Archives for January 2015

Budgeting: How to Manage Large Mortgage Payments when Buying a Costly, High-value Home

Budgeting: How to Manage Large Mortgage Payments when Buying a Costly, High-value HomeSome people try to apply for as small of a mortgage payment as they can reasonably afford to, and there is some prudence associated with this line of thinking. After all, recent economic events have shown that those who get over-extended may wind up in a dire financial situation. However, there are also benefits associated with a higher mortgage and buying a slightly larger home if you can comfortably afford to do so.

For example, the rate of growth on equity will typically be more significant, and there are tax deductions and tax advantages that may be greater. If you are preparing to take on a larger mortgage payment that is reasonably manageable for you, you may do so with greater confidence when you follow a few tips.

Reduce Your Debts Beforehand

The best way to ensure that your larger mortgage payment is still affordable for your budget is to reduce your debts. When you think about the difference between carrying $800 per month in credit card payments or the equivalent in a higher mortgage payment, you will see that the benefit lies in the mortgage payment. The credit card payments typically will be mostly interest that has no benefit to you.

The mortgage payment is building equity through principal reduction on an asset, and the interest has tax benefits to you. However, you want that extra $800 per month in payments to be affordable. If possible, pay off or greatly reduce your credit card debt before you take on a new mortgage. In addition, close most existing credit card accounts so that you do not accumulate additional debt while you are responsible for the higher mortgage payment.

Increase Your Personal Savings

Then, increase your personal savings if necessary. The best budget with a higher mortgage payment is one that still allows you to save money regularly. If you are unable to save with your higher mortgage payment, there is a good chance that you may be taking on a little too much debt for what you can afford.

Ideally, you will have at least three to six months’ worth of your expenses on hand in cash and available to access in a worst-case financial situation. You will be able to sleep easier at night with your higher mortgage payment when you have the extra cash available to support yourself in the event of job loss, serious illness or other related events.

Your higher mortgage payment may help you to live in a nicer, larger home, to enjoy better tax deductions and to build equity at a faster rate. However, you want your mortgage payment to be affordable. By following these tips, you can confidently take on the larger payment.

Three Major Mortgage Mistakes Which Are Sure to Increase Your Closing Costs

Three Major Mortgage Mistakes Which Are Sure to Increase Your Closing Costs When shopping for a mortgage, it is important to take closing costs into account. While some closing costs are the same for all lenders, different programs may add or reduce some of the burden borrowers face when closing on a home loan.

Let’s take a look at some major mistakes that could result in borrowers paying more than they need to in closing costs.

1) Failing to Take Property Taxes Into Account

Property taxes are generally put into an escrow account that is established prior to closing on the home loan. In most cases, a homeowner will have to pay 12 to 14 months’ worth of property taxes prior to close.

This can represent several thousands of dollars or more depending on the property taxes associated with a property. While everyone has to pay property taxes, finding a home in a low tax area can significantly reduce the cost of closing on a loan.

2) Failing to Ask Lenders for Credits Toward Closing Costs

A lender may have a program in place that enables them to give a borrower a credit toward applicable closing costs. While this generally may not count toward the down payment, it can still be a significant help for first-time buyers or anyone else who may not have thousands in a bank account ready to pay for lawyers or titling fees.

Depending on where the property is purchased, there may be programs available that provide funding for those who promise to stay in the property for a certain amount of time.

3) Failing to Ask the Seller for Concessions

The seller of a property may offer up to 6 percent of any closing costs associated with the sale of the property. While a seller does not have to offer any concessions, they could potentially provide hundreds or thousands of dollars that may not need to be repaid.

In addition to closing cost support, a seller could also provide appliances or other items that can further save a buyer money during and after the purchase is finalized.

A home buyer can save a lot of money by taking simple and common sense actions. By doing research into cost saving programs and credits toward closing costs, those who may have felt that home ownership was beyond their reach may be able to achieve their dream. To learn more about closing costs, you may wish to talk to a mortgage professional in your area.

How Low Can They Go: With Mortgage Interest Rates Low, Should You Refinance?

How Low Can They Go: With Mortgage Interest Rates Still Dropping, Should You Refinance?Do you have a mortgage? You’ve likely seen or heard a lot about mortgage refinancing as interest rates remained low in recent months.

In today’s blog post we’ll explore the topic of mortgage refinancing, including when you should consider refinancing and how to take advantage of low interest rates.

What is Mortgage Refinancing?

In simple terms, refinancing refers to the practice of taking out a new mortgage and using the proceeds to pay off your old one in its entirety. You’ll go through the full borrowing process with your chosen lender, including the credit check, financial history and employment history in order to ensure that you have the ability to pay your new mortgage – even if your monthly costs are lower.

