CHAPEL HILL – Mortgages remain one of the most important issues to homeowners and one of our local professors says President Barack Obama’s plan for mortgage reform is a good move.
President Obama recently said that he wants more lenders to offer 30-year mortgages to individuals buying a home.
Director of UNC’s Center for Community Capital and professor and chair of the department of city and regional planning at UNC, Roberto Quercia, explains that 30-year mortgages differ from interest-only mortgages because they allow borrowers to pay less interest and more capital over time.
“It’s a great mortgage instrument for low-to-moderate income families because it allows them to buy a house, and at the same time, pay back the loan and build equity, build wealth, along the way,” Quercia says.
President Obama says he wants these types of loans to be handled by private lenders and move away from federally-chartered private lenders like Fannie May and Freddie Mac. Quercia says that the federal government does not want to be in another situation like in the 2008 financial collapse where Fannie and Freddie’s losses were passed onto taxpayers.
“That issue of private profit, public losses was something President Obama wants to avoid in the future,” Quercia says.
Last year, President Obama also made pushes for more borrowers with more debt than the value of their home, or “underwater” homeowners, to refinance to a better interest rate. In this speech, Quercia says the President made a new proposal, urging lenders not to deny loans to individuals with bad credit scores.
“Somehow, he wants lenders to take into account that if you’ve got a blemish in your credit because of unemployment that was no fault of your own, but because of the bigger, broader crisis, somehow, once that borrower gets a new job, they should be able to refinance,” Quercia says.
Quercia says he thinks the President’s proposals will probably work, but that there weren’t enough details in the speech to know for sure.
“Also, many of those initiatives will require the involvement of Congress, and obviously, the politics of this are such that it is unclear what the ultimate program or initiative will look like,” Quercia says.
President Obama gave his speech in Phoenix, Arizona, where many homes rapidly lost their value in the immediate wake of the housing crisis.http://chapelboro.com/news/national/unc-professor-on-obamas-mortgage-plan
If your property (or someones you know) didn’t qualify for a low rate refinance before,
this is worth checking out right now.
HARP started in 2009 and had less than desired results because of falling home values.
This meant that many people who put down 20% when purchasing were now required
to obtain mortgage insurance or make an additional principal payment to keep their loan
at a 20% equity level.
Thousands of borrowers across the nation did not refinance, even though there was a
significant rate benefit. The additional monthly mortgage insurance payment wiped out
or reduced the savings enough to say no.
Not so anymore!
The big and welcome changes:
1- Unlimited Loan To Home Value ratio’s. Yes, unlimited.
Unless you refinance to an ARM, and then it’s 105%
2- If you didn’t have mortgage insurance when you purchased
because of a 20% down payment (and not because of a 2nd mortgage),
you will not be required to have MI now.
If you had MI before, you’ll have it again at the same terms.
3- The rates and pricing is to be the same as regular loans.
4- You can refinance investment and vacation homes with HARP also.
5- You can use ANY lender to refinance.
Here are the three main qualifying factors:
1) Your loan must have a securitization date before June 1, 2009.
3) You must be on time with mortgage payments the last 6 months
and 11 or the last 12 months.
There are other “details” to the program, but if you pass these three,
call a lender and find out how much you may be able to save.
When I speak with agents, I’m told the price is what begins the conversation and gets buyers to call. Without the right price, the phone does not ring. Agents know.
This does make sense today, but the question for smart buyers is:
Do I want to profit NOW or when I sell this home in X years?
This question is as much of buyer psychology as math.
In this case, let’s say you love the house, and the seller has accepted your offer which is $19,650.00 below her asking price. You are happy. The sales price reduction will save $82.00 per month in monthly mortgage payment.
Then you read this article, and wonder, “what if I kept the original sales price and used the $19,650.00 to buy the mortgage interest rate lower permanently?”
For those who rather read: The $19,650.00 applied to financing gives the net monthly payment effect of having the sales price reduced $73,494.00. Plus, the mortgage payment is reduced $307.00 per month.
That’s a 3:1 leverage of the sellers funds.
Same dollars, different impact -> now or later?
Which would you rather have?
Buyers, let me know your opinion.
Thanks to Masha Halpern of Keller Williams Realty who allowed me to use her listing for this example.
When the dollar differences are in black and white, the most frequent
response is, “Now tell me how an ARM works again.”
What’s your thought or experiences with Adjustable Rate Mortgages? Leave a comment below.
Was just speaking with Mike Pearl, CPA and Private Wealth Manager about
mortgage and tax solutions, positioning, problems, and planning.
As we were speaking about this, Mike make the comment that that the answer
to most mortgage and tax questions is….”It Depends….”
