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Mortgage Rates Spike as Economy Heats Up; Will They Rise Higher?

Mortgage rates have spiked considerably over the past four weeks as a slew of positive economic data has hinted that the economy may be picking up steam. Will rates continue to rise?

Mortgage rates have spiked considerably over the past four weeks as a slew of positive economic data has hinted that the economy may be picking up steam. While Fed Chairman Ben Bernanke indicated on Wednesday that the Fed may eventually scale back its bond buying program, this is not the only impetus to the spike in interest rates. Mortgage rates had been rising considerably even before the Fed Chairman’s speech. The speech simply provided more evidence that the economy is mending and that the free money era of the last five years may be closer to ending than many expected or wanted.

The chart below shows that 30 year mortgage rates bottomed in December of 2012, while 15 year rates hit their low in February. 5/1 ARMs, which are based on short term interest rates are still near their lows (the Fed has more control over short term rates and has kept the main rate at 0%).

Mortgage Rate Trends

According to BestCashCow data, average 30 year mortgage rates are now 4.043%, up from 3.440% in December. In looking over our database, I’ve seen the number of lenders offering 30 year mortgages with no points and a rate below 4% shrinking considerably over the past month. The 4% 30 year rate will soon be extinct.

The NY Times ran an article saying that mortgage rates may stabilize soon. That’s possible but I’m not so sure. Rates on all kinds of bonds – corporate, federal, and municipal – spiked in the past two weeks and I think the bond market is looking ahead to accelerated growth. The bond market is often a better predictor of future economic activity than the stock market.

What Should You Do?

If you haven’t refinanced, do it. The risk of more rate increases is significantly higher than the possibility of lower rates. If you need to lock your rate I would also do that. As we’ve seen, rates can move up significantly in a short period of time. And if you’re waiting on the sideline to buy a house until rates come down, don’t do it. Mortgage rates are still historically low and timing the bottom is an impossible task.

No one really knows what is going to happen and even the best experts are proved wrong most of the time, but hopefully this provides you with a bit of perspective that you can use to make your own decisions.

Mortgage Broker Versus Mortgage Loan Officer - Which is Right for You?

In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

Mortgage brokers are independent individuals who work for themselves. They interact with many different banks and lenders to help you find the best mortgage for the best rate. They have to be licensed. Because they are not associated with any one institution, mortgage brokers can contact banks across the country on your behalf, giving them a wide pool of potential lenders. Brokers often receive commission once a borrower’s loan is finalized. While they may be motivated to close your loan because of this commission, they can also be motivated to put a borrower into the wrong loan if the commission is higher. This happened quite a bit before the financial crisis.

Mortgage loan officers generally work for either the lending department of a bank (like Wells Fargo or Chase) or for a mortgage only lender (such as PrimeLending or Sente Mortgage). In both cases, the loan officer is a representative of that institution. Depending upon the type of institution they work for, the loan officer may or may not be licensed, although all mortgage lenders are required to take the same training. Loan officers work to help you find the best product from the institution they work for. Loan officers working for banks may or may not receive commission while those working for mortgage only lenders usually receive commission.

Which Is Better for You?

When trying to find the right loan, should you use a mortgage broker or a mortgage loan officer? Why not both?

Using sites like BestCashCow, you can identify lenders that offer competitive rates and terms for the type of loan you are looking for. Contact your bank or a mortgage only lender and see what they can do for you.

Find the best mortgage rates from banks near you.

At the same time, it doesn’t hurt to contact a mortgage broker to determine what their best offer is. Generally, if you have poor credit, a mortgage broker might be a better option because they can check a borrower’s numbers with multiple institutions.

If you need a loan to close fast, then a mortgage loan officer, particularly one at a mortgage only lender might be better. With a mortgage only lender, all processes are set up to quickly and effectively close loans. Also, you will work with an actual employee of the organization who knows the lender’s process and can more easily connect with the processers and underwriters who work on your individual loan.

