*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Low Rates Hold Steady
Just for St. Patrick's Day, rates are staying low! Well maybe not for St. Patrick's day but hey they are constant which means they aren't rising. Happy St. Patrick's Day!
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Common misconceptions: Renting is cheaper than owning a home pt. 2
“I can’t buy a home, because I can’t afford the down payment”
Traditionally, to get into a mortgage, a buyer would need to put down 20% of the purchase price at the time of closing. This can be quite daunting (the down payment for $200,000 home would be $40,000) and for most, just isn’t a possibility. In fact, 20% down payments are now an exception as opposed to the norm, especially for first-time homebuyers.
Here are several low-down payment options:
· FHA loans – FHA loans only require 3.5% as a down payment. Their rates are also lower than conventional mortgages and allow for less income/lower credit scores. Most first-time homebuyers buy homes with FHA loans.
· Conventional loans – You can still get a conventional loan without 20% down. In fact, you can now get a conventional loan for as little as 3% down.
In addition, there are several no-down payment options:
· VA loans – For those who are serving or have served in the military (not just veterans), VA loans are available and don’t require any down payment. They also offer lower rates, no mortgage insurance, etc.
· USDA loans – For borrowers willing to live in “rural” areas (in Utah, that’s north of Ogden and south of Spanish Fork), USDA also offers loans which don’t require any down payment.
· Grants, Gifts, and Seconds – Most loan types allow for down payments to be gifted from family, friends, and even employers. There are also programs that allow borrowers to get grants for the down payment or borrow 3.5% as a low interest 2nd mortgage.
At Evergreen, we have significant experience helping clients without access to large down payments. While owning a home takes budgeting and planning, don’t let the immediate absence of a down-payment deter you.
Common Misconceptions: renting is cheaper than owning a home.
One idea that I often hear, especially from people my own age, is the statement “I couldn’t afford to own a home, whether due to the down-payment, or due to the amount of monthly payment.
For many, the prospect of owning that first home can be rather daunting. But is owning a home really more expensive than renting one? Let’s take a look at some comparisons.
Home Value Mortgage per month Rent per month
$150,000 (condo) $1023 $1150
$250,000 (house) $1500 $1600
(Both mortgage values were calculated using 3.5% down at a 3.375% fixed interest rate)
We can see in a side by side comparison that renting isn’t necessarily cheaper than owning a home, in this case, both the condo and the house were slightly cheaper to own than to rent. While this isn’t always the case, there are plenty of benefits to actually owning a home, such as consistently growing equity and value.
If owning a home is something that you are interested in, contact a mortgage broker, as they can point out price ranges in the area, present options, and outline the steps needed to be taken to actually accomplish the goal of moving into a home.
Debunking the Myth: “I should choose a home before talking to mortgage broker.”
I think this misconception stems from new buyer enthusiasm. People get excited about owning a home, not paying a mortgage, so they gravitate towards the shopping step and figure they’ll deal with the mortgage side when they have to.
In short, unless you plan on paying cash, looking at homes before consulting a mortgage broker puts the cart before the horse. If you don’t know how much you can afford, you won’t know what homes are even options. If you put an offer on a home without knowing that you can actually get a mortgage for it (or how much that mortgage payment will be), you risk losing your Earnest Money (the money you give the seller with your offer), not to mention the time and other costs associated with buying a home. In fact, most sellers will require that you show a Letter of Pre-Approval from a mortgage broker before they will even let you walk through the home!
It’s crucial to first know what your home-price range is before looking at homes.
At Evergreen, we do this in steps:
1. Step One: The “Quick and Dirty” Consultation – We’ll take a “verbal” of your income, monthly debt payments, estimated credit score, and availability of down payment funds. With that info, we will give you estimates of (a) The maximum home price you can afford, with the corresponding payment and; (b) How much home your maximum budgeted monthly housing payment will afford. This only takes about 15 minutes but gives you a reasonable price range to consider.
2. Step Two: The “Cursory Glance” Stage – With the info from Step One, you can go online and see what homes are your price range. Zillow.com, Trulia.com, and UtahRealEstate.com, will show you pretty much all of the homes for sale, including those listed on the MLS (a home-selling database for realtors).
3. Step Three: The “In-Depth Analysis” – If you like what you’re seeing from Step 2, then we do the in-depth analysis. This is a crucial step, because as they say, the devil is in the details, and that couldn’t be more true in mortgages and real estate. In this step, we will check your credit and review your tax returns, income documentation, and asset documentation (bank statements). We will even run an Automated Underwrite that will tell is with 99%+ certainty if the loan is going to be approved. During the process, we may change your maximum home purchase price, depending on the results. This is a crucial step, because it lets you shop with true confidence.
