Category: Mortgage (Page 5 of 59)

Shortening Your Mortgage Term and Reducing Interest Paid By Making Extra Payments

January 27, 2025 / Tom Bonetto

Many homeowners strive to pay off their mortgage sooner and reduce the total interest paid over the life of the loan.

One simple yet effective strategy is to make an extra payment each year, essentially turning 12 monthly payments into 13.

This approach accelerates principal reduction, shortens the loan term, and leads to substantial interest savings.

How Extra Payments Work

Mortgage payments are typically structured ( or “amortized”) so that a portion of each payment goes toward interest and the remainder toward the principal. Early in the loan term, a larger percentage of each payment is allocated to interest.

Making an additional payment each year specifically toward the principal helps reduce the overall loan balance more quickly. This creates a compounding effect, as subsequent payments are calculated on the reduced principal, leading to less interest accruing over time.

Advantages

Lower Total Interest Paid – If you overpay your mortgage and direct all of your extra payments towards the principal, not only will the principal amount be reduced, so will the amount of interest you’ll have to pay over the term of the mortgage.

Paying down your mortgage provides the biggest return on investment for those who are planning on staying in their current homes for the long haul.

To illustrate, let’s say you currently have a 30-year fixed-rate mortgage of $300,000 at a 4% rate. By the end of the life of the mortgage, you’ll have paid $215,608.52 towards interest!

Now let’s say you decided to make extra payments of $300 each month. At the end of the mortgage life, you will have contributed $148,215.00 towards interest instead. That’s a savings of $67,393.52!

Keep in mind that this extra money is going strictly towards the principal portion, and not the interest. That means you’ll be able to cut down on your principal portion without having even one single cent of it go towards interest.

Shorten the Time Needed to End Up Mortgage-Free – Using the above example, not only would your interest payments be significantly reduced, you’d also be mortgage-free 8 years and 5 months earlier compared to not overpaying your mortgage.

Build More Equity – Any amount of money that you put towards the principal amount of your loan automatically builds up equity in your home. When you save interest on a mortgage by making extra payments, the equity savings in your home accrue each month.

Extra payments allow you to build equity the moment the extra payment is made. You can then use the equity in your home through a refinance or upon the sale of your property.

Disadvantages

Opponents to overpaying a mortgage argue that the money that would otherwise be stuck in a home loan could be working to make more money over the short- and long-term through investments that yield a higher return.

Missing Out on Other Investments – With interest rates hovering around historical lows over the past few years, many homeowners have been choosing to put their hard-earned money into investments rather than paying their mortgage off early. In fact, may homeowners are choosing to extend the life of their home loans in order to free up additional capital to invest.

This, of course, can only work if the interest rate you’re currently paying on your home is less than the interest you’d be making in your investment vehicle of choice.

To illustrate, let’s use the same numbers as above: say you currently have a 30-year fixed-rate mortgage of $300,000 at a 4% rate. If you had saved that extra $300 per month and used it towards an investment that has historically brought 8% returns, you could potentially end up with $425,000 if the returns remain steady.

In addition to the $108,000 that would have been invested over the 30-year period through regular monthly $300 payments, over $316,000 would be made in interest.

Of course, there’s always the risk that this promised rate of 8% won’t necessarily pan out over the course of the investment. Market conditions can always fluctuate, as we see from time to time.

Lack of Diversification – for the majority people, a home is a major component of their overall assets.

By making additional payments and paying off your mortgage early, you’re not increasing your assets’ worth. While you are becoming debt-free sooner, you’re missing out on the chance to diversify your investments and value of your assets.

How to Do It

There are multiple ways to implement this strategy. One common method is to divide your monthly mortgage payment by 12 and add that amount to each month’s payment. Over 12 months, this totals one extra payment.

Another approach is to save up for a lump sum and make a single extra payment at the end of the year. Whichever method you choose, ensure that the additional amount is explicitly applied to the principal to maximize its impact.

Before adopting this strategy, review your loan agreement and consult your lender. Some mortgages include prepayment penalties, which could offset the financial benefits of extra payments.

Considerations and Precautions

Additionally, ensure that your lender properly applies the extra payment to the principal rather than advancing the next month’s payment. Clear communication and written confirmation can prevent misunderstandings.

In Conclusion

Making extra mortgage payments annually or adding more to each month’s payment are straightforward yet powerful ways to reduce your mortgage principal, shorten the loan term, and save money on interest.

This strategy is achievable for many homeowners with a bit of financial discipline and planning. By committing to this approach, you can take control of your mortgage and work toward financial freedom more quickly.

Is it a good idea for you? Do reach out to me for more, as I’d be happy to talk with you about how this strategy might help you achieve your long-term financial goals.