Another consideration is the location of the broker or loan officer: someone who is local to your area will understand local conditions. Items such as unfamiliar heating systems, zoning codes, etc. can confuse big or out-of-town lenders, which can increase the time it takes to close.

The bottom line is that if you want to find the best mortgage product at the lowest rate, it makes sense to speak to a mortgage broker and a mortgage loan officer that specializes in mortgage loans.

;In the process of searching for the best mortgage, you may come across both mortgage brokers and mortgage loan officers. What’s the difference and which one should you work with in securing the best loan at the best rate with the best service?

Mortgage brokers are independent individuals who work for themselves. They interact with many different banks and lenders to help you find the best mortgage for the best rate. They have to be licensed. Because they are not associated with any one institution, mortgage brokers can contact banks across the country on your behalf, giving them a wide pool of potential lenders. Brokers often receive commission once a borrowers loan is finalized. While the may be motivated to close your loan because of this commission, they can also be motivated to put a borrower into the wrong loan if the commission is higher. This happened quite a bit before the financial crisis.

Mortgage loan officers generally work in the lending department of a bank. They are the representative of that institution. They do not need to be licensed and work to help you find the best product from the institution they work for. They often do not receive commission.

Which Is Better for You?

When trying to find the right loan, should you use a mortgage broker or a mortgage loan officer? Why not both? Using sites like BestCashCow, you can identify banks that offer competitive rates and terms for the type of loan you are looking for. Contact the bank and see what they can do for you.

Find the best mortgage rates

At the same time, it doesn’t hurt to contact a mortgage broker to determine what their best offer is.

Generally, if you have poor credit, a mortgage broker might be a better option because they can check a borrower’s numbers with multiple institutions.

If you need a loan to close fast, then a mortgage loan officer might be better, because they know the bank’s process and are an actual employee of the organization. In addition, because a mortgage broker is most likely local, they understand local conditions. Items such as unfamiliar heating systems, zoning codes, etc. can confuse out-of-town lenders.

The bottom line is that if you want to find the best mortgage product at the lowest rate, it make sense to speak to both a mortgage broker and a mortgage lender from a bank that specializes in mortgage loans.

Common Mortgage Misconceptions That Could Cost You Money

Homeowners have some common mortgage misconceptions that can cost them thousands of dollars. Learn what they are and the real facts.

The real estate site Zillow recently did a survey of 1,000 homeowners and prospective homeowners that determined many are confused by the mortgage process. Here are the biggest areas of confusion and the real facts. Knowing them could save you a bundle when you buy a home or refinance.

31% of buyers don't think it's possible to get a home for less than 5% down.

There are several ways a homeowner can purchase a home with less than 5% down. FHA Loans, VA Loans, USDA Loans all allow homeowners to buy a home with 0- 3.5% down. These programs cover millions of individuals. Comprehensive information can be found at the article Buying A House with Less Than a 20% Downpayment.

34% of homebuyers don't know what the term APR means.

APR, which stands for annual percentage rate is the interest rate as well as all the other costs that go into a mortgage, including any points, closing costs, origination and underwriting fees, and any other costs. These costs are bundled into the APR metric. So, while the interest rate of one mortgage might be lower than the other, if the APR is higher, you'll most likely be paying more over the life of the mortgage, including larger upfront fees.

24% of buyers believe they can get the best mortgage rate from where they currently have their savings or checking accounts.

While your current bank is a place to start, other banks or lenders may significantly undercut these rates. Be sure to shop around. Check the mortgage rate tables on BestCashCow or other sites to get a feel for a good rate. Talk to other lenders.

26% of buyers believe that once they are pre-approved, they are obligated to get a mortgage with that lender.

This is not true. A pre-approval from a lender does not require you to use them for the actual mortgage. Usually, the homeowner wants to see that you can get a mortgage and the pre-approval serves that purpose. Once your offer has been accepted, shop around and find the best rate. Not doing so could cost you thousands.

