm_complaints.asp
Most reverse mortgages are sponsored through the Federal Housing Administration's (FHA's) Home Equity Conversion Mortgage (HECM) program and CFPB said while these mortgages represent only 1 percent of the mortgage market today it expects their popularity to increase in coming years. In addition to the large numbers of baby boomers reaching the eligible age for the program (62) there are other factors expected to contribute to the increase. Forty-one percent of Americans age 55-64 have no retirement savings accounts and those who do have a median account balance of only $103,200. Also more and more Americans are retiring without pensions and the Employee Benefit Research Institute (EBRI) finds that 44 percent of baby boomers will not have enough income in retirement for basic expenses and uninsured health care costs. Women, in particular, have an increased likelihood of outliving assets due to, among other things, lower savings and lower private pension coverage.
The homeownership rate for Americans aged 55-64 is 74 percent and homeowners aged 62 and older hold a combined $3.84 trillion in equity in their homes. This equity will likely play an increasing role in supplementing retirement income for many older homeowners.
The Bureau's Office of Older Americans just published Snapshot of reverse mortgage complains December 2011 - December 2014 highlighting some of the problems they see seniors having with the mortgages and some suggestions of ways elders and their families should protect themselves against problems with the products.
Much of the frustration noted by CFPB grows out of ways in which reverse mortgages (also referred to here as HECM) differ from the regular mortgages to which homeowners are accustomed. Rather than the credit and income-based underwriting used in traditional mortgages, a borrower's age (62) and the amount of equity in the home are the primary factors used to qualify for a HECM. (As of March 2, 2015, the underwriting for HECMs will consider credit history and financial assessments of prospective borrowers, though loan qualification will remain primarily equity-driven.)
Unlike traditional "forward" mortgages, reverse mortgages do not require a borrower to make monthly mortgage payments although borrowers are required to pay property taxes and maintain homeowners insurance. Loan proceeds are generally given to borrowers as a lump sum, monthly payments, or as a line of credit and the interest and fees on the mortgage are added to the loan balance each month. The total loan balance becomes due upon the sale of the home, death of the borrower(s), or if the borrower(s) permanently move from the home. In addition, a payment deferral period may be available to some non-borrowing spouses following the borrowing spouse's death. Mandatory housing counseling is required before the borrowers are given the mortgage.
read more http://www.mortgagenewsdaily.com/02102015_cfpb_hecm_complaints.asp
Friday, February 6, 2015
Reverse Mortgages Could Ease No. 1 Retirement Worry
Educating people about reverse mortgages could help alleviate their most pressing concerns about income during retirement, suggest recently released survey findings from the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF).
Nearly 85% of respondents said that having a guaranteed monthly income stream is their top priority for retirement planning. But few people know about the options for achieving this—for example, of the 1,000 people who took the survey, 65% said they are not familiar with annuities.
While the findings do not address reverse mortgages specifically, the results suggest that many people will be in a position to benefit from this source of income. Not only are few people educated about annuities, but an increasing number are not saving anything for retirement. Last year, 21% of respondents said they are not saving, compared with 29% this year.
“The results … reveal the critical need for education and financial advice to help Americans who are clear about what they want from their retirement plan, but unclear about how to achieve it,” the survey report concluded.
see more: http://reversemortgagedaily.com/2015/02/05/reverse-mortgages-could-ease-no-1-retirement-worry/
Nearly 85% of respondents said that having a guaranteed monthly income stream is their top priority for retirement planning. But few people know about the options for achieving this—for example, of the 1,000 people who took the survey, 65% said they are not familiar with annuities.
While the findings do not address reverse mortgages specifically, the results suggest that many people will be in a position to benefit from this source of income. Not only are few people educated about annuities, but an increasing number are not saving anything for retirement. Last year, 21% of respondents said they are not saving, compared with 29% this year.
“The results … reveal the critical need for education and financial advice to help Americans who are clear about what they want from their retirement plan, but unclear about how to achieve it,” the survey report concluded.
see more: http://reversemortgagedaily.com/2015/02/05/reverse-mortgages-could-ease-no-1-retirement-worry/
Wednesday, February 4, 2015
Google search now has a built-in mortgage calculator
In its quest to make its search engine powerful enough to answer nearly any question you might ever have, Google has now added the ability to calculate mortgage payments.
If you're an aspiring homeowner, one of the most challenging things is figuring out how much you'll be able to pay based on various home prices and interest rates. Google's search engine now makes that process a bit easier.
Originally previewed months ago for some beta users, the feature can now be used by anyone via verbal interface on mobile devices, or on the desktop by typing in "mortgage calculator." When you type mortgage calculator into Google's search engine you get a detailed set of fields to fill including mortgage amount, interest rate and mortgage period (in years).
After you enter the proper information in each field, you get two totals, the total cost of the mortgage and your monthly payments.
You can also switch the tool's options to focus on the amount of cash you have the ability to pay on a monthly basis
You can also switch the tool's options to focus on the amount of cash you have the ability to pay on a monthly basis, a handy option for buyers looking to compare expenses from a renter-centric perspective.
read more: http://mashable.com/2015/02/03/google-mortgage-calculator/
If you're an aspiring homeowner, one of the most challenging things is figuring out how much you'll be able to pay based on various home prices and interest rates. Google's search engine now makes that process a bit easier.
Originally previewed months ago for some beta users, the feature can now be used by anyone via verbal interface on mobile devices, or on the desktop by typing in "mortgage calculator." When you type mortgage calculator into Google's search engine you get a detailed set of fields to fill including mortgage amount, interest rate and mortgage period (in years).
After you enter the proper information in each field, you get two totals, the total cost of the mortgage and your monthly payments.
You can also switch the tool's options to focus on the amount of cash you have the ability to pay on a monthly basis
You can also switch the tool's options to focus on the amount of cash you have the ability to pay on a monthly basis, a handy option for buyers looking to compare expenses from a renter-centric perspective.
read more: http://mashable.com/2015/02/03/google-mortgage-calculator/
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