Karl's Mortgage and Related Info Site

What Are Points and When Should You Pay Them?

Points are up-front fees paid by the borrower to obtain a better interest rate on a loan. One point equals one percent of the loan amount. And while a lower interest rate may result in a lower monthly payment, it is important to consider how long you intend to be in the loan and to compare current interest rates to historical market trends. This will help you to determine whether paying points is a worthwhile investment.

Let's look at a sample scenario. If you take out a $300,000 mortgage and decide to pay one point in order to lower your interest rate, this would translate into an up-front cost of $3,000. To keep things simple, we'll assume that paying this one point will save you $50 a month. This means it will take you 60 months to recoup the cost of that point. If you decide to refinance or sell the home before the 60-month mark, your money is lost - not to mention the opportunity cost of not having this money invested elsewhere. In this scenario, you would only benefit financially from paying points if you were to remain in the home for no less than 60 months.

It's also important to remember that interest rates run in cycles. When rates are at historical lows, it makes more sense to pay points if you plan to live in the home for an extended period of time. If it's unlikely that rates will go down in the near future, then there will be no need to refinance.

When interest rates are high, however, there is a strong likelihood that they will come down again before too long. Therefore, this is not a good time to pay points. The chances of refinancing in the near future are extremely high, and you will likely not be in the loan long enough to recoup the up-front cost of the points.

Tax deductibility is another thing to consider when choosing whether or not to pay points. For new purchases, interest from both points paid and your mortgage are tax deductible up front. For refinances, however, points are not deductible up front. Instead the deductions are spread out over the term of the loan (unless the entire loan is paid off early), making points more costly in comparison.

Ultimately, there's a lot to consider when it comes to points and whether or not they are a worthwhile investment. An experienced mortgage professional will work with you to determine the best course of action based upon your specific situation. Request a comprehensive cost comparison to see whether paying points could be financially beneficial to you.

If you or someone you know would like to learn more about points and whether they should be a part of your mortgage plan, give me a call. I would be happy to assist you!

Last week mortgage pricing held steady under 5% for a 30-year Conforming Fixed Rate after jumping mid-week prior to the FOMC Statement that was the most upbeat review of conditions in well over a year. The FOMC noted that "economic activity continues to pick up and the deterioration in the labor market is abating." They are still committed to leaving rates low for "an extended period of time", but do feel confident enough to stay on schedule with the sunsetting of a number of financial market support programs.. ie purchasing MBS which is scheduled to end at the end of March.

At the same time the Fed and all other economic indicators are pointing to a robust recovery yet. which will likely keep mortgage pricing from jumping outside of our 60-day forecast levels anytime soon.

The Week Ahead:

This holiday-shortened trading week brings us the release of six monthly or quarterly economic reports. Only a couple of the reports being released are considered to be of high importance to the markets. With the Christmas holiday falling during the week we can expect very thin trading, meaning that we may see a larger reaction than normal to some news because there will be fewer traders working and less transactions being made.

Overall, we are expecting to see some movement in the markets and mortgage rates, but nothing drastic unless we get some surprising results from the week's data. The bond market will close early Thursday (2:00 ET) and will be closed all day Friday in observance of the Christmas Day holiday. This means that firms that trade bonds will likely be keeping only a skeleton staff the latter part of the week and raises the possibility of a stronger reaction to surprises in the economic data than we normally would see. Accordingly, proceed cautiously and stay close to your Loan Officer this week if still floating an interest rate and closing in the immediate future.

MONDAY:  There is no relevant economic news scheduled for release today, so look for the stock markets to help drive bond trading and mortgage rates.

TUESDAY: Two of the week's reports are scheduled for posting Tuesday. The first is the final revision to the 3rd Quarter GDP. We don't think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month's first revision showed that the economy expanded at a 2.8% annual pace during the quarter and this month's revision is expected to show the same. A significant upward revision would be considered bad news for bonds, but since this data is quite aged at this point I don't think it will have much of an impact on mortgage rates Tuesday.

The second report of the day is November's Existing Home Sales report. This release will come from the National Association of Realtors while Wednesday's New Home Sales data is a Commerce Department report. Both give us a measurement of housing sector strength and mortgage credit demand, however, neither are considered to be of high importance. And both o f the reports are expected to show a small increase in sales. Weaker than expected readings would be considered positive for bonds and mortgage rates because they hint at a weakening housing market, but unless the actual reading varies greatly from forecasts the results will probably have little or no impact on mortgage rates.

