Snare & Associates Mortgage Services, LLC

Author: Snare & Associates

It’s Time to Think About Refinancing Your Mortgage

By / Refinancing / Comments Off on It’s Time to Think About Refinancing Your Mortgage

The bond market is a complicated thing, and it is understandable if most people don’t spend a lot of time thinking about it. But even for Americans who don’t want to spend any mental energy on yield curves, convexity and term premia, there is one simple thing to know about the current tumult in the multitrillion dollar market: It’s time to think about refinancing your mortgage.

The average rate on a 30-year fixed-rate mortgage was 3.8 percent at the end of last week. That is down from 4.5 percent as recently as last spring, the lowest since May 2013 and far below the 5 percent-plus rates that prevailed as recently as early 2011.

That raises the possibility that the great American refinancing machine might again chug into motion, leaving Americans with lower monthly payments, more cash in their pockets or both. Homeowners who secured their current mortgage in late 2013 or early 2014, or anytime before mid-2011, may want to at least plug their numbers into an online calculator to see if the potential savings are worthwhile.

The math can be as simple as you want or as complex; here’s how to think of the decision.

When considering whether to refinance, you are exploiting the fact that you can fully repay a home mortgage whenever you want and take out a new one. If rates rise, you can stick with your old one as long as you continue to own your home; if they fall, you can pay off the old mortgage and get a new one. Heads you win, tails your lender loses. Seldom in life does this dynamic apply, so it is worth exploiting whenever the opportunity arises.

Everyone’s details are different, but if the current rate is half a percentage point below the rate on your mortgage, a refinance is potentially compelling. If it is closer to a gap of a full percentage point, it may be a slam dunk unless you expect to move soon.

But taking out a new mortgage comes with costs, such as origination and appraisal fees — typically in the low four figures. The open question is whether you will enjoy the benefits of lower rates for long enough to cover that upfront cost.

As a hypothetical, a family that took out a $400,000, 30-year fixed-rate mortgage in June 2013 at 4.6 percent could save $187 a month by refinancing $400,000 at a 3.8 percent rate. (If instead of taking cash out they borrowed only the $389,826 they should owe on the mortgage at this point, they would save $234 a month, reflecting both the lower interest rate and a smaller principal.)

Before taking the plunge, though, our family has to decide how long it expects to stay in the home. If transaction fees add up to $4,000, for example, the family needs to stay in the home for at least 21 more months (if borrowing $400,000; 17 months if borrowing $389,826) to justify the transaction (or a bit longer if you also try to account for the tax savings they are not receiving because they are paying less to the bank in mortgage interest).

Or here’s another intriguing possibility. Let’s say our family has seen its income rise since originally taking out the home loan in mid-2013. The interest rate on a 15-year fixed-rate mortgage is now a mere 2.9 percent. An option would be to refinance the $389,825 currently owed into a 15-year mortgage. That would increase the monthly payment by $623 a month — but would result in paying the home loan off entirely in 2030, not 2043 as the family was previously on track to do.

As with all major financial decisions, the details of each family’s situation can add all kinds of complexity that are worth gaming out and analyzing carefully. But for the economy as a whole, this latest shift in rates has a particular silver lining.

In years past, mortgage rates have dipped when it looked as if the United States economy could be falling back toward recession, and the Federal Reserve intervened with easier money to try to stop that from happening. This time, the economy is looking relatively strong and the Fed is making plans to raise interest rates.

This drop in mortgage rates is being driven by a combination of plummeting oil prices, which are reducing investors’ expectations for inflation in the years ahead, and a tumultuous global economic environment, which is leading investors worldwide to plow money into safe American assets. That includes the bonds packaged by the government-sponsored mortgage finance giants Fannie Mae and Freddie Mac, which in turn fund most of the nation’s consumer mortgages.

In other words, global investors are so desperate for a safe place to park cash and so confident that inflation is nowhere to be found that they are flinging money at United States homeowners. Americans now paying significantly above-market rates on their home loan might at least do them the favor of picking it up.

This article was originally published on 1/20/2015 at nytimes.com. View the original here.

