Category: Mortgage (Page 54 of 60)

What is APR….and is it all that important?

August 26, 2016 / Tom Bonetto

There is a lot of regulation around APR and home mortgages – and anything with this much regulation must be important, right? Lenders and loan officers spend a lot of time calculating, managing, and disclosing APR. It is a big part of everyday life in the lending industry.

Candidly, APR is confusing and hard to understand. I have heard it called many things – average percentage rate, about percentage rate, approximate percentage rates…for the record it is Annual Percentage Rate, so let’s clear up some of the confusion.

Source: The Mortgage Reports

What is APR and is it all that important?

APR (annual percentage rate) is the interest rate plus the costs associated with the loan. This mysterious number is intended to give an apples to apples comparison between two different loans.

Theoretically, if the consumer compares the APR of two loans, the loan with the lowest annual percentage rate is naturally the best loan for the consumer. APR is designed to protect consumes from hidden costs, bait & switch, and deceptive marketing schemes which have been used in this industry.

Hang On A Minute – Does APR Tell the Whole Story All Of The Time?

APR is certainly helpful and an important part of the lending process. However, loans are complex and ultimately one number alone does not automatically find the best loan for a particular borrower. Please do check out the article I have attached with this post that details APR – the good and the bad. APR is a complex calculation with many variables. If these variables are not exactly the same between loans, the loans are not apples to apples comparisons.

Remember, the borrower must look at a refinance or purchase of a new home relative to their particular needs. The borrower’s debt, savings, down payment, anticipated time in a home, family, etc all play an important part in selecting the right mortgage. While APR is important, one number can’t take into account all the variations and nuances in the life of a borrower.

We Need to Help Our Customers Understand Hard Concepts!

I have said this before and it is worth repeating – lenders (such as myself) and real estate agents must educate clients on appropriate real estate and lending options. If you are a borrower – make sure you have the right professionals supporting your real estate needs. The right professionals care about your needs and take the time to do the research required to recommend the correct products.

A big thanks to my friend and colleague, Mike Nelson, for really bringing together the key pieces of APR!

11 million Americans spend half their income on rent

August 22, 2016 / Tom Bonetto

The number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

Source: Money Magazine

While renters are paying more, affordability is improving for those who own their homes. The number of cost-burdened homeowners declined in 2014 for the fourth consecutive year, according to the report, thanks to low mortgage rates.

Over 11 million spend nearly 50% of their income on rent and 21.3 million are spending 30% or more of their paycheck to cover the rent — also a record high.

Personal finance experts generally suggest budgeting around 30% of monthly income to cover housing costs. But according to the article, that’s getting harder to do with rent prices rising faster than wages.

Last year saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Middle-aged renters made up a lot of the new demand, with 40% of renters aged 30-49.

And renters are sitting on both ends of the pay scale: almost half of new renters in 2015 earned less than $25,000, while top-income households have been the fastest-growing segment of new renters for the past three years.

What’s really fascinating about this phenomenon is that housing prices are relatively affordable and interest rates are extremely low, both based on historical norms.

Discount Points & Mortgages: Good idea or wasted money?

August 15, 2016 / Tom Bonetto

My good friend and colleague, Mike Nelson, has put together a fantastic piece on understanding the pros and cons of paying discount “points” or fees to obtain a lower interest rate. I’ll warn you, this is some real “inside baseball” type of stuff (and as Mike states, “I recommend this blog and a smart phone as you try to go to sleep…if you have insomnia”), but he does a fantastic job of highlighting the key reasons to either buy down your rate, or not.

Source – Mike Nelson’s Efficient Selling Blog

Let’s start at the beginning – with a definition. This definition comes to us from Investopedia along with an article they penned on the topic.

Discount points are a type of fee mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. Discount points are tax deductible in the year in which they are paid.

How long the customer stays in the house or re-finances ultimately determines if a discount is worth the cost!

Most borrowers and lenders will immediately conduct a break-even analysis to determine the benefit of the discount. In Mike’s example, the $10 difference in monthly payment is recouped in 100 months, or 8.4 years. The borrower then considers how long they will live in the house – if it’s more than 8 years, the discount seems like a good deal. Do click on Mike’s link to find out more.

The average 30 year mortgage in the US is refinanced every 7 years.

So what is the conclusion?

Generally, if the borrower believes they will be in the house more than 10 years they should give strong consideration to paying the discount on the rate with cash and not financing into the mortgage. After 10 to 15 years the discounted interest rate is generally better for the borrower. Interestingly, however, the average loan is refinanced every 7 years, so take that into consideration, as well!

One other thing to factor in, are the tax ramifications to the mortgage. It’s important to consult with a financial advisor or CPA for the complete tax implications.

Work with a lender who can do the math!

If you are working with a lender that does not understand these concepts, you are working with the wrong lender! It’s the responsibility of the lender to calculate the implications of discounts and pass that on to you.

Finally, remember this: lenders are not giving discounts because they save you money at their expense. The lenders (or at least the one’s who are doing it right) are doing sophisticated calculations determining the risk of discounting rates over the lifespan of an entire portfolio of loans. Lenders will price accordingly – just make sure you as a borrower have don the analysis to know which scenario is best for your situation!

