Federal Reserve: No Change on Target Fed Funds Rate

The Federal Open Market Committee (FOMC) of the Federal Reserve did not move to increase the Fed’s target federal https://i1.wp.com/bringtheblog.com/i/12075037_S.jpgfunds rate, which is currently 0.00 to 0.250 percent. Although the committee acknowledged further progress toward achieving the Federal Reserve’s dual goal of maximum employment and an inflation rate of two percent, committee members indicated that they want to see further improvements in both areas before raising the federal funds rate.

In its customary post meeting statement, the FOMC said that it may not raise rates when both goals have been achieved. This statement may have been meant to calm ongoing speculation that the Fed will soon raise rates. The statement also said that FOMC members may “elect to keep the target federal funds rate below levels the committee considers normal in the longer term.” This stance suggests that the Fed wants to be very sure that economic improvement is on a solid track before it raises rates.

The statement further indicated that the FOMC is not completely influenced by the Fed’s goals of maximum employment and two percent inflation; instead, the committee said that it will consider ongoing domestic and global news and economic reports along with readings on financial and economic developments as part of its decision to raise or not raise the target federal funds rate.

Analyst reactions to the decision not to raise rates suggests that the Fed is likely to raise rates at its September meeting and possibly again in December.

Fed Chair Janet Yellen’s Press Conference

Fed Chair Janet Yellen gave a scheduled press conference after the FOMC statement was issued and answered questions on a variety of topics. Ms. Yellen noted that retiring baby boomers are expected to take up slack in employment lags; as boomers retire, they drop out of the work force and reduce the number of people actively seeking employment.

Ms. Yellen also noted that when the Fed does raise rates, seniors and retirees could benefit from higher yields on savings.

In response to questions about when the Fed will raise its target federal funds rate, the Fed Chair said that the Fed has not decided when to raise rates and said that unfolding economic developments would play a role when the Fed does decide to raise rates.

Ms. Yellen encouraged emphasis on when the Fed will make its first rate hike. She recommended focusing on “the entire trajectory” of rate increases, which some analysts took to mean don’t panic about the first rate increase.

Monthly Mortgage Payments…Deconstructed

calcualtorThere is, of course, more to a monthly mortgage payment than just the cost of the house itself. Read on to learn more about each part of a monthly mortgage payment.

For most homeowners, a monthly mortgage payment is made up of four parts, referred to as PITI:

P- Principal
I- Interest
T- Taxes
I- Insurance

Principle and Interest:
These two elements are the basis for all home loans. The principal is the money you are paying towards the amount you’ve borrowed, and the interest is the money you are paying to borrow that amount.

Taxes and Insurance:
pmiAll homeowners must pay taxes. They must also have some kind of homeowner’s insurance. In most instances, the homeowner will put funds towards these two expenses into an “escrow account” each month, along with their monthly mortgage payment. The lender will manage the escrow account, and pay the taxes and insurance when it’s due.

Private Mortgage Insurance:
If you put down less than 20 percent of the selling price at closing, your loan will most likely require an additional type of insurance called private mortgage insurance (PMI). This insurance protects the lender in case you default on your loan.

Let’s take a look at an example of a monthly mortgage payment with PMI:

A couple finds a home for $250,000. They make a down payment of 5%, or $12,500. The annual property taxes for the home are $2,650, and the annual homeowner’s insurance is $780. They will be making monthly payments for these expenses as part of their monthly mortgage payment and the funds will be put towards their escrow account. Because their down payment was less than 20%, their lender also requires that they purchase private mortgage insurance (PMI).
The couple has a 30-year fixed mortgage and an interest rate of 4%, so their monthly mortgage payment will be:

Principal and Interest (P and I): $1,133.86
Monthly Property Taxes (T): $220.83
Monthly Property Insurance (I): $65.00
Private Mortgage Insurance (PMI): $106.88
Total Payment: $1,526.57

If you have questions about the mortgage process or are ready to prequalify for a home loan, contact me today.