WEDNESDAY: Wednesday brings us the release of three reports. The first is November's Personal Income and Outlays data. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.5% increase in income and a 0.7% increase in spending. If this report reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly Wednesday morning.
The second report of the day comes late morning when the revised University of Michigan Index of Consumer Sentiment for December is posted. Current forecasts are calling for a small upward revision from the preliminary reading of 73.4. This is fairly important because rising consumer confidence indicates that consumers may be more apt to make large purchases in the near future. An unexpected upward revision could lead to slightly higher mortgage rates Wednesday.

The last report of the day is November's New Home Sales. It is this week's least important report and is unlikely to influence mortgage rates.

THURSDAY: November's Durable Goods Orders will be posted early Thursday morning. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years. Analysts are expecting the report to show a 0.5% increase in new order s. A decline in orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should drive mortgage rates lower. However, a larger than expected rise in orders could lead to mortgage rates moving higher early Thursday morning.


Two-Month Rate Forecast:
With rates at multi-year or near historic and all-time lows, it's tough to expect that they have considerable space to decline much from here, especially in the face of a modestly improving economic climate and an improving corporate earnings picture.

It appears low mortgage rates will be with us at least until the Fed's MBS purchase program comes to an end in March 2010 as scheduled. There are many speculating that the Fed may find a way to extend this program in some form to continue to support housing as it appears to be just getting legs under it. Low market rates in general will be with us for "an extended period of time" as committed by the Fed and Ben Bernanke. While there are discussions around possible exit strategies, none of the members seem to feel that any immediate or urgent action must be taken anytime soon relative to market rates.

We expect mortgage rates to likely wander in a range from about 4.75% to 5.25% on the Conv. 30-year fixed, but to be choppy in that range as the stock and bond markets search for new trend lines. 

Mortgage Market Advisory Disclaimer

 Copyright © 2009 National Home Loan Advocates LLC                                                                                          

ARM Indexes: A 10-Year Comparison

Mortgage Rate Update

Homebuyer Opportunities Nearing End

For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts for two reasons.

First, huge tax incentives are about to expire. April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time homebuyers and up to $6,500 for repeat homebuyers. The credit can be claimed only on contracts that close by June 30, 2010.

Secondly, another form of stimulus will soon disappear, as the Federal Reserve winds down a program that has been keeping home loan rates artificially low. The fact is that the lowest rates of 2009 were driven down to their attractive levels because of the Fed's Mortgage Backed Securities (MBS) purchase program. The Fed has already used over 80% of the allocated funds for MBS, meaning less than 20% remains to be used over four months.

As the Fed's program winds down and ends, we'll likely see two things happen. First, we will probably see higher levels of volatility-with rates sometimes shifting dramatically in the middle of the day. Second, since MBS will have less support from the Fed, rates are likely to rise over time.

Mortgage Interest Rates for Fixed Rate Mortgages*

Rates as of Thursday, 17th December, 2009:

*Rates are subject to change due to market fluctuations and borrower's eligibility.

When a lender permits an extended lock-in period, the borrower will likely face a higher interest rate or additional fees that could be quoted as points. In other words, the borrower pays for the lender to take on the extended risk of being exposed to potential changes in the market.

For example, let's say a 30-day rate lock commitment costs the borrower one-half point, while a 60-day rate lock commitment costs one full point. If the borrower in this scenario needed the extended lock period, but did not want to pay points, then an alternative would be to accept a slightly higher interest rate. In this case, a 60-day lock would typically have a higher interest rate than a 30-day lock.

Our standard procedure is to lock in a rate as quickly as possible. My team and I want our clients to know that while interest rates fluctuate daily, most lenders do not want to lose any business because of it. If a significant rally causes interest rates to drop 0.25% or more, we know that we can most likely renegotiate the rate. In many cases, lenders prefer this option over losing the loan to another lender. On the other hand, if we'd allowed our clients to sit on the fence and not lock in their rate, we would have exposed them to market volatility without a safety net. Then, if rates were to increase, the borrower might no longer qualify for the loan they want - a situation that we want to avoid at all costs.

By knowing our clients' needs and working intimately with them to make the right decisions early on, my team and I are proud to say that we have helped them to achieve their home ownership dreams.

Rates Have Hit All-Time Low Levels Again!

First-Time Home Buyer Tax Credit Extended!

If you'd like to learn more about the loan programs we have available, please call me!