Depending on your financial goals, you may refinance to tap into some of the equity you’ve built up in your home, or you may refinance in order to secure a new mortgage with a lower interest rate or better payment terms. Whatever the case, know that if you decide to refinance you’ll be engaging with a lender for a brand new mortgage.

When Should I Consider Refinancing My Mortgage?

When you should refinance depends on your reason for refinancing. If you’re looking to reduce your interest rate and your monthly payments, you should refinance your mortgage whenever interest rates drop enough that you will be able to save more in monthly payments then you will be paying in closing costs and fees.

Consulting with a mortgage professional is the best way to understand how much money you can save, but to get a quick idea simply take a look at how much you owe on your mortgage, your current interest rate and the types of rates you may qualify for. If you owe $200,000 at 5.5 percent interest and you can refinance down to 4.5 percent you’re going to save a considerable amount over the long term.

How to Take Advantage of Low Interest Rates

Refinancing your mortgage is a major financial decision and not one that should be taken lightly. Careful research is needed to determine if now is best time to switch up your mortgage to one with a lower interest rate.

What’s Ahead For Mortgage Rates This Week – January 12, 2015

Whats Ahead For Mortgage Rates This Week January 12 2015Last week’s economic news was dominated by labor reports and FHA’s announcement that it will lower its mortgage insurance premiums in an effort to make homes more affordable for first-time and moderate income home buyers. Mortgage rates fell last week as employment reports showed strengthening job markets. The details:

FHA Lowers Mortgage Insurance Premiums

HUD, the agency that oversees FHA, announced Thursday that it will lower annual mortgage insurance premiums by0.50 percent. The change is expected to become effective toward the end of January; HUD stated in its press release that a Mortgagee Letter outlining the changes will be issued shortly.

FHA borrowers pay for FHA mortgage insurance in two steps; an upfront mortgage insurance premium is charged at loan closing, and also pay an annual mortgage insurance premium that is pro-rated monthly and added to mortgage payments.

FHA’s annual premiums increased five times since 2010 and rose from a rate of 0.55 percent to 1.35 percent. Analysts estimated that the reduction of annual premiums to a rate of 0.85 percent will attract an additional 250,000 borrowers of FHA backed mortgage loans and save borrowers about $900 a year.

The move was applauded by housing industry advocates such as the Mortgage Bankers Association and the National Association of Realtors®, but critics fear that the move could cause a taxpayer bailout if claims on defaulted loans increase.

Under federal law, HUD is required to maintain a specific level of capital reserves for its mortgage insurance program. FHA reserves were depleted during the recession, which caused HUD to raise annual mortgage insurance premiums to replenish its reserves for paying claims on defaulted FHA loans.

Mortgage Rates, Unemployment Rate Drop

Freddie Mac reported that average mortgage rates fell across the board. The rate for a 30-year fixed rate mortgage was 3.73 percent; the average rate for a 15-year fixed rate mortgage was 3.05 percent, a drop of 10 basis points. The average rate for a 5/1 adjustable rate mortgage was 2.98 percent, which was three basis points lower than last week’s average.

Discount points were unchanged at 0.60 percent for 30-year fixed rate mortgages and dropped from 0.60 to 0.50 percent for 15-year mortgages. Discount points were unchanged at 0.50 percent for 5/1 adjustable rate mortgages.

Several labor related reports were released last week. ADP reported that December payrolls for private sector jobs rose by 241,000 jobs in December as compared to November’s reading of 227,000 jobs. The Labor Department’s Nonfarm Payrolls report was lower with a reading of 252,000 jobs added than November’s reading of 353,000 jobs added, but December’s reading exceeded analysts’ expectations of 230,000 jobs added. November’s reading was likely influenced by seasonal hiring.

Weekly jobless claims were lower at 294,000 new claims filed against expectations of 290.000 claims filed and the prior week’s reading of 298,000 new claims filed. The national unemployment rate fell to 5.60 percent against an expected reading of 5.70 percent and November’s reading of 5.80 percent.

While this reading is below the Fed’s target rate of 6.50 percent, the minutes of the Federal Open Market Committee (FOMC) meeting in December indicate that Fed policy makers remain concerned about low inflation rates. Falling oil prices were noted as a primary cause of falling inflation. The FOMC also noted slow improvement in housing markets and again cited tight lending standards as a significant cause.

What’s Ahead

Next week’s scheduled economic news releases include the Consumer Price Index (CPI) and Core CPI, which excludes food and energy. A report on consumer sentiment will also be released in addition to weekly reports on mortgage rates and new jobless claims.