What’s in Store for the Housing Market in 2015? Look to the Economy…

economyYou may have already heard some predictions about the strength of the 2015 housing market. However, on what do analysts base these predictions? One way to gain a sense of the upcoming state of the housing market is to look at this year’s economic forecasts.

According to their February 2015 Economic Outlook, Fannie Mae’s Economic & Strategic Research Group predicts that the U.S. economy may experience even more growth in 2015 due to a strong job market, rising incomes, and increased consumer confidence. In 2015, the economy is expected to rise to 2.9 percent, which is a .4 percent increase in growth from 2014. The rise in consumer spending, along with increased manufacturing, could help to speed up the recovery in the housing market we’ve already seen.

Another factor contributing to a strong housing market in 2015 is the continuation of lower long-term interest rates. Fannie Mae Chief Economist Doug Duncan stated, “We expect total home sales to increase by approximately 6.0 percent for 2015, with total single-family mortgage production climbing to approximately $1.2 trillion.”

yesThe relationship between housing and the economy can be cyclical, with rising housing demand creating construction and other housing-related jobs. The National Association of Home Builders estimates that for every 1,000 single-family homes built, 2,970 jobs a year are sustained, creating $162 million in wage income and $111 million in federal, state, and local taxes and fees. The construction sector makes up approximately half of these jobs, while the rest are associated businesses in the housing market.

It’s going to be an exciting year for the housing market. Become a part of it and contact me today with any questions you have about the state of the market and what it means for you. I look forward to hearing from you.

How Low-Risk and High-Risk Traits Can Affect Your Mortgage Rates

riskIt’s certainly great news that mortgage rates have dropped to their lowest levels since May 2013. However, there are additional factors that will affect the mortgage rate for your specific loan.

To arrive at an appropriate mortgage rate for your loan, banks and lenders look at multiple factors. One of those factors is your credit score. Borrowers with high credit scores will most likely be offered lower mortgage rates as well as more choices in types of loans.

Besides credit scores, banks and lenders will carefully consider additional factors to determine if your loan may be high- or low-risk.

Low-risk borrower traits include:

  • a history of on-time payments to creditors
  • mortgaging a single-family, detached home
  • mortgaging a primary residence.

warning-33364_640High-risk borrower traits include:

  • a history of late payments to creditors
  • mortgaging a multi-unit home or condo
  • mortgaging a vacation home or second property

While these traits provide the bank or lender with a basic idea of your risk factors, it is important to understand that none of these traits on their own completely predict the mortgage rate you will be offered. For example, you could be asking to borrow for a vacation home (a typically high-risk trait), but with a decent credit score and other attributes, your mortgage rates could be completely reasonable.

Another aspect that can affect your mortgage rate is the type of loan you are considering (conventional mortgages, VA loans, FHA loans, USDA loans, etc). Conventional mortgages usually carry the highest mortgage rates in comparison to the others.

Risk2As an experienced lender, I am happy to answer any questions you many have about mortgage rates and other mortgage issues. Please feel free to contact me anytime to learn more about the mortgage process and to start your journey to home ownership.

What Do the Lower FHA Mortgage Insurance Premiums Mean?

loanThere’s big news about the FHA lowering its mortgage insurance premiums. Learn how this change can be beneficial for new home buyers, and how current homeowners can take advantage of the lower rates by refinancing.

On January 8th of this year, President Obama announced that the Federal Housing Administration will be reducing FHA annual mortgage insurance premiums by 0.5 percent. An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. This is the first time the FHA has reduced its mortgage insurance premiums since 2001.

cut costsThe reduction of the annual mortgage insurance premiums from 1.35% to .85% could make a huge difference in a homeowner’s monthly payments. For example, if the amount of a homeowner’s loan is $200,000, they could be saving $83.00 each month. For individuals facing higher loan amounts, they could potentially be saving thousands of dollars a year.