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Lending Coach Special Podcast: 2025 Mortgage and Real Estate Forecast

January 18, 2025 / Tom Bonetto

I was fortunate enough to be interviewed on a podcast recently to discuss my 2025 Mortgage and Real Estate Forecast.

You can find that forecast here…

This podcast is a very deep dive into what we can expect in 2025 and the factors that go into my prediction. I’d invite you to take a listen!

Here’s the podcast link:

Specific Podcast Timestamps:

3:34 – Introduction
6:10 – 2025 Forecast Overview
11:05 – The Fed and the Federal Funds Rate
13:45 – Inflation
30:40 – Mortgage Rates, Supply and Demand, & Appreciation
35:10 – Unemployment – Reporting and Its Impact
44:26 – Current Market Opportunities – Reporting Discrepancies
47:10 – Mortgage Rate Forecast and Factors
50:04 – Supply and Demand in Relation to Future Opportunities
57:15 – Conclusion and Contact Information

I hope you find it interesting, and feel free to reach out directly to me to discuss it further.

As always, you can set up an appointment with me here…

“Trigger” Leads: What Are They and How Do I Opt-Out?

January 13, 2025 / Tom Bonetto

If you’ve ever applied for a mortgage, credit card or had a hard credit inquiry, you’ve probably experienced other lenders or financial service providers harassing you with unsolicited phone calls or emails.

So, when you apply for a mortgage, your credit report is pulled from the three major credit bureaus: Equifax, Experian and TransUnion.

The bureaus record this action, and within 24 hours your information is placed on a list that is now for sale, creating a “trigger lead.”

A “Trigger Lead”?

Unbelievably, this list is then sold to creditors who might contact you with various unsolicited offers for credit or other financial products. More often than not, they are bothersome, inconvenient, and in many cases, rude.

It sure feels like an invasion of privacy when other creditors contact you and seem to know you’ve applied for credit – not to mention that unsolicited phone calls, emails, and junk mail are downright annoying.

Believe or not, these entities that have access to your personal and financial information are legally allowed to sell your information to other lenders who pay these bureaus for this information.

Are Trigger Leads Even Legal?

Yes, trigger leads are, in fact, legal. Under the Fair Credit Reporting Act, as long as the company that’s buying the trigger leads meets certain legal requirements, they are legal in all 50 states.

Understand that trigger leads are a big business for the credit bureaus, like Experian and Equifax.

If you’re thinking, “How is can this be?,” here’s the logic for it.

The Federal Trade Commission (FTC) and Consumer Finance Protection Bureau (CFPB) actually encourage this type of competition among lenders because they think it gives the prospective borrower a better chance of getting the best possible deal for financing.

So, while trigger leads are frustrating and severely intrusive, they are considered legal. And they’re designed to be for consumers’ benefit, even though it doesn’t doesn’t end up being that way.

Opting Out

The good news is that you can opt-out to reduce the number of solicitations you receive. It’s recommended to opt-out before applying for a loan, credit card or insurance.

Online — Visit OptOutPrescreen.com. To process your request, you’ll need to provide your Social Security number, date of birth and name. From here, you’ll find an option to opt-out of trigger leads for either a five-year period or permanently.

Via Phone — Call 1-888-5-OPT-OUT. It usually takes around five business days to process an opt-out request, so make sure you allow enough time between opting out and submitting an application. Also, it can take up to a couple of months to stop receiving pre-screened offers altogether. This is due to some companies buying your information prior to you opting out.

Your Privacy Matters

As your mortgage lender, I take your privacy seriously and make every effort to ensure your information is secure.

If you plan to apply for a mortgage any time in the future, I encourage you to opt out in advance so you can prevent the calls from coming in the first place.

I also encourage you to call your congressperson and senator…and tell them to have this practice outlawed.

If you’d like to find out more…or strategize with me on how to work around this system, don’t hesitate to reach out to me!

The Lending Coach 2025 Mortgage and Real Estate Forecast

January 7, 2025 / Tom Bonetto

My 2025 real estate and mortgage forecast will take a look at inflation, the labor markets, and the Federal Reserve to help us better understand what we can expect in the coming year.

These 3 factors portend for potentially lower mortgage rates over the course of this year…while home values will continue to rise.

Right now, housing supply is still relatively low, and demand is growing – and that means home price appreciation.

On the mortgage side, will interest rates finally come back? Let’s take a look at the factors that will most impact real estate and mortgages in 2025…

Inflation

The single biggest driver of bond yields AND mortgage rates is inflation.

Mortgage rates are essentially determined by inflation, which erodes the buying power of the fixed return that a mortgage holder receives. When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of that buying power.

And that’s what we’ve been seeing over the last 3 years.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline.