Tankless Water Heaters: The Pros and Cons of Going Tankless In Your Home

Tankless Water Heaters: The Pros and Cons of Going Tankless In Your HomeLarge water heaters are unsightly appliances that home-sellers would rather hide. Although it’s not always possible to banish these structures, it is possible to replace them with a version that is not as overbearing. Tankless water heaters have the potential to make one home stand out amongst the competition, but they do have some disadvantages along with the benefits.

Pro: Tankless Water Heaters Use Less Energy

Traditional water heaters continuously heat water that is just sitting in the tank, and this requires energy. Tankless water heaters, on the other hand, do not heat the water until someone needs it. Therefore, they are more energy-efficient and cost less to operate.

Pro: Tankless Water Heaters Last Longer

Traditional water heaters will need to be replaced after about a decade, but tankless water heaters can last much longer. If someone is planning on purchasing a home with a new tankless water heater, he or she would not have to think about replacing it for about 20 years.

Pro: Tankless Water Heaters Are More Space Efficient

The typical traditional water heater is 24 inches wide and 60 inches tall. Tankless heaters save a lot of space because they are generally only 20 inches wide and 28 inches tall. They open up a lot of space, and this impresses buyers greatly.

Con: There Is Less Available Hot Water with Tankless Heaters

Although a tankless heater can provide a home with hot water only when it is needed, the amount is limited to a few gallons at a time. This will mean that more than one occupant in the home cannot take a shower at the same time. They will definitely not be able to do this while they run the dishwasher or the washing machine.

Con: Tankless Water Heaters Are Typically More Expensive

Tankless water heaters cost around $1,000 while the traditional version only has a price tag equal to $300 or $400. While this higher up-front purchase cost is a con, if you consider that a tankless water heater should last longer than a traditional heater you may end up saving a bit over time.

FOMC Minutes: Low Inflation Rates Won’t Delay Rate Hikes

FOMC Minutes: Low Inflation Rates Won’t Delay Rate HikesThe minutes of the Fed’s Federal Open Market Committee (FOMC) indicate that Fed policymakers aren’t concerned about low inflation rates as an obstacle to raising the target federal funds rate.

The national inflation rate was 1.50 percent for the 13 months ending in October. The inflation rate as reported in the Consumer Price Index (CPI) dropped to 1.25 percent in November.

The Core Consumer Price Index, which excludes food and energy sectors, showed an inflation rate of 1.75 percent. The Fed has repeatedly cited a target of 2.00 percent inflation, but inflation rates have remained consistently lower.

Recent freefall in fuel prices is keeping inflation below the Fed’s target range, although long-term indicators for inflation remained stable.

Fed Says Economy Increasing at “Moderate Pace”

Committee members noted that economic conditions improved at a moderate pace during the fourth quarter and that labor conditions also showed additional improvement. Non-farm payroll reports expanded in October and November and exceeded third quarter growth rates.

The national unemployment rate edged down to 5.80 percent in October and held steady in November. FOMC members established a national unemployment rate of 6.50 percent as a target rate for removing accommodative measures such as its asset purchase program that concluded in October.

Labor force participation rose, while the number of those under-employed in part time jobs declined.

Private sector hiring and quits increased, although job openings remained elevated in November and maintained levels seen in September and October. Stronger labor markets typically support housing markets as more families can afford to buy homes when hiring and employment rates are stable.

Housing Markets Remain Slow; May Inspire Would-be Buyers

The FOMC minutes noted that committee members viewed housing markets as housing starts and building permits saw slight increases. Construction of single-family homes increased while multi-family construction decreased. Ongoing shortages of rentals are seen as a factor driving renters into the housing market.

Sales of new and existing homes rose “modestly” in October. Slowing home sales will likely drive prices down as inventories of available homes increase. Mortgage rates are expected to rise, but analysts don’t expect mortgage rates to rise much beyond five percent, which remains historically low.

In spite of low mortgage rates, the Fed characterized mortgage refinance activity as “subdued” and said tight mortgage credit conditions continue to inhibit mortgage approvals for all but those with “pristine” credit.

Surveys of economic and financial analysts indicated that the Fed may raise its target federal funds rate mid-year instead of initial projections for raising the rate in late 2015. The target federal funds rate is currently 0.00 to 0.25 percent.