The recent change in FHA mortgage insurance premiums coincides with current mortgage rates dropping to their lowest levels since May 2013. This is great news for both new home buyers and those who currently own homes. Home buyers will be able to finance homes at rates that are cheaper than ever before, and homeowners who already have FHA loans will be able to refinance.

houseWhile this change in FHA mortgage insurance premiums could make a significant difference for first-time home buyers, it is still important to understand how credit scores and down payment amounts may affect your ability to get a mortgage for the home that you want.

If you have questions about buying a new home or refinancing to take advantage of the lower FHA mortgage insurance premiums, don’t hesitate to contact me today.

Should You Pay Off Your Mortgage Early? Maybe Not…

The secure feeling of owning your home outright, without monthly payments over your head, seems like the ultimate goal in home-ownership, right? With your mortgage paid off, you can finally breath free…or can you? An informative article in The Fiscal Times presents a few things to consider before you decide to pay off your mortgage early.

The money you spend on paying off your mortgage may be better spent on paying down other debts you might have, especially those with higher interest rates. At this point, mortgage rates are still low (the average 30-year fixed loan is at about 4.2%), while the national credit card interest rate is much higher (national average APR is 14.92%). The article also points out that credit card debt interest is not tax deductible, but your mortgage interest is.

It’s also a good idea to contribute the maximum amount to your retirement plan before paying off your mortgage. If you’re still working, put those extra earnings into your IRA or 401(k) before you consider putting that money towards paying off your mortgage.

While prepayment penalties are less common than they used to be, it’s important to make sure you won’t be penalized for paying off your mortgage early. Don’t miss any of the fine print!

Consider other important investments in your and your children’s future. Once you’ve worked towards reducing your credit card debt and contributing to your retirement, look into college savings plans and other tax-free investments. If you’d like to learn more about investments that might be right for you and your family, contact me at any time. I’m here to answer any questions you may have and provide clear and concise information to help you move forward with a smart investment and other financial planning.

 

 

The Advantages of a Mortgage

mortgage_houseThough completely paying for a home in cash and being debt-free can sound appealing, there are certain advantages associated with having a mortgage. I recently came across an article, “Advantages to Choosing a Mortgage (Even When You Could Pay in Cash)” and learned more about the advantages of a mortgage. If you are considering buying a new home or a second home and you have the cash to do so, keep these considerations about the advantages of a mortgage in mind before giving up a significant amount of cash.

Tax Advantages

tax-deductionsThe interest you pay on your mortgage is tax-deductible. While this fact alone may not make a mortgage more advantageous for everyone, it certainly will help many. Run your numbers using this useful Mortgage Tax Savings Calculator to see the tax advantages for you through your mortgage.

Financial Security

Financial-security-locked-cash-e1316638259664-275x300According to this article, “With a mortgage, the bank bears the lion’s share of the risk to your home and, if catastrophe strikes, you are able to walk away with money in the bank.” Mortgages are one of the cheapest ways to borrow money, and it is important to have one in order to have increased financial security.

Keep Cash Liquidity

Life is unpredictable and if you experience an unexpected illness, injury, or another financial emergency, you’re going to wish you hadn’t tied up all your cash in your home. Having a mortgage proves to be a significant advantage in the usually unforeseen instances that require you to have sometimes large quantities of cash on hand.

Investment Potential

investment1According to the Total Mortgage article, “Consider the opportunity costs you would miss out on by throwing all your available cash into a second property before you say no to a mortgage.” Your money is likely much better spent being invested into the market, rather than putting all your cash into a home. In the event that an incredible business opportunity arises, you’ll want to be able to take advantage of it.

The advantages of a mortgage are evident. If you’re considering purchasing a new or second home, contact me today to learn more about your mortgage options.

Higher Down-Payment Requirements Coming in November

On November 16, Fannie Mae will implement scheduled changes to its automated underwriting system (DU or “Desktop Underwriter”). DU is used by lenders to approve loans, and several of the changes will make it harder for some borrowers to qualify. These changes include:

  • tougher debt calculations for Adjustable rate loans
  • a complete removal of interest-only options
  • a maximum loan term of 30yrs (instead of 40)
  • stricter requirements for down payments
  • increasing the minimum amount from 3% to 5% of the loan balance for Conventional loans. (FHA loans will remain at 3.5% down)

Buyers wanting to utilize Fannie’s current rates will need to be under contract by early November so we can run the current version of DU prior to the update on Nov 16.