When they lower rates, the Fed is trying to spur economic growth with more availability to less expensive capital.

As I’ve mentioned previously, the Federal Reserve botched their management of inflation in 2020 and 2021 and were forced to make severe changes to offset the damage. This brought market instability and increased mortgage rates.

Inflation has remained stubbornly high over the last year, but news on the horizon looks promising.

As a matter of fact, I believe that the current data (the Personal Consumption Index or PCE) is overstating inflation by about .4%

Once this is worked out, we should see the inflation numbers come down, leading the Fed to want to reduce the Federal Funds rate.

One of the largest components in the PCE is “shelter costs”, or rents. You can see in the chart below that these costs have been dropping regularly, and this trend will show up in the months ahead.

The trend in inflation is working in the borrower’s favor, and it means the Fed’s going to have to look at cutting the Federal Funds rate even more in 2025.

You can find out more on inflation, The Federal Reserve, and mortgage rates here…

It looks like core inflation might be in the low 2% range by the middle of this year, which bodes well for lower mortgage rates.

One wild card, however, will be how the bond market views the ever-expanding federal deficit and debt. The level of government spending isn’t giving great comfort to those who regularly purchase government bonds, so this is something everyone needs to be watching. Increased debt loads could move bond yields higher, which will not help mortgage rates.

The Labor Market

There has been much discussion about the labor markets and employment data this year.

Estimates by the Federal Reserve Bank of Philadelphia indicate that the employment changes from March through June 2024 were significantly different compared with preliminary state estimates from the Bureau of Labor Statistics’ (BLS).

This year the BLS stated that the US economy added nearly 2.5 million new jobs…but the Quarterly Census of Employment and Wages (QCEW) done by the Philadelphia Fed showed growth of only 1.25 million jobs.

That’s a 50% discrepancy! One might even conclude that the BLS numbers were potentially inflated due to election posturing.

Nevertheless, here’s what’ currently happening regarding employment:

As you can see, unemployment is up nearly 1% over the last 18 months and is continuing to rise.

Secondly, the duration of an average unemployment stay (based on how long a laid-off employee receives unemployment benefits) is up 21% over the last 7 months and is continuing to rise:

This means that finding a job once you’ve been laid off is getting tougher, signaling a tightening labor market.

Next, there are few jobs available right now, per the Bureau of Labor Statistics:

There are 30% fewer job openings since January of 2023. So…the unemployment rate is moving higher, job openings are dropping, and people are collecting unemployment for a longer amount of time.

My thinking here is that the labor market isn’t in as good of shape as many in Washington think. This may bode well for mortgage rates if these trends continue

The Federal Reserve

For starters, the Federal Reserve’s “dual mandate” is to keep prices stable AND achieve maximum employment.

It does this by controlling the money supply, and raising or lowering interest rates when the economy is slowing down or growing too fast.

We’ve seen this in the last year, when the Fed reduced its Federal Funds rate by 100 basis points, as inflation started to wane.

When the Fed cut interest rates in September, many hoped it would kick-start the frozen housing market. Mortgage rates track the 10-year US Treasury yield, which was expected to fall in anticipation of further rate cuts. However, recent economic data has looked stronger than expected, which has shifted the market’s expectations, sending bond yields higher.

Today, most analysts believe that the Fed will continue to cut its lending rate…and that it might well spur mortgage rates to follow this time around.

Per the diagram below, the majority of Fed members believe that the Federal Funds rate (currently at 4.375%) will be lowered to 3.875% sometime in 2025.

However, with the labor markets numbers being potentially over inflated, many believe that many more Fed voting members will change their tune if/when unemployment numbers start to rise.

And as shown earlier, there’s a very good chance that the unemployment rate might very well rise in the months ahead, forcing the Fed to cut their interbank lending rate even further.

Most Fed members believe that unemployment will stay between 4.2% and 4.3% – with a few thinking it could go as high as 4.5%:

But what if inflation moves higher? What if the recent corporate layoffs mentioned previously start to show more in those labor reports?

My guess is that the Fed will lower rates to stave off higher inflation…which should be good for mortgage rates.

Mortgage Rate Forecast

As mentioned previously, the 30-year mortgage rate generally follows the path of the 10-year treasury bond. Today, the 10-year yield is hovering right around 4.5%.

But how does that relate to mortgage rates?

Well, the historical spread between the 30-year fixed mortgage rate and the 10-year treasury is between 1.6% and 2% – or averaging around 1.8%. Meaning, that if the 10-year yield is at 4%, mortgage rates should be right around 5.8% (4% yield plus 1.8% spread).