It’s 2015! Get a Jump on Your Payments with Our Quick Guide to Paying Your Mortgage off Sooner

It's 2015! Get a Jump on Your Payments with Our Quick Guide to Paying Your Mortgage off Sooner With the start of the New Year, it’s common to set new resolutions. While there are many goals that are worthwhile, paying off your mortgage as soon as possible can significantly improve your financial position and is a great goal to aim for. With that in mind, let’s take a quick look at a few helpful tips for paying your mortgage off sooner.

Refinance To A Shorter Mortgage Term

For example, switching from a 30-year mortgage to a 15-year will get your mortgage paid off in half the time it would have originally taken, and it will also lower the total amount owed. By switching to a 15-year mortgage plan, you can save well over a decade’s worth of interest payments.

Carefully Consider How Much Space You Need

Many people have more home than they can afford. By downsizing to a smaller, cheaper house, you should be able to pay more than your minimum payments each month. Other nice perks, such as saving money on heating and air conditioning, may also be able to help make the goal of paying off your mortgage seem more attainable.

Make Payments Every Other Week

Mortgage companies often give borrowers the option of choosing to make payments either every month or every other week. If you opt to pay every other week instead of every month and have a standard, 30-year mortgage, you’ll be able to pay off your debt about six years sooner than expected.

Cut Expenses

Find a regular expense in your budget that isn’t a necessity and start using that money towards your mortgage instead of what you would normally spend it on. For instance, bringing lunch to work each day instead of eating out could easily save a person at least $100 per month. That’s over $1,000 per year!

Set Extra Money Aside

To pay off your mortgage quickly without having to cut regular expenses, use overtime income, holiday pay and gift money for extra mortgage payments. This way, you can pay down your debt without having to lower your standard of living. Another option is getting a part-time job for a few hours each week and putting the extra income towards your house.

There are many things that you can do to pay off your mortgage quickly, but you don’t have to do them all. Whether you choose one tip from this list or all five, you should be able to start making progress on your loan. For more information about reducing your payments, be sure to contact your mortgage professional today.

FICO Scores: How Does Your FICO Score Impact Your Mortgage? Let’s Take a Look

FICO Scores

Most people have heard the term FICO score, but some remain confused as to what it actually is and if it affects them when they try to obtain a mortgage. A few questions can be answered to help people understand how it can affect the amount of interest you pay on your loan.

What is a FICO Score?

A FICO score is a credit grade of a borrower, based on credit history as reported to 3 separate credit reporting agencies. It is based on a number of factors, including the amount of credit a person has, payment history, late payments, judgments, loan defaults and other factors.

A mathematical formula developed by Fair Isaac Corporation (thus the term FICO) is used to grade the credit risk the borrower represents. Scores range from 350 to 850. A score of 650 or better is considered good and a score above 750 is considered very good.

Does a FICO Score Affect a Mortgage Rate?

Mortgage interest rates are calculated in part, on the amount of risk the borrower represents. The higher the risk the borrower presents, the higher the interest rate the lender must charge to account for the risk. With FICO scores, the lower the score means a higher risk, and thus, less favorable mortgage terms. Those with low FICO scores may have difficulty finding a mortgage.

How much the rate will change depends on the lender. estimates that with current rates, a borrower with an average FICO score can expect to be charged more than 1.5 percentage points more than a borrower with an excellent score. Though the difference in interest may not seem to be much, it will add up over time.

For example, a borrower seeks a $200,000 mortgage on a 30 year fixed rate. Because they have an excellent credit score, they obtain a mortgage at 3.549%. Monthly principal and interest payments at that rate amount to $904 per month. Total interest paid on the loan will be $125,285 over the 30 year period.

Another borrower seeking the same mortgage has a lower credit score, in the average range. The borrower is offered the same mortgage but at 5.138% interest. The monthly payment will be $1094 per month and the borrower will pay $192,607 in interest. The difference in this case, between an excellent FICO score and an average score is $187 per month, $67,302 over the life of the mortgage.

Is a FICO Score Permanent?

No. A credit score will change depending on the borrower’s credit history. A borrower with a lower score can increase it over time by taking certain steps to improve it. Obtaining their credit report is the first step to improvement. It should be reviewed for accuracy, and incorrect entries should be reported. Outstanding judgments, if any, should be paid. Paying down revolving credit card debt also can help.

Visiting an experienced mortgage professional to discuss his or her current FICO score is another good start. The mortgage professional can discuss the effect it has on your mortgage rates and how to improve your score and put a borrower on the path to obtaining the best mortgage rate possible.

What’s Ahead For Mortgage Rates This Week – January 5, 2015

Whats Ahead For Mortgage Rates This Week January 5 2015Case-Shiller reported that home prices hit their lowest pace in two years. According to the Case-Shiller 20-City Home Price Index for October, home prices fell in 10 cities, rose in eight cities and were unchanged in two cities.