The 5/1 ARM for First Time Home Buyers – a solid option

July 26, 2016 / Tom Bonetto

As many of you know, rents have climbed nationwide, while mortgage rates have fallen significantly. According to Freddie Mac, 30-year conventional mortgage rates are the lowest they’ve been in at least three years; and rates for FHA and VA mortgage rates have averaged even lower.

For many buyers, though, the 30-year mortgage is a wasteful choice. There are more logical, “less expensive” options to finance a new home.

An adjustable-rate mortgage (ARM), for example, can be a more suitable choice for a first-time buyer; and, for a buyer who intends to move or do a home refinance within the next 10 years.

Source: The Mortgage Reports

ARMs offer lower mortgage rates than a fixed-rate loan and, sometimes, the savings is substantial. It’s best to sit down with your mortgage lender to figure out what options are best for you.

Why an ARM?

The Adjustable Rate Loan (or ARM), isn’t something to shy away from – here’s why: the typical homeowner moves every 7 years. If you know you’re going to move, then, why pay extra for a 30-year loan?

According to Freddie Mac, 30-year mortgage rates currently average near 3.50% nationwide for borrowers willing to pay an accompanying 0.6 discount points at closing.

5-year ARMs, meanwhile, average 2.74% with only 0.5 discount points.

The majority of today’s ARMs work like this :

For the first group of years, your mortgage rate is fixed and unchanged
After the initial group of years, your mortgage rate adjusts once per year
After 30 years, your loan is paid-in-full, as with any other 30-year loan

So, the key to an ARM is how it will adjust each year. Thankfully, this process is regulated for loans via Fannie Mae and Freddie Mac (i.e.; conventional loans); and loans via the FHA and the VA.

Regulation protects mortgage borrowers from having to accept huge jumps in a mortgage rate on an annual basis. Mortgage rate changes are severely limited.

For example, with a 5-year ARM, the initial mortgage rate of the loan remains fixed for a period of 5 years. After the 5 years are over, the mortgage rate changes on the loan’s “anniversary” every year for the next twenty-five years.

Buying A First Home? ARMs May Be Best.

According to the National Association of REALTORS® and its 2015 Home Buyer and Seller Generational Trends Report, the typical under-40 home buyer expects to live in their home for a period of 10 years.

The report also notes that “expected tenure is generally longer than actual tenure“, which means that homeowners tend to over-estimate the number of years they’ll spend in a house.

Indeed, the youngest group of buyers, the report says, tend to sell within five years of purchase, which makes them ideal candidates for the 5-year ARM.

Read the complete article here…..

No, You Don’t Need 20% Down….Or Even Close To It

July 12, 2016 / Tom Bonetto

Years ago, conventional wisdom said potential home buyers should make a down-payment of 20 percent.

Doing so, the logic went, would help them secure a great interest rate and make monthly mortgage payments less costly. These lower payments would help home buyers afford the expenses of home ownership — from closing costs to homeowner’s insurance to emergency funds.

But 20 percent down proved too large a hurdle for many potential homeowners as housing prices rose in the 1990s and beyond.

Today, large down-payments are nothing more than suggestions.

Source: The Mortgage Reports – Barbara Ballinger

Today, down-payment options from zero to 15% are completely reshaping the way people buy homes, especially first-time home buyers. Regardless of financial status, age, background, or nationality, home buyers are learning how to make a down-payment that suits their needs. They are no longer worried about adhering to outdated ideas about a “normal” down-payment.

There are equally good reasons for you to make a much smaller down-payment. By doing so, you retain available cash in the bank for emergencies, expenses, and other financial goals.

Conserve cash: Many say that “cash is king”. Experienced investors want to protect what they have and use the extra income to invest in other projects or the market.

Pay off debt: Many lenders advise using available cash first to pay off credit card debt. That debt is calculated at a higher interest rate than a mortgage and doesn’t offer the same tax deduction.

With debt paid off or lowered, you’re also likely to see your credit score climb. You need a minimum of between 640 and 680 to secure the most reasonable loan rates. Improve your score and hit 740, and you’ll secure an even better rate.

Tackle repairs: Having cash on hand will allow you to make essential repairs and upgrades. Few homes are so perfect that you move in without wanting to do some work.

Set aside for an emergency: Emergency funds are important to cover unforeseen repairs or other non-home related issues. If your car breaks down or furnace goes out, it’s better to have cash on hand rather than finance repairs with a credit card. That can lead to higher expenses later.

You can find the complete article here…..

Category: Mortgage (Page 54 of 60)

What is APR….and is it all that important?

What is APR and is it all that important?

Hang On A Minute – Does APR Tell the Whole Story All Of The Time?

We Need to Help Our Customers Understand Hard Concepts!

11 million Americans spend half their income on rent

Discount Points & Mortgages: Good idea or wasted money?

How long the customer stays in the house or re-finances ultimately determines if a discount is worth the cost!

The average 30 year mortgage in the US is refinanced every 7 years.

Work with a lender who can do the math!

The 5/1 ARM for First Time Home Buyers – a solid option

Why an ARM?

Buying A First Home? ARMs May Be Best.

No, You Don’t Need 20% Down….Or Even Close To It

Apply Now – Online Application

Schedule Appointment With Tom

Guild Mortgage

Contact Tom

About The Coach

Categories

BLOG ARCHIVES