However, today’s market is skewed…mostly due to the 2020/2021 event and it’s resulting hangover. Take a look:

As you can see, today’s spread is over 2.5% – far outside of historical norms. And, it’s declining, which is good news.

It September of 2024, the 10-year yield touched 3.6% (and it spurred a fair amount of refinance activity for about 3 weeks, before they rose to 4% in early October):

So, what if the current spread went from 2.5% to just 2.25% AND the 10-year treasury dropped to 3.5%? Rates could look like this:

And this absolutely could happen this year. Based on inflation and employment data – coupled with continued spread reduction, mortgage rates in the high 5% range is quite realistic.

As mentioned previously, the wild-card will be how the bond market views government spending a debt.

Real Estate Forecast

Let’s turn our attention to real estate and what we can expect in 2025.

The forecast for real estate centers once again on supply and demand, and the supply continues to be tight…more on that later.

First, though, let’s take a look at what’s happening with the home buying demographic. As you can see in the chart below, there are plenty of opportunities for buyers in the Millennial age category…and the Gen Z group isn’t too far behind:

We will see great homeowner growth in both Gen Z AND Millennials over the next few years.

At the same time, will new home construction keep up to fill this demand? Let’s take a look.

First, active listings have fallen significantly since pre-Covid. Listings are down 21% since 2018 AND the population has grown by over 12M people. Yes, listings are up year-over-year (which is good news, indeed), but nowhere near what’s required.

Household formations (or the amount of NEW households being created through cohabitation or marriage) tells the story of how many new homes are needed every year. Interestingly, the statistic has remained very constant at right around 1.9M per year:

On the other hand, new homes being built is remaining constant at 1.3M per year:

As you can see, there are far more households being formed than builders putting up new homes. This is why the real estate market has been so strong of late and why you we seeing prices increase due to a lack of inventory. It’s going to be a similar story for 2025 and more.

So, what does this mean?

Well, it means that home prices will continue to appreciate…and that will accelerate even faster when mortgage rates improve.

I see appreciation in 2025 at over 4% for the year AND appreciation over the next 5 years to be over 30%. This means real estate is a good buy right now and will help create great wealth in the future.

In Conclusion

Here’s what I think will happen in 2025:

It’s looking like 2025 will be an interesting year…and one that will have solid wreath-building opportunities available. Do reach out to me to discuss how you might be able to move forward in 2025 to take advantage of this changing market!

If it’s easier, you can set an appointment with me here…

This Market Update and similar such communications are for informational purposes only and are based on publicly available information. These materials are general communications, which are not impartial, and are provided solely for discussion purposes, and not in connection with any product or service offering. The opinions and views expressed in this Market Update are as of the date of this communication and are subject to change. Any forward-looking views and statements contained in this Market Update are based on current estimates or expectations of future events or results. Actual results may differ materially from those described in this Market Update. The views expressed in this communication should not be attributed to Guild Mortgage Company as a whole and may not be reflected in the strategies and products offered by Guild Mortgage Company.

New 2025 Conforming Loan Limits

December 2, 2024 / Tom Bonetto

The Federal Housing Finance Agency (FHFA) announced that the maximum baseline conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2025 will rise to $806,500 — an increase of $39,950, or 5.2%, from 2024.

The increase in loan limits for 2025 means that more mortgages will be bought by Fannie and Freddie, which will make it easier for home buyers to qualify for and close their loans.

The conforming loan limits are required by the Housing and Economic Recovery Act to reflect the percentage change in the average U.S. home price during the most recent 12-month period ending before the time of determining the annual adjustment.

In 2025, the conforming loan limit will rise 5.21% because FHFA has determined that the average U.S. home value increased by that amount between the third quarters of 2023 and 2024.

Higher loan limits will be in effect in higher-cost areas as well. The new ceiling loan limit in high-cost markets will be $1,209,750, which is 150% of $806,500. The previous ceiling was $1,149,825.

Category: Mortgage (Page 5 of 59)

Shortening Your Mortgage Term and Reducing Interest Paid By Making Extra Payments

How Extra Payments Work

Advantages

Disadvantages

How to Do It

Considerations and Precautions

In Conclusion

Lending Coach Special Podcast: 2025 Mortgage and Real Estate Forecast

“Trigger” Leads: What Are They and How Do I Opt-Out?

A “Trigger Lead”?

Are Trigger Leads Even Legal?

Opting Out

Your Privacy Matters

The Lending Coach 2025 Mortgage and Real Estate Forecast

Inflation

The Labor Market

The Federal Reserve

Mortgage Rate Forecast

Real Estate Forecast

In Conclusion

New 2025 Conforming Loan Limits

Apply Now – Online Application

Schedule Appointment With Tom

Guild Mortgage

Contact Tom

About The Coach

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