As I thought about this, that response is much more than a cliche or avoiding
of specific information. It is the beginning of deeper analysis.
The answer to most mortgage question depends upon the end result people want to achieve.
For instance, I’m often told “I want the lowest interest rate.”
Great! The lowest interest depends upon a couple of things–
– are you willing to pay $4,00-$6,500.00 in closing costs for the lowest rate?
– are you willing to accept a mid-term Adjustable Rate Mortgage?
That combination will give the lowest interest mortgage rate on the planet.
At this point, other priorities come to light.
So, with the lowest mortgage rate “it depends….” on what the ultimate end result is for –
“you want the lowest rate so that you have the lowest payment because
you need to build a savings cushion, plan for retirement, need more
cash flow because your children are in private schools or college?”
And the list goes on.
I’m reminded I never wanted a drill for home repairs.
All I wanted was the “hole.”
It works the same way for mortgages.
Do you have a “It depends” or a “drill” story? Tell us about
it in the comments section below.
In a low mortgage rate environment, there are many ways to skin a mortgage
so that you pay less and keep more in your bank account, rather than add to
the big super mega banks profits.
And that, even if you already have a low mortgage rate.
I’ll cover that in the next posts.
Here’s a couple ways to save:
1) Most people refinance a Fixed 30 to another Fixed 30. That starts the 30 year clock
all over again. In some cases that is fine. Did you know you can reduce your Fixed 30
rate to a shortened term of 25 years? The payment is increased slightly and you will
stay even or ahead of your current amortization.
It’s like a savings account you don’t have to think about. I had a rental property on a
Fixed 25 year loan, and it is amazing how small changes can make big differences
in loan balance reduction.
This is especially powerful if you have had your current mortgage for less than 5 years.
There is not a break for a lower interest rate for a Fixed 25. it is the same rate as a Fixed 30.
2) Reduce your Fixed 15 to a Fixed 10 year mortgage. I’ve been surprised how significant
this is in interest savings, even with clients that are 6-9 years into their loan. It doesn’t work
for all Fixed 15 year mortgages, but the numbers are worth crunching. Depending upon your
loan size, you may also be able to do a “no cost” refinance.
3) Reduce Fixed 30 to a Fixed 20. Right now it’s easy to do this with a “No Cost” refi. Payments
may increase but total savings are dramatic, especially if you will be in your home
another 5-10 years.
4) Did you know that most Adjustable Rate Mortgages (ARMs) can be amortized for 10, 15, 20, or 25 years? If you combine the low ARM rates with a shorter term, you will have even faster mortgage pay down.
Why would you consider an ARM rather than a Fixed? If you knew you were going to be moving in “X” amount of years.
5) If your end result is to lower your monthly payments, you can also switch to a mid-term ARM.
They are ridiculously low right now and in most cases you can have low to no closing costs.
Since mortgage rates have been so low for so long, it’s easy to be lulled into thinking they will stay that
way for ever, and miss opportunites to keep more dollars in your bank account.
With the right strategy, you can take advantage of low rates now, and lower rates again at the
next drop. But you have to plan ahead.
Do you have questions or a real life scenario to analyze? Let me know in the box below.
… the chapelboro real estate market and
mortgage rates hitting rock bottom.
Time to buy or refi.
PS- Hope you profited from the brief rate
drop last week.
I must reach way back to remember the stories from my
Grandma Mary Cahill Cronshey Kohn, who told me about her great
grandparents coming from Sweden. My Dad’s family
emigrated from Ireland.
For a moment I wonder what it would be like as an immigrant today.
After our application….
I was impressed.
Let me explain.
From my desk, they are a very together family.
I was curious about them.
After the mortgage application I asked the Father how
long they have been in the USA?
Then one said “from Thailand.”
I remember reading about the refugee path from Asian countries, to Thailand,
and eventually the USA. Documentaries are made about these journeys.
Was it Angelina Jolie who visited one of the refugee camps in Thailand?
So, less than 3.5 years in the USA, and they are buying their first home.
They all have jobs.
They are independent.
No local or fed government assistance.
Though I can’t confirm, I bet they are not caught up in the daily barrage
of bad economic news. (OK, the language barrier may have something to do with that.)
They came to the USA for a better life of their own making.
And for opportunity that is nowhere else.
For their family.
They just did it.
And what makes America great.
The NC Real Estate purchase contract changed in 2011.
One of the key components is the “due diligence date” that can significantly impact the closing, sellers, and buyers.
Watch as Debbie Earp and Robin Mullis of The Earp Group discuss the pro’s and con’s and what you must know about the new contract before you buy or sell.http://chapelboro.com/columns/the-chapel-hill-real-estate-and-mortgage-source/video-what-to-know-about-the-new-nc-real-estate-contract