Many first time home buyers have chosen to defer buying and are now entering the market having both saved money and are choosing homes that are [...]]]> This combination of absurdly low mortgage rates and significantly reduced home prices has created a comparison in first time home buyer mortgages that we frankly don’t see very often.

Many first time home buyers have chosen to defer buying and are now entering the market having both saved money and are choosing homes that are well within their price range.

A really interesting thing happens when you choose to do both the 15 year fixed and have the choice between the down payments.

Even though they are a few months away, we’re using the number for the new April values for FHA up-front mortgage insurance premium (UFMIP), which is  .75% higher than the old one, and the new annual premiums on the loans, which are up 0.10%.

What’s cool about the 15 year under this comparison is that if you put down 10%, your annual premium is .35% versus putting down 5%, the premium is .6%.  In total, if you have the ability to put down more money, but aren’t sure, this is a great comparison to run.

We’ll use a $200k home in this example.

So on an annual basis, you’re basically paying $1,161 in mortgage insurance if you put down 5%.

You’d pay $642 if you put down 10%.

That’s $518/year in savings.

You’re not paying interest on that extra $10k of loan.  That’s $314/year (rounded) in money you don’t pay.

That’s $832 in expenses you don’t pay, or annually, it’s over 8% on the 10k you put down.

As always, talk to your accountant/financial planner.  There are some slight differences in the tax treatment of your options that might change the exact percentages, but the concept works for anyone looking for the best value in their mortgage.

This compares to the 30 year fixed at the same time last year sitting at 4.77%.

Over the course of 10 years, that materializes into a mortgage wtih a total cost that is $8,300 less than a mortgage [...]]]>

The first Freddie Mac PMMS survey of the year put rates at 3.91%, matching the all-time low.

This compares to the 30 year fixed at the same time last year sitting at 4.77%.

Over the course of 10 years, that materializes into a mortgage wtih a total cost that is $8,300 less than a mortgage taken out in January of 2011.

When looking at loans for first time home buyers, it’s important to look at not just the “best mortgage” but the “best plan.”

As always, a home is a [...]]]>

If you compare mortgage rates from a few years ago to today, you can make an interesting argument in favor of a few different loan options.

When looking at loans for first time home buyers, it’s important to look at not just the “best mortgage” but the “best plan.”

As always, a home is a financial decision and it probably makes sense to speak with your financial advisor and not just a bank teller to choose your best option.

You might find people who tell you to take the current 4% 30 year fixed so that you have leftover money each month to fund a college fund, retirement fund, or any other savings goal.

However, if we’re just looking at how cheap can we get mortgage money these days, let’s compare to 2006.

Rates were generally in the 6%’s for the 30 Year.  To get a 15 Year at today’s mortgage rate areound 3.3% means that a $200,000 loan would only cost $323/month more than a $200k loan at 2006′s 6% rate.

Here’s the cool part: $116k in savings over the life of the loan.

It has been as low as .25% spread in late 2006 and as high as .87% just a few months ago.

Right now, the 30 Year is at 4.00% and the 15 Year is 3.31%, so .69% difference.

The monthly payment [...]]]>

Since 2005, the spread between the 30 Year and 15 Year has averaged 0.47%.

It has been as low as .25% spread in late 2006 and as high as .87% just a few months ago.

Right now, the 30 Year is at 4.00% and the 15 Year is 3.31%, so .69% difference.

The monthly payment on a $200,000 loan is $450 higher per month, but the principle payments in the first year are a staggering $7,000 higher on the 15 year.

Depending on your risk preferences, a 15 year fixed might work for you.

Use the mortgage calculator to try it with your own values.

While that’s down 0.33% since October of last year, that’s a staggering drop when looking back at just 5 years ago.

In October of 2006, rates were at 6.36%.  Last week we saw 3.94%.

On a monthly [...]]]> The 30-year fixed-rate fell below 4% for the first time in history on the report ending October 6.

While that’s down 0.33% since October of last year, that’s a staggering drop when looking back at just 5 years ago.

In October of 2006, rates were at 6.36%.  Last week we saw 3.94%.

On a monthly basis for a $200,000 loan, it’s almost a $300 savings and that doesn’t even factor in that the home bought today would likely be at a lower price.

What’s amazing is that a 30 year note now would cost, in total, $107,000 less over the entire 30 years.

As we were talking about last week, we have an unprecedented spread between the 30 Year and 15 Year mortgages.  In the past week, the 30 Year held at 4.22%, the 15 Year ticked down 0.05% from 3.44% to 3.39%. 

We’re looking at [...]]]>

Freddie Mac’s Weekly Primary Mortgage Market Survey (PMMS) was released this morning. 

As we were talking about last week, we have an unprecedented spread between the 30 Year and 15 Year mortgages.  In the past week, the 30 Year held at 4.22%, the 15 Year ticked down 0.05% from 3.44% to 3.39%. 

We’re looking at a comparison at $200,000 on a $250,000 home.  We’re ignoring closing costs, fees and points as they shouldn’t vary betweent he two loans.  

Mortgage Payment

I understand, $438/month difference in payment is a doozy.  That’s a lot of extra payment for a first time home buyer.  BUT, let’s keep it in context.  These rates are pretty low.  Home prices are pretty low.  

That $200,000 loan is $1,200 on a 30 year fixed in a normal(ish) 6% market.  You’re going to pay less in rate and less on a home than 5 years ago. 

Total Mortgage Payments

A 30 year fixed on a $200,000 loan will want $353,000 from you over time.  The 15 year will want $255,000 over the life of the loan.  That entire difference is mortgage interest. 