Karl Peidl
Pleasant Valley Home Mortgage Corp.
305 Harper Drive, Suite 3
Moorestown, NJ 08057

856-252-1224

kpeidl@pvhmconline.com

www.karlpeidl.com

www.pleasantvalleyhomemortgage.com

Mortgage pricing moved slightly higher last week by about 20 bps, but had at one point moved up 100 bps mid-week after fairly weak Treasury auctions and much stronger than expected Retail sales and Consumer Confidence readings. In fact, Retail sales were triple the expectations when excluding auto sales.

Mortgage rates still closed the week firmly under 5.00% on the Conf 30-Year Fixed for well qualified borrowers.

The very positive employment report from the previous week coupled with last weeks strong retail sales has added more confirmation that the economic recovery is underway.

The 10-year Treasury had dropped to 3.21% following the news out of Dubai, but has now rebounded to close the week at 3.55%

The Week Ahead:

This week is fairly busy in terms of the number of economic releases scheduled for release with five on the agenda in addition to the last Federal Open Market Committee (FOMC) meeting of the year. Two of the five economic reports are considered to be of high importance, so the data should have a heavy influence on the markets and mortgage rates this week.

Overall, expect to see a pretty volatile week in the financial markets and mortgage pricing. The most important day of the week is certainly Wednesday with the CPI and the FOMC meeting both scheduled.

Please maintain contact with your mortgage professional if you have not locked an interest rate yet because we may see sizable changes to mortgage pricing more than one day this week.

Tuesday:
The first relevant report of the week is one of the two highly important ones. The Labor Department will release November's Producer Price Index (PPI) early Tuesday morning. This index measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If Tuesday's release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should fair well and mort gage rates should fall. Current forecasts are showing a 0.8% increase in the overall index and a 0.2% rise in the core data.

November's Industrial Production data is also scheduled to be posted Tuesday morning, but a little later than the PPI. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.5% increase in output. A smaller than expected rise would be good news for bonds, while a stronger than expected reading may result in slightly higher mortgage pricing. However, the PPI release is more important to the markets than this data is.

Wednesday:
The week's most important economic data comes Wednesday morning when November's Consumer Price Index (CPI) is posted. It is similar to Tuesday's Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the econ omy. Current forecasts call for an increase of 0.4% in the overall index and a 0.2% rise in the core data reading. The core data is watched more closely because it excludes more volatile food and energy prices, giving a more stabile reading for analysts to consider.

November's Housing Starts report will also be released Wednesday morning, but I don't see it causing much movement in mortgage rates. This report, which is expected to show a sizable increase in starts of new homes, gives us an indication of housing sector strength and future mortgage credit demand. However, it can be considered the least important of this week's news.

The last FOMC meeting of the year begins Tuesday and will adjourn at 2:15 PM ET Wednesday. There is not much debate about what the Fed will do at this meeting with little chance of them raising key short-term interest rates. Therefore, the post meeting statement will likely be the sole source of a market reaction. This statement has the potential to have a significant influence on the markets and mortgage rates as investors look for any indication of what and when the Fed may do next. Generally speaking, the bond market would like to hear something that indicates the Fed will not be raising rates anytime soon.

Thursday:
The last piece of economic news will be posted Thursday morning with the release of the Conference Board's Leading Economic Indicators (LEI) for the month of November. This 10:00 AM release attempts to measure or predict economic activity over the next three to six months. It is expected to show a sizable increase in activity, meaning that it predicts any expanding economy over the next several months. This probably will not have much of an impact on bond prices or affect mortgage rates unless it exceeds current forecasts of a 0.7% increase from October's reading. The lower the reading, the better the news for bonds. If it show s a smaller increase, the bond market may move slightly higher, improving mortgage rates slightly.

Two-Month Rate Forecast:
With rates at multi-year or near historic and all-time lows, it's tough to expect that they have considerable space to decline much from here, especially in the face of a modestly improving economic climate and improving corporate earnings picture.

It appears low mortgage rates will be with us at least until the Fed's MBS purchase program comes to an end in March as scheduled. There are many speculating that the Fed may find a way to extend this program in some form to continue to support housing as it appears to be just getting legs under it. Low market rates in general will be with us for "an extended period of time" as committed by the Fed and Ben Bernanke. The minutes of their November 3-4 meetings reveal that all members continue to support the Fed's large scale assets purchase programs. While there are discussions around possible exit strategies, none of the members seem to feel that any immediate or urgent action must be taken anytime soon.

