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Surf the Mortgage Market
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June 8, 2005 LOS ANGELES -- It seems this year has
pulled the infamous "whammy" on economists and home loan trends analysts and
predictors. The ultimate cynic may even go so far as to say a committee of
chimpanzees taking wild guesses back in December as to where
interest rates would be right now would
have been more on-track with the way things have turned-out than Alan Greenspan,
himself.
It's no secret that forecasts called for rates to be above the
big six by this late in the year. Buzz... Wrong answer.
Rates continue to fall back towards record-setting low numbers.
For the "technorama" junkies: Over the course of the past
year, interest rates have
dropped almost one percentage point, back to 5.5% (give or take) for the typical
conventional, conforming 30-year fixed interest rate home loan.
Naturally, U.S. home buyers continue to lock interest rates at
low levels not seen for the last nearly half a century.
I always say, "The Devil hides in the details," and the best
way to sneak notes from his Palm Pilot is to put your hard hat on and pay
attention to just how the machine is ticking right now. Surely, there is much to
be learned about successfully funding home loans. In this piece of news
we'll help mortgage candidates with that refinance
or purchase loan
by submitting the following tip sheet:
Take an aerial shot of what is going-on in the housing sector:
As can be expected, mortgage interest rates impact the overall heartbeat
of our housing market economics. When rates are lowest the real estate buying
and selling market gets pumping, at least it should "on paper." However, the
recent down slide of rates for home loans could actually impact our market
adversely, bringing to mind the old "never say never" slogan.
We all know home pricing country wide is reaching some dramatic levels,
particularly in "hot" markets like Los Angeles, San Francisco, Miami and New
York, just to name a few. Given this fact, economists have dissected the
marketplace somewhat, and the research shows us that interest rates, being as
low as they are presently, could actually serve as an incendiary device fueling
potential upsets in the housing market which would catapult home prices to even
higher levels. The bad news is that it will be hard for our economy to keep home
prices on enough oxygen to live at these high altitudes for long.
The danger lies in the fact that like a piece of Hubba-Bubba
bubble-gum, housing bubbles pop eventually under enough pressure, and that will
leave homeowners with considerable mortgage debt which is higher than their
property value. Pop... Now gum is in the faces of the average Joe, and there's
going to be no nanny to wipe it off, unfortunately. The bottom line is that low
interest rates don't seem to be offsetting the continual bump in home prices,
and this leaves home afford ability licking its wounds.
Playing pretend for a moment, assume you purchased a home for
around $200,000 last year. Assume you secured your home loan on
a conventional 30-year fixed interest rate
program at 6 percent. That would leave the
monthly payment at somewhere in
the neighborhood of $1,200 a month. Compare that to
the same transaction happening right about this time assuming the home buyer
rolls with a 30 year
fixed mortgage and lands at the 5.6 percent mark. If you factor-in a 9%
market value rise the monthly mortgage payment calculation would reveal it costs
around $50 more a month.
Lock-in your interest rate as soon as possible:
Those of you who assume you were perhaps left-behind at the bus stop when it
comes to jumping on board for the low rates seen in 2001-2003 may wish to be
open-minded for a minute and entertain the possibility (which is actually a
probability) that getting a good deal may be more perceivable now that all the
hoopla is over and the crowd has cleared enough for you to get a bead on the end
of the street. Truth is that interest rates are almost unbelievably low right
now.
With the market being as volatile as it may in-fact be beneath
the glassy surface, it's anyone's guess as to just where rates will decide to go
next. This in mind, the wise investor will lock a low rate now while the getting
is good. Procrastination is never productive, so naturally those who sleep in
the middle of the day on this one are likely to wake up seeing that things have
touched-bottom and will be left sore heels and no doctor to heal them.
Home sellers should see their current advantage:
Those who own a home presently may not be aware of the fact that they could have
a golden-ticket in their hands with respect to leverage in the market. Meaning:
High home prices + low rates = unbelievably favorable selling conditions. This
is evidenced by the fact that the rate of rising home prices shot up at a pace
not seen in twenty-five years in April. This doesn't take a mathematician to
ascertain if you look at the simplistic nature of it all.
Home sellers are in the unique position of being able to get
top dollar at present for their home. Fact is that Americans don't really care
rates were 8 percent ten years ago. Old news never got anyone anywhere. What
matters is right here, right now.
Of course, we offer the above anecdote based upon a
cross-section of median home sale prices and rates congruent with such on a
nationwide level. The smart homeowner considering selling his or her property
should tap-into the local market value increases when deciding if now is the
time to sell.
Be smart and refinance now:
You don't have to be a Rhodes Scholar to see that there's never really been a
more optimal time to initiate mortgage refinancing. If you currently have a home
loan on an adjustable-rate or,
perhaps have an existing
interest-only loan, consider locking in a low rate now for
a fixed-interest program while the resources are available to make this shift a
financially beneficial one. True, when the ink is dry on a refi
mortgage you can clearly see that closing costs and other fees can run into
the four digit range, but this may not matter in the long-term scope of things.
Here's a nickel's worth of free advice on that topic: if contemplating a
refinance, and it doesn't appear that your interest rate won't
drop by a minimum of a half a percentage point, shelf the idea and be content
with what you have. Otherwise, I recommend you get on the stick. You'll thank me
later.
Those with home loans in excess of $359,650 (jumbo
loan) should heavily consider
refinancing to trim some
fat from their present loans. There may be a way to dump lofty interest payments
by refinancing into a conforming rate, your situation permitting.
If you wish to dump those Private Mortgage Insurance payments,
or PMI, you just may have built enough equity in your home to do so. If you have
owned your property for two to five years you may have fulfilled seasoning
requirements. Having your home appraised to see how much it has appreciated in
value is a good place to start when ascertaining the benefits of this type of
paradigm shift. - Mortgage Advice and News Story by
Nolan Voight, Mortgage
Industry Columnist.
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