Time Value of Money

The argument against the accelerated payment for a first time home buyer is valid.  Are you better served funding college funds, life insurance, or, perhaps most importantly, disability benefits?  Possibly.  

For the first time home buyers who are buying today, it probably makes more sense than ever to talk to a financial advisor.  This combination of low rates and low home prices creates some new options.  Does it make sense to use the low rates to increase your buying power?  Maybe.  Does it make sense to identify a lower-cost home and accelerate the equity prepayment as much as possible?  Maybe.  Can you find a happy medium of being able to fund your asset accounts and accelerate your mortgage, possibly with a 20 year?  Maybe. 

There are more maybe’s in today’s market than ever before, but they represent a unique opportunity for first time home buyer loan programs to not only provide inflation protected housing (unlike rent), but still have options to fund both accelerated debt reduction and still fund all of those longer-term asset accounts.  

After finding 50-year lows last week, mortgage rates ticked up .07% to 4.22% this week for the 30-year.  

The 15-year saw a similar increase, up .08% to 3.44%.  

However, the 5/1 ARM actually dipped another .01%.  The spreads [...]]]>
Freddie Mac’s PMMS survey for this week hit and the results are interesting. 

After finding 50-year lows last week, mortgage rates ticked up .07% to 4.22% this week for the 30-year.  

The 15-year saw a similar increase, up .08% to 3.44%.  

However, the 5/1 ARM actually dipped another .01%.  The spreads between the 30 Year and the 5/1 ARM reached a whopping 1.27%. 

At a sub-4.5% 30 Year Fixed, it is hard to look at the adjustable.  There is a very valid argument that, if you know you’ll be selling, a 5/1 ARM can be a less expensive way to finance a property.  There’s also a pretty solid argument that, if you know you’ll be selling in just a few years, this may be a risky time to buy a home. 

Let’s look at a different spread:  30 Year v. 15 Year Fixed.  This has averaged just under .5% difference over the past 6 years, about .6% difference over the past 2 years, and is now at a staggering  .87%. 

Buying a home is both about a budget and a long-term plan.  After many years of sketching out home affordability using 6% or 7% figures, the prospects of securing a 15 year fixed at 3.75% or 3.625% is ridiculous. 

If we’ve been using 6% to forecast the expense of a $200,000 loan with first time home buyers in the past, that’s always been about $1,200.  Today’s 3.625% 15 Year is about $1,440.   So what does $240 buy you? 

The cumulative interest over those loans is about $60,000 for the 15 year…drum roll….over $230,000 on the 30 year.  

While the 30 Year v. 5/1 ARM comparison is drawing all of the press, that depends a bit on your appetite for risk.  If you can swing the extra $240, the 15 Year is a very interesting option. 

Volatility everywhere and nary a leader in sight.  Not so fast, I think we can help guide you through this.

Libya and Japan continue to dominate headlines, but the issues in Bahrain and Yemen are rapidly closing in as most important.   In the spirit of gross oversimplification of geopolitical events, let’s just call this [...]]]> Like the past few weeks, this week’s mortgage rates will be driven by things that are simply not very mortgage related.

Libya and Japan continue to dominate headlines, but the issues in Bahrain and Yemen are rapidly closing in as most important.   In the spirit of gross oversimplification of geopolitical events, let’s just call this collectively “the mess.”  This week is light on economic data, but it really doesn’t matter.  We’re going to continue to see volatile swings as money moves around in its typical bipolar quest for safety and high return.

Last week, mortgage rates extended their rally, with mortgage bonds bouncing up another 109 basis points.

We’re posting after the market closed on Monday so this is one of those cheatin’ weeks–we already have one day’s trading in hand so it should be a lot easier to forecast the week, right?

No.  Refer to “the mess” from above.  Your 401k probably had a really nice day yesterday and that’s usually not good for interest rates.  After last week’s rally of 109 basis points, we saw a 40 basis point sell off yesterday.    It’s going to be volatile and that might be an understatement.

In terms of data, we have GDP and consumer sentiment on Friday as well as a few other reports through the week.   Between here and there, there isn’t much on tap.

Today’s housing data had Existing Home Sales down 9.6% in January from 5.4 million homes to 4.88 million homes.  The big news was that the median sales price hit $156,100, the lowest since April 2002 and down 5% year over year.

Are home prices down 5%?  Not really.  A median is nothing more than the midpoint of all of the sales.  Well, 39% of the homes sold were distressed properties.  That moves the median rapidly.  That’s the highest level since April of 2009.   Distressed properties don’t reflect home prices.  People who were foreclosed on didn’t pay their mortgage.  They certainly weren’t dumping in the 1% of home value per year into ongoing maintenance like a “normal” homeowner would.

So if 39% of the homes required $5-10k in rehab to restore the home condition, was the median cost for the home $156,100 or should it include that $5-10k?  That bumps home prices to $161,100 or $166,100.  Should we celebrate the recovery of housing?  No.  Even with that adjustment, national housing stats are just national housing stats.

Mortgage rates are going to move .25% up and down during the next four days.  Which days?  I have no idea.  The long term trend is for higher rates, the short term trend is probably steady to possibly lower.  The overriding trend is that mortgages are getting more expensive next month.

Conforming loans get their new loan-level price adjustments.  FHA gets a new MIP factor.  If interest rates stay exactly flat, mortgage costs are going up next month.   If you are going to buy a home in 2011, odds are pretty good that today’s mortgage will be less expensive than the ones written later in the year.