In other news, pending home sales increased and weekly jobless claims rose. The details:

Case-Shiller: Home Price Growth Lowest in Two Years

According to its 20-City Home Price Index, Case-Shiller said that home prices dropped by 0.10 percent to a reading of 4.50 percent year-over-year as compared to September’s reading of 4.80 percent year-over-year. Analysts expected home price growth to drop to 4.70 percent in October.

David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said that 2014 could finish on a strong note with price growth accelerating in 2015. Home price growth hasn’t hit double digits since April, but there is encouraging news on the horizon.

More than half of states’ average home prices are set to surpass housing bubble peaks in 2015. Through October, home prices were approximately 15 percent below a 2006 peak. Higher inventories of available homes and lower mortgage rates are seen as stabilizing influences on housing markets, and could also encourage more buyers into the market. 

Pending Home Sales Up, Mortgage Rates Mixed

The National Association of Realtors® reported that November pending home sales rose to a reading of 0.80 percent from October’s reading of -1.10 percent. The seasonally-adjusted index reading for November was 104.8.

Lawrence Yun, NAR’s chief economist noted that steady economic growth and hiring contributed to home buyer confidence. Regional readings for pending home sales were +1.40 percent in the Northeast, +1.30 percent in the South and +0.40 percent in the South. Pending home sales declined by -0.40 percent in the Midwest.

Fixed mortgage rates rose last week. Freddie Mac reported that average rates for 30-year and 15-year mortgages rose to 3.87 percent and 3.15 percent respectively; the average rate for a 5/1 adjustable rate mortgage was unchanged at 3.01 percent.

Discount points for all types of mortgages were unchanged at 0.60 percent for fixed rate mortgages and 0.50 percent for 5/1 adjustable rate mortgages.

Jobless Claims Up

Weekly jobless claims rose to 298,000 new claims against expectations of 290,000 new claims and 281,000 new claims filed the previous week. This was the highest reading since Thanksgiving.

Analysts said that seasonal hiring fluctuations and the volatility of week-to-week claims cause weekly reports to be less reliable than the four-week rolling average of jobless claims, which fell by 250 claims to a reading of 290,750.

Continuing claims fell by 53,000 to a reading of 2.35 million in the week ending December 20. This reading was close to a 14 year low.

Overall, analysts viewed stronger labor markets and economic growth as positive signs for 2015.

What’s Ahead

Next week will resume a full schedule of economic events including construction spending, ADP employment, Non-Farm Payrolls and the national unemployment rate. The Federal Reserve will release the minutes from the most recent meeting of the Federal Open Market Committee (FOMC).

Let There Be Light! 3 Easy Ways to Make over a Room by Adding New Light Fixtures

Let There Be Light! 3 Easy Ways to Make over a Room by Adding New Light Fixtures Light is an important design element that can be used to influence your interior decor in a number of ways. In fact, you can experience a major transformative change on the overall style and ambiance of a room by making a few simple lighting changes. Consider how these ideas can help you to improve the look of your space with great results, and think about ways that you can improve your space by making a few changes.

The Addition of Spotlights

If you have fine pieces of artwork, decorative display areas or other features that you want to illustrate with beautiful clarity, the addition of spotlights is a great idea. You can shine light on these special features in your home by installing a single, bright fixture with a focused beam overhead, or you can use track lighting to highlight larger features. In some cases, the design or layout of your room may be sufficient to allow lighting to be placed at eye-level or even below the fixture to shine upward at it.

Background Illumination

While spotlights can shine a focused beam of light on fixtures, you can also use background lighting for ambiance. Consider how you can incorporate background lighting with under-cabinet kitchen lighting, dimmer recessed lighting placed behind a sofa or other features. Generally, these are lights that do not provide direct lighting, and the light may not be the main source of light in the room. It may even have a hint of color to it for a dramatic flair that further establishes ambiance.

Beautiful Lamps

Another idea is to use beautiful or decorative lamps in your room. These may be smaller desk lamps, towering floor lamps or table top lamps. There are lamps available in a wide range of colors, sizes and styles. The lighting from the lamps may influence ambiance and provide functional lighting, but the decorative nature of the lamps themselves can enhance the décor even when the lights are not turned on.

There are many different types of lighting that can influence your home’s décor, and in many cases, it makes sense to incorporate each of these styles of lighting in a single room to enjoy different benefits. You can study your rooms’ layouts and designs today to learn more about how the existing light fixtures influence decor, and you can make a few appropriate changes to enjoy better overall results for your space.