Find the best mortgage rates.

Payments to 4.2 Million Borrowers Covered by Foreclosure Agreement to Begin April 12

Payments to 4.2 million borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010 are scheduled to begin on April 12.

Payments to 4.2 million borrowers are scheduled to begin on April 12 following an agreement reached by the Office of the Comptroller of the Currency and the Federal Reserve Board with 13 mortgage servicers.

The agreement, which was reached earlier this year, provides $3.6 billion in cash payments to borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010 and whose mortgages were serviced by one of the following companies, their affiliates, or subsidiaries: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

The payments will range from $300 to $125,000. For borrowers whose mortgages were serviced by 11 of the 13 servicers--all servicers but Goldman Sachs and Morgan Stanley--checks will be sent in several waves beginning with 1.4 million checks on April 12. The final wave is expected in mid-July 2013. More than 90 percent of the total payments to borrowers at those 11 servicers are expected to have been sent by the end of April. Information about payments to borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley will be announced in the near future.

In most cases, borrowers will receive a letter with an enclosed check sent by the Paying Agent--Rust Consulting, Inc. Some borrowers may receive letters from Rust requesting additional information needed to process their payments. Previously, Rust sent postcards to the 4.2 million borrowers notifying them of their eligibility to receive payment under the agreement.

Rust is sending all payments and correspondence regarding the foreclosure agreement at the direction of the OCC and the Federal Reserve.

Borrowers can call Rust at 1-888-952-9105 to update their contact information or to verify that they are covered by the agreement. Information provided to Rust will only be used for purposes related to the agreement. Borrowers should beware of scams and anyone asking them to call a different number or to pay a fee to receive payment under the agreement.

Accepting a payment will not prevent borrowers from taking any action they may wish to pursue related to their foreclosure. Servicers are not permitted to ask borrowers to sign a waiver of any legal claims they may have against their servicer in connection with accepting payment.

In determining the payment amounts, borrowers were categorized according to the stage of their foreclosure process and the type of possible servicer error. Regulators then determined amounts for each category using the financial remediation matrix published in June 2012 as a guide, incorporating input from various consumer groups. Regulators have published the payment amounts and number of people in each category on their web sites at www.occ.gov/independentforeclosurereview and www.federalreserve.gov/consumerinfo/independent-foreclosure-review-payment-agreement.htm.

While the agreement ended the Independent Foreclosure Review for the 13 companies identified above, the review continues for OneWest, Everbank, and GMAC Mortgage.

Regulators continue to monitor the servicers' actions to correct the unsafe and unsound mortgage servicing and foreclosure practices required by other parts of regulators' enforcement actions, which remain in effect.

Regulators have issued guidance to the servicers under foreclosure-related enforcement actions directing a review before foreclosure sales for all pending foreclosures. These reviews help prevent avoidable foreclosures by ensuring foreclosure-prevention alternatives are considered and foreclosure standards are met. Regulators encourage borrowers needing foreclosure prevention assistance to work directly with their servicer or to contact the Homeowner's HOPE Hotline at 888-995-HOPE (4673) (or at www.makinghomeaffordable.gov) to be put in touch with a U.S. Department of Housing and Urban Development-approved nonprofit organization that can provide free assistance.

Can You Still Afford a FHA Mortgage?

Getting a FHA mortgage was once the most affordable way for first-time mortgage borrowers to buy a home. But is that quickly changing?

A FHA loan is insured by the federal government and it is the most popular mortgage for homebuyers who do not have a lot of cash to put towards a down payment.Individuals can can qualify for a FHA loan with only 3.5% down, making home ownership a possibility for millions of people who could never save up the 5%, 20% or larger down payment required with traditional loans.

But FHA loans are beginning to become less affordable because of underwriting changes and a series of fee increases in recent months. Here are some of the changes you can expect with FHA loans in the upcoming months.