I should note as well that we encourage potential home-buyers to have a consultation 6+ months before they think they will actually buy a home. That’s because there may be items (like credit report issues) that will take a bit of time to remedy.
In short, unless you’re loaded, you can’t buy a home without a mortgage, so let us figure that out for you first.
Rates Hold Steady
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
What is LTV? (Video)
We made a video showcasing what LTV is and why it is important. It's our first video so please let us know what you think. Also, please support us by sharing the video and subscribing to our channel for more content!
A Few Facts About Homeowners
For more information here are the sources used:
http://www.realtor.org/sites/default/files/reports/2011/social-benefits-of-stable-housing-2011-03.pdf
http://www.forbes.com/sites/trulia/2014/03/05/buying-a-home-is-now-38-cheaper-than-renting/#769b57183258
http://www.census.gov/programs-surveys/ahs/data/2013/ahs-2013-summary-tables/national-summary-report-and-tables---ahs-2013.html
Rates Went Down
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Debunking the Myth: Credit Card Consolidation
Debunking the Myth about Credit Cards
I interact with a lot of clients that are considering paying off their credit cards through a refinance and frequently come across this common misconception:
MYTH: “If I wrap my credit card debt into my mortgage, it will take me longer to pay them off.”
I think many people believe that they are somehow stretching the credit payment over a greater period (often 30 years). This really isn’t the case. Let’s assume that you have an interest rate of around 17% on your credit cards and have a balance of $10,000. If you pay the minimum payment each month, it would take you roughly 39 years to pay it off. On the other hand, paying that same debt at the rate of 4% would only take you 152 months or roughly 12.5 years. So, it ends up being paid off over three times as fast by consolidating it with your mortgage.
The savings that you will see from paying off credit cards seems to far outstrip any benefit one might realize from keeping the two debts separated. In the end, I think that an individual is really just punishing themselves if they continue to make both payments separately.
While there are many other myths about credit cards, I thought I would tackle this one first, please feel free to comment if you have any questions regarding credit cards or if you have any experience with credit card consolidation. In the meantime, have a wonderful weekend everyone!
5 Basic Steps To Master Money in 2016
Some Facts about ARMs
If you have ever sought a mortgage, the term ARM has probably cropped up at some point during the course of conversation. ARM stands for Adjustable — Rate— Mortgage. There are many of variations of ARMs, such as 3/1, 5/1, 7/1, and even 10/1 ARMs (indicating that the rate is fixed for 3, 5, 7, or 10 years and can then adjust every after that). The idea behind them is all similar; you pay less during the initial years (due to a lower-than-market rate), but then assume the risk of a variable interest rate after the fixed period is over.
Rates have been historically low for quite some time, but they are starting to climb (the Fed just increased interest rates last month above record lows for the first time in 7 years) and it is safe to assume that they will continue to increase as the economy improves, so the short logic behind an ARM is:
Lower Rate Now, Higher Rate Later
There is much more to ARMs than this simple statement, but the variations of ARMs on the market are mainly just different expressions of this axiom (lower rate now, higher rate later)
So, when should you get an ARM?
There are many arguments for ARMs (and many against), but I think ARMs should be considered in either of the 2 scenarios:
· You are QUITE certain that you will be selling before or shortly after the fixed period of your ARM is over.
· You are QUITE certain that interest rates will be declining after the fixed period of your ARM is over.
Notice the emphasis on certainty. Years ago, I bought a home with a 5/1 ARM and was certain that I would be selling it before the 5 years was up. Life happened, and while we did move, we ended up renting out the home and carried the mortgage for years beyond the 5-year fixed period (fortunately, the Great Recession hit during the same time, so our rate didn’t increase). Many of the clients refinance from variable rates to fixed rates had the same plan: “we’re only going to be here for a short time.”
You should also consider the rates/pricing of Fixed rate mortgages and compare it to that of ARMs. Often (as in today’s market), 30-yr fixed rates are only slightly higher than ARMs (if you are being offered a rate substantially lower, they are likely charging an enormous amount of closing costs and may be adding them to your loan). If a fixed rate gives you payment that is only slightly higher than that of an ARM, it may be wise to go with a fixed rate.
This may be helpful to know: We make the same amount of money on an ARM as we do with a Fixed-rate mortgage (there is no financial incentive for me to push a Fixed Rate over an ARM). In the 10+ years that I have been originating mortgages, I have advised an ARM over a Fixed rate mortgage only once (and have yet to have a client pick an ARM over a Fixed rate mortgage). If someone is strongly recommending an ARM, I would be skeptical. However, if we are ever in a market where interest rates are high or there is a significant different between a Fixed rate mortgage and the starting fixed term of an ARM, they may make more sense.
In short, ARMs have their place, though they rarely make sense for most borrowers. If you’re not careful, you’ll spend and ARM and a LEG. I had to do that…
Final Rate Post Of 2015
The Fed's decision on rates will be announced by the end of the week. The speculations are holding strong that their decision will result in an increase in interest rates almost immediately. Here are the rates for this week:
30-yr Fixed
Conventional: 3.875%* FHA/VA: 3.250%*
15-yr Fixed
Conventional: 3.375%* FHA/VA: 3.125%*
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Fact vs. Fiction: Christmas Spending
Rates Ready to Rise
As 2015 comes to end, it also looks like low interest rates are coming to an end as well. In a recent article published in The Wall Street Journal it gave a summary for why this change will soon occur, it states:
"Federal Reserve Chairwoman Janet Yellen expressed confidence that the U.S. economy is likely to register continued modest growth, falling unemployment and a small pickup in inflation toward the central bank's 2% target, a sign she is ready to raise short-term interest rates later this month barring a surprise in markets or the economy.
The Fed, which will hold a policy meeting Dec. 15-16, has said it would raise rates when it had become reasonably confident inflation will move up toward 2% and when it sees further improvement in the job market. Ms. Yellen warned Wednesday that delaying a rate increase could have adverse consequences for the economy."
We can see that they are more confident in raising rate in the near future. With that being said here are this week's rates:
30-yr Fixed
Conventional: 3.750%* FHA/VA: 3.250%*
15-yr Fixed
Conventional: 3.000%* FHA/VA: 3.125%*
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Happy Thanksgiving
We had prepared a 10-page well-researched, ground breaking treatise on how world economics affect the bond and real estate markets in the U.S. It was epic. And long. And boring. And in truth, we’ll all be (at least should be) thinking about food and football tomorrow through the end of the week. So we’ll save that work of financial journalistic perfection for another time, and until then...
HAPPY THANKSGIVING!!
Rates Stay Constant
In honor of the holidays rates decided to stay the same over the last few weeks!
Here are this week's rates:
30-yr Fixed
Conventional: 3.875%* FHA/VA: 3.375%*
15-yr Fixed
Conventional: 3.125%* FHA/VA: 3.125%*
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Debunking a Common Myth
Debunking the myth: Does one really need to drop a “full percentage point” on their mortgage to see benefit?
Hi all, this is Aaron Endy. I am the Director of Marketing here at Evergreen Mortgage and in my typical day I do a lot of pre-qualification for Kjell. During my time here, I have heard many myths and downright false information about refinancing from potential clients and clients alike. While Kjell may take the position of expert on these matters, I simply wish to share what I have learned over the past year, during my time working for Kjell and Evergreen Mortgage.
The first myth that I would like to debunk, “if I don’t drop at least a full percentage point (on their mortgage interest rate), it isn’t worth my time.”
Oftentimes, I hear this when talking to a potential client who hasn’t yet seen the benefit that a refinance could have for them, and this particular idea is one of the most commonly stated. While it is always nice to slide down a full percentage point on interest rate, it isn’t the only factor, and should hardly be the deciding factor when refinancing your mortgage.
There are a lot of reasons to refinance, listed below are some of the most common.
Wrapping in credit card debt.
Paying off a 2nd mortgage or HELOC
Cashing in on your Equity to remodel a home
Getting rid of a Variable Mortgage.
Getting rid of mortgage insurance
Wrapping in Credit Card debt is a good way to pay off large balances. Credit cards typically carry an interest rate of between 10-19%. Wrapping the debt in at a lower rate can be a great way to mitigate some of the debt. Even if you don’t drop your current mortgage rate by a full percentage point, you will have drastically reduced the interest on your credit cards.
Combining mortgages is always nice, especially when the second mortgage has a high-rate fixed, a variable rate, or a HELOC with a balloon-payment. Combining these into a first mortgage can be a great way to save some money if you have the equity to do so. Your overall mortgage interest rate can be reduced, plus you’ll protect yourself against a rate increase on your 2nd mortgage.
And of course, if you have a lot of equity, why not use it to make your home more valuable? Remodeling projects are fairly common, and using equity to pay for home-improvement is a great way to fund these projects if you are low on cash. The remodel can often significantly increase the value of your home and your quality of life, even if your interest rate didn’t drop by a full percentage point.
Many people carry what is called a variable interest rate. This rate is subject to change year to year. It is typically lower than the current fixed rate, but can end up becoming a rather difficult payment to make as interest rates rise. Getting a similar fixed payment is a good reason to refinance.
If you have an FHA loan, chances are that you carry what is called mortgage insurance. This is an insurance designed not to protect you, but to protect the lender. It is essentially an extra monthly payment you make toward the loan. Removing this by refinancing into conventional loan has the possibility of dropping your effective interest rate by more than a full percentage point, even if the “note rate” is not a full percent percentage point lower.
Of course, the primary reason is usually to save more money per month. There are many variables which determine how much money a person will pay each month on their mortgage, and subsequently how much they can save through Refinancing. On one occasion, we saved an individual $120 a month by just lowering their interest rate 0.5 points. This is not too uncommon. Ultimately, if the goal is simply to save more money, one should look at the dollar signs, not the interest rate, to help them make the decision of whether or not to refinance.
Even if you are just reducing your interest rate (not consolidating debt, dropping your mortgage insurance, etc.), the savings from dropping your interest rate by even 0.5% can be substantial.
Let’s look at the numbers: Let’s say a prospective client buys a home with a mortgage of $200,000 at 4.625%. About 3 and a half years later, they consider refinancing (we’ll also assume they’re employed, have good credit, etc.). At a 4.125% interest rate, their payment would drop by $127/month, which is a full car payment. If I drop that even lower to 3.625% (a full percentage point), the rate is certainly better, but the additional monthly savings is only about $45. A 4.125% drop is not a full percentage point, but the real question is, is a monthly savings of $127 enough of a benefit?
When I look at refinance options, I typically look at how much money the individual will save. If it is over $100 then the savings are significant, anything above that would be beneficial, but ultimately that is for the individual to decide. Is this enough money in my pocket to justify refinancing?
So, the next time you are considering refinancing your mortgage, take a different approach and look at what the benefits actually look like, rather than depending upon a simple interest rate.
Rates Slightly Rise
Compared to the last rate post in mid October the rates have risen slightly but nothing too huge to be alarmed. There wasn't a huge increase just yet but it is projected that mortgage rates will rise soon.
Here are this week's rates:
30-yr Fixed
Conventional: 3.875%* FHA/VA: 3.375%*
15-yr Fixed
Conventional: 3.250%* FHA/VA: 3.125%*
*These are the closest “par” rates for the different types of mortgages. They assume very good credit, sufficient equity, and the absence of other negative risk factors (e.g. property use, cash-out or not, loan amount, etc.). Different specific risk factors will affect interest rates.
Mortgage Insurance
Mortgage insurance gets a pretty bad rap, and that may or may not be justified. Dropping your mortgage insurance can be a great way to reduce your monthly payments, as long as you have considered all of your options.
What is Mortgage Insurance?
First of all, mortgage insurance is NOT homeowner’s (hazard) insurance. Homeowner’s insurance protects your home in the case of a fire or some other accident/disaster. It allows your home to be repaired/rebuilt in the instances of those accidents. You can’t not have homeowner’s insurance if you have a mortgage (lenders require it), and even if you don’t have a mortgage, it’s still a good idea to protect your home with such insurance.
Mortgage insurance protects the lender (not you or your home) against losses they may incur if you default/foreclose on your home. Here is an extremely simplified example:
Let’s say I stop paying my $200,000 mortgage and 8 months later, the lender forecloses on my home. They sell the home at auction for $190,000, losing $10,000. They also have to pay attorney fees, collect back interest, etc. which adds another $5000 in costs. So, the lender lost $15,000. If I had mortgage insurance, the lender would be reimbursed (from the insurance company) for at least a portion of that money they lost.
What is the point of getting mortgage insurance?
You may be asking why you want to pay for an insurance policy that seemingly provides you with no benefit or protection. The majority of the time, mortgage insurance is required when you put down less than 20% when buying a home, or having less than 20% equity in your home (a loan-to-value ratio of more than 80%) when refinancing. Since there is less equity in the home, there is more of chance that the lender could lose money if you foreclosed, so that insurance allows them to assume the risk of giving you a mortgage, even though you didn’t put down 20%. Most home buyers don’t have 20% to put down when buying a home, so most first-time home purchases have some type of mortgage insurance.
How much is mortgage insurance?
The cost of mortgage insurance, expressed as a percentage of the loan amount, depends on several factors:
- FHA Loans – New 30-yr FHA loans all carry mortgage insurance of 0.85% per year. If you had a $200,000 mortgage, the monthly premium would be $141 ([$200,000 * 0.0085]/12). A 15-yr loan would be less (about 0.5%). This rate is the same regardless of your credit score, down payment, etc. FHA loans before January of this year (2015) had a higher rate (or perhaps lower, depending on when the loan was originated.
- Conventional Loans – The cost of mortgage insurance for conventional loans depends mostly on the amount of the down payment and your credit score, with other factors (such as the purpose of the loan) having a minor effect. The more you put down and/or the better your credit score, the lower your mortgage insurance premium will be. For example