We expect mortgage rates to likely wander in a range from about 4.75% to 5.25% on the Conv. 30-year fixed, but to be choppy in that range as the stock and bond markets search for new trend lines.

Mortgage Market Advisory Disclaimer

This is only our opinion and cannot be guaranteed to be in the best interest of any or all parties. This service is provided for informational purposes only and is not intended for trading purposes. None of the information provided constitutes a solicitation, offer, or recommendation by NHLA to buy or sell any security, or to provide legal, professional, tax, accounting, or investment advice. Every lender's price desk has their own strategies and reactions to market movements. Our information is simply based on market movements and does not predict or report potential pricing adjustments by particular lenders.

Mortgage Rate Update

Financial Reasons to Buy

There are a number of personal and emotional reasons to buy a home. But there are also some strong financial reasons to make the investment. Here are just a few of those reasons:

Increase Net Worth: Few things have a greater impact on net worth than owning a home. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.

A Big Tax Deduction: One of the largest tax deductions available is the amount of interest paid on a mortgage. In fact, a $150,000 home at a 5.50% interest rate can add up to approximately $8,000 in first year's interest. This amounts to a significant savings - effectively reducing the amount of a homeowner's monthly mortgage payment.

Long-Term Appreciation: Over the last few years, home prices have corrected and become more affordable. While that's good news for potential buyers, it has overshadowed the long-term appreciation of a home's value. The reality is, despite market ups and downs between 1950 and 2002, US home prices appreciated at an annual growth rate of 4.8%. Even if you calculate a modest appreciation of 3%, a home purchased today for $150,000 will grow in value to $364,000 over 30 years.

In addition, don't forget that the government is offering a tax credit of up to $8,000 for first-time buyers through June 30, 2010. The tax credit has also been expanded so that qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years can receive a tax credit of up to $6,500.

Mortgage Interest Rates for Fixed Rate Mortgages*

Rates as of Thursday, 10th December, 2009:

*Rates are subject to change due to market fluctuations and borrower's eligibility.

Mortgage Rate Update

Homebuyer Tax Credit Extended and Expanded

Great news for homebuyers! The Homebuyers Tax Credit has been extended into the first half of 2010...and it has been expanded to include benefits for current homeowners!

Who Qualifies? First-time homebuyers may be eligible for the tax credit worth 10% of the purchase price of the home, with a maximum available credit of $8,000.

In addition, the program now gives current homeowners an additional reason to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Eligible Incomes: Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more can receive a partial credit; however, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more can receive a partial credit; however, joint filers who earn $245,000 and above are ineligible.

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Mortgage Interest Rates for Fixed Rate Mortgages*

Rates as of Thursday, 3rd December, 2009:

*Rates are subject to change due to market fluctuations and borrower's eligibility.

Rates Have Hit All-Time Low Levels Again!

In case you haven't caught the news, home loan rates have done it again, dropping to their lowest level...ever. Not only has the 30 Year Fixed rate returned to its lowest all time level, rates across the board are at their lowest levels.

Yes, that means, go ahead and choose your flavor - 30 Fixed, 15 Fixed, 5/1 ARM or 1/1 ARM - all loan types hit their lowest levels of the year! For the weekly Freddie Mac survey of all lenders, this is the first time that all have been at their lowest level.

You must understand, though, that rates are artificially low! Last November, Ben Bernanke and the Fed put into place a program to lower rates. That program though is nearing its end, as the Federal Reserve has purchased over $1 Trillion of mortgage backed securities this year and with less than 20% of allocated funds left in the program, rates are sure to increase. The only questions remaining are by how much and when.

The chart above shows the 30 Year Fixed Rate over the last 11 months. The first red arrow shows what took place when interest rates shot up in May, rising nearly 0.75% in a matter of days. And just as when the holidays come and go this month, the rates that are available today are likely to take off as well, only this time for good.

Interest rates that were in effect prior to the implementation of the announcement of the Fed's program last year were well above 6.00% and a return to those levels cannot be ruled out. If you are looking to refinance or currently shopping for a loan, lock your loan quickly to take advantage of the lowest rates we are likely to ever see in the future.

Remember, the reason I wanted you to see where rates have been this year is also to see how quickly they can rise. If you would like to know how I can help you, call me today. Waiting could cost you an opportunity to have an even bigger smile on your face when you say "Happy Holidays!" this month.