April 1, 2013: The annual mortgage insurance premiums are going to increase by a tenth of a percentage point. This may not seem like a lot, but on couple of hundred thousand dollar loan it becomes significant. This will also be the third increase on these premiums since 2011 and the costs are passed on to borrowers.

June 3, 2013: The FHA will require manual underwriting for borrowers who have a debt-to-income ratio of at least 43% in their household along with a credit score below 620. There will also be a required down payment of 5% for FHA-based loans that exceed $625,500 in some of the areas with higher costs, such as Washington, D.C., California and other expensive locations.

Another change going into effect on June 3 is that the FHA will no longer cancel mortgage insurance premium charges for balances that are less than 78% of the original loan amount. This essentially means that borrowers who have a FHA mortgage will pay insurance premiums throughout the term of the loan. With traditional mortgages, borrowers can have their insurance premium payments cancelled once their loan amount is 78% of the original loan amount.

According to an article in the LA Times, there are many critics of the new fees and changes taking place with FHA mortgages. Dennis C. Smith, a co-owner of Stratis Financial Corp. in Huntington Beach, wonders if the FHA “is putting itself out of business with the moves they’ve made in the past couple of years.” Steve Stamets with Apex Home Loans in Rockville, MD, says the new fees and changes are “just a money grab” that will drive first-time home buyers away from FHA mortgages. He says that many creditworthy buyers are already paying more for a FHA mortgage than with a conventional mortgage just because they can’t come up with a sizable down payment for a home.

According to top officials with the FHA, however, the agency’s priority isn’t about increasing its market share. The main priority of the FHA is to protect its insurance fund and cut its losses. Whether or not the new changes are going to help make that happen remains to be seen.

If you are in the market for a FHA loan, make sure your broker or loan officer crunches the numbers for you to compare the costs. Without the option to cancel your mortgage insurance premium payments and paying the increasing fees, you could be better off choosing one of the privately insured conventional mortgage alternatives instead.

See the best mortgage rates where you live.

Mortgage Refinancing Plans Gain New Interest in Congress and Treasury

The federal government is looking for ways to help homeowners who are in danger of being affected by the foreclosure crisis. What are some of the plans being discussed and how much money is involved in some of these plans?

There has been renewed interest in the Treasury and in Congress to offer help for troubled home owners since the President’s State of the Union Address last year. There are an estimated 11 million homeowners who are underwater on their homes and fewer than two million of those borrowers took advantage of the Home Affordable Refinancing Program, or HARP, since it was introduced in 2009. Earlier this month, both Congress and the US Treasury have taken action to advance those plans that have been discussed in recent years.

Congressman Merkley’s Plan
One member of Congress – Jeff Merkley (D-Oregon) – is working on introducing a bill that would either guarantee or purchase refinanced mortgages through a federal trust. Merkley outlined the bill last year and in his proposal, the federal trust that would get set up would give financial relief to mortgage borrowers who had privately held loans. The trust would also be set up with a committee from one of the housing agencies in Congress to oversee where the money gets spent.

Congressmen Merkley’s plan would require that homeowners be current on their payments in order to qualify and hence offers help for nearly one million borrows who would qualify under the guidelines.

US Treasury’s Plan
In addition to Merkley’s plan, the US Treasury Department is also working on a program that would start in Oregon to see how it works. This program would purchase mortgages from private securities by using federal housing money. The interest rates would then be modified which would help borrowers lower their payments and overall principle balance. If the program is implemented and it works in Oregon, it could be used as a model for other states in the country.

TARP Funding
Another potential plan for helping troubled homeowners would use more than $7 billion of US Treasury funds. These funds would be used to help homeowners avoid foreclosure in some of the states that have been hardest hit by the housing crisis. Dubbed the Hardest Hit Fund, the money that would be used for this program would come from the Troubled Asset Relief Program, or TARP. It would help homeowners in 18 states eventually, but that is only if it works effectively in Oregon, where the pilot program will be installed.