Please call us today if you have any questions or would like to schedule an appointment: 913.396.4448.

‘Tapering’ and the Decision to Buy

The Fed’s massive bond buying program has greatly increased the demand for mortgage-backed securities (MBS). Since mortgage rates are mostly determined by MBS prices, the added demand for MBS has been a major factor in the decline in mortgage rates to historically low levels. Last Wednesday’s Fed statement and follow-up comments from Bernanke provided the clearest signal yet that the extra demand from the Fed will soon begin to shrink. The Fed’s forecast for economic growth and the level of unemployment have improved. The statement noted that the downside risks to the economy have diminished. Bernanke even went so far as to say that if interest rates increase “for the right reasons” it is a “good thing.” Any investors who had been hoping for signs that the Fed would not soon slow its bond buying program were very disappointed. Instead, the Fed signaled that if their economic forecasts are accurate, then the tapering of bond purchases will begin later this year and conclude in the middle of next year.

One of the main sources of strength in the economy which has helped convince the Fed that it’s nearly time to taper is the housing market, and the data released this week continued to show improvement. May Existing Home Sales increased 4% to the highest level since November 2009 (when the home buyer tax credit was about to expire). Total housing inventory of existing homes available for sale rose 3%. May Housing Starts increased 7% from April. Single family Building Permits rose to the highest level since May 2008. The June NAHB Homebuilder confidence index posted a large increase to the highest level since April 2006.

The Big Question

As mortgage rates rise, will it stifle the current housing market boom, thus slowing the economy once again?  So far analysts say “no, but it has a threshold.” The major fear is that rates could push as high as 6%… a rate that would increase the cost of a home by 25% a month.  At 6%, given what we know about what the middle class can currently afford, could signal the end of the housing boom.

Example:

$300,000 home at 4% rate = $1,432 monthly payment

$300,000 home at 6% rate = $1,798 monthly payment

Long Story Short: If you’re thinking of buying, buy now or look at purchasing while rates are still low.  While tapering in and of itself is speculation at this point, the Fed’s mere discussion of it is cause enough to make us believe it’s just around the corner.

Are you in need of fast answers and reliable service related to a mortgage? Call us today: 913.317.5626.

Survey Highlights Common Mortgage Misconceptions

Zillow recently released the results of a survey that many in the mortgage industry would not find shocking at all. However the truths behind the common misconceptions may be shocking to you. Are you falling prey to any of these ideas?

1. One-third (34 percent) of polled prospective homebuyers do not know what the term “annual percentage rate” (APR) means. The annual percentage rate (APR) is a yearly rate that reflects the true cost of a mortgage and is inclusive of the interest rate, points, mortgage insurance (when applicable), and other fees, including origination and underwriting fees. The APR will typically be higher than the interest rate quoted by lenders, and should be used as a starting point when comparing loan quotes between lenders.
2. Half (50 percent) of prospective homebuyers in the study do not understand that mortgage rates change throughout the day. In reality, much like the stock market, mortgage rates can change rapidly throughout the day. To get the optimum rate, it’s important to find a trusted mortgage professional to monitor these for you and advise you on the right time to lock.
3. Nearly one-third (31 percent) of current homeowners incorrectly believe that you must wait seven years after a short sale or foreclosure to purchase again. In most cases, homebuyers with a short sale history typically only need to wait 2-4 years depending on their down payment and the loan type. The waiting period after a foreclosure is longer – typically, buyers need to wait 3-7 years before they can qualify for a new home loan.
4. More than one-third (34 percent) of current homeowners incorrectly believe that you can only refinance your home every 12 months. In reality, homeowners can refinance as often as they want. However, homeowners should weigh the cost of the refinance against the time they will own the home and the monthly payment change to determine if refinancing makes sense.

Are you in need of fast answers and reliable service related to a mortgage? Call us today: 913.317.5626.