It Still Makes Sense to Buy Versus Rent

By / Home Ownership / Comments Off on It Still Makes Sense to Buy Versus Rent

Nearly a full third of households are still renting. If you’re one of them, you could be paying a hefty price.

Before talking about purchasing a house, it’s important to note two things. First- and this is extremely important- the housing market is actually localized. So the outlook in your hometown may be different than another city across the state or on the other side of the country. Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. So, if you local job market is feeling a pinch, the home prices in your area may be down as well.

But with all those factors under consideration, it still makes sense to buy instead of rent. In fact, renting may be costing you a bundle.

Let’s look at an example…

If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

And speaking of having nothing to show for it, how about any improvements you might make to a rental property? It’s not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what…all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.

With convenient down payment options still available for qualified buyers, affordable home prices and low interest rates, the very same money could have been used towards home ownership.

Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment – including property taxes and insurance – of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.

And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage could be reduced to $279,000, adding $21,000 to your net worth!

But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from you new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting uncle Sam hold it all year, interest free.

Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.

Don’t fall victim to the national headline hype. Talk to a professional who understands your local market. And remember, buying a home is a big step, but is almost always one in the right direction.

Reference: www.mortgagemarketguide.com

F.H.A. Loans More Affordable

By / FHA / Comments Off on F.H.A. Loans More Affordable

An announcement by the Obama administration that the Federal Housing Administration would lower its annual insurance premiums by 0.5 percentage point could make it possible for a quarter-million more borrowers to buy their first homes, according to the agency’s estimates.

Since 2010, insurance premiums on the low-down-payment mortgages backed by the F.H.A. have soared 145 percent in order to help raise funds to restore the agency’s badly depleted reserves. But there have been growing complaints that the increases have made the loans too costly for the buyers who need them most.

In a press briefing on Thursday, Julián Castro, the secretary of the Department of Housing and Urban Development, which oversees the F.H.A., said an estimated 400,000 creditworthy borrowers had been priced out in 2013 because of higher insurance costs. He asserted that the F.H.A. was now in a strong enough position to broaden access to credit by reducing annual premiums to 0.85 percent of a loan’s value from the current 1.35 percent.

For new F.H.A. borrowers, the reduction would mean an annual average savings of $900, Mr. Castro said.

F.H.A.-backed loans became the go-to source of financing after the housing market crashed and private lenders pulled back. But default rates later soared, primarily on loans made from 2007 to 2009, leaving the agency’s insurance fund with a negative value of $16 billion by fiscal year 2012.

Tighter underwriting standards and a series of six increases in insurance premiums have put the fund back in the black, with a balance of $4.8 billion, according to the F.H.A.’s annual report published late last year.

In a letter last month to Mr. Castro, 18 senators cited the fund’s return to “solid footing” as reason to re-examine insurance premium levels to determine whether they could be “reasonably and safely lowered” to levels more affordable for “creditworthy families.” The senators’ request followed earlier pleas for premium reductions by various consumer and industry groups, including the National Association of Realtors and the Mortgage Bankers Association.

Earlier fee increases were “eliminating a lot of the people that F.H.A. is designed to help, and that’s the lower-income and first-time buyers,” said Chris Polychron, the president of the National Association of Realtors.

Mr. Polychron cited research by his association showing that the percentage of first-time buyers using F.H.A. loans shrank to 39 percent from 56 percent over the last four years.

F.H.A.-backed loans are popular with many buyers because they require as little as 3.5 percent down, and the minimum FICO score requirement of 580 is lower than on conventional loans.

But the F.H.A. has been trying to balance its mission to expand access to credit against concerns about financial risk. While far more stable, its insurance fund has not yet amassed the required 2 percent capital reserve ratio, a target it was projected to reach in 2016.

Mr. Castro said the premium reduction would slow the agency’s progress toward that target by a couple of months. He emphasized that the new premiums were still 50 percent higher than pre-crisis levels, and that underwriting standards would not be relaxed.

“This action is not a return to the past,” Mr. Castro said.

The projected savings for borrowers over time are substantial. According to Zillow, the real estate information site, on a $175,000, 30-year F.H.A.-backed loan, a buyer putting down 3.5 percent would save nearly $4,000 over five years.

This article was originally published on 1/9/2015 at nytimes.com. View the original here.