If the TARP plan is implemented in Oregon, it will begin in one county and it will start with 50 mortgage borrowers at first. Money from the TARP fund have already been tapped by the 18 hardest hit states, but it has been fairly slow in getting the word out about the money. Less than $2 billion has been used of the fund so far. The goal, however, is to disburse all of the money by 2017, when the program actually expires.

These are the some of the major plans being discussed and proposed in Congress and throughout the upper echelons of the government. Which one do you think would work the best?

Are you able to refinance?  Find the best mortgage refinance rates where you live.

It Is Not One Size Fits All - The Pros and Cons of Paying Off Your Mortgage Early

The decision whether to pay down, or entirely pay off your mortgage earlier, is largely dependent on your personal economic situation and confort level with alternative ways to deploy your capital safely.

How to manage housing debt is often the single biggest financial decision a person has to make. For those with the luxury to pay off their debt, the question is whether doing so is a wide decision. Although widely discussed, the President and Congress have not yet eliminated the mortgage interest deduction. Is paying off your mortgage early a good idea? 

Pros

  • Paying of a mortgage early reduces the associated interest cost of a loan. On a 30 year fixed rate loan of $300,000 at 4%, the interest cost over the life of the loan is $177,000. That is over 50% of the original loan value. And because it’s a reduction on spending, the savings are equivalent to getting a guaranteed tax free return.
  • An early payoff will increase the value of home equity.  The amount of equity the homeowner possesses will increase which can then be used as a fallback source of capital in tough times.  Given that most retirees live on a fixed income budget, simultaneously lowering monthly expenses and having a source of readily accessible funds should the need arise is a powerful combination. 
  • Peace of mind. Another, less easily quantifiable benefit to paying off a mortgage ahead of time is the psychological lift that one gets from being without such a burdensome debt load.  Particularly in these difficult economic times, where having any debt has become an anathema, this alleviation of a major source of potential concern cannot be easily dismissed.  

Cons

  • You will be losing a tax refund benefit. Assuming that the mortgage interest deduction is not eliminated in future tax and spending negotiations by the Federal government, homeowners receive a significant tax benefit from holding a mortgage. The tax benefit varies depending on how far along you are in your mortgage. Because fixed rate loans are structured so that interest is paid in the early years of the loan, the tax benefit is greatest during this time period. In the later years of the loan, the interest deduction decreases significantly, because the interest has already been paid.

 

30 Year Mortgage Interest Savings

Year

Payment

Interest

Tax Savings @ marginal rate of 25%

1

$17,187

$11,904

$2,976

10

$17,187

$9,619

$2,405

25

$17,187

$7,947

$1,987

 

  • Opportunity Cost. The excess capital that would have been otherwise employed in paying off the mortgage can, instead, be used for any number of other things, such as paying off higher interest rate debt, like credit cards, or accumulating savings to hedge against future emergencies. Maintaining sufficient liquidity to deal with the unexpected developments of life is a wise and safe decision.  These funds can also be invested in securities, like equities, that traditionally have a much higher return than could be expected from the savings generated off the early retirement of a mortgage loan.  In today’s low interest rate environment, finding investments with lower risk profiles than equities that also provide attractive returns is difficult.
  • Loss of capital. This is similar to opportunity cost but subtly difference. The cash that you use to pay off a mortgage is now tied into your house. Pulling it out via a home equity loan or by refinancing is not always a sure thing. The cash is no longer readily available. 

In the end, the decision on whether or not to pay off a mortgage loan can be reduced to a formula.

If the Real cost of mortgage (Future Payments + Future Interest Cost –Deduction Benefits) > Interest on Other Investments + Peace of Mind.

Then you should pay off the mortgage.

If the Real Cost of a Mortgage is less than the interest you can earn on other investments plus peace of mind, then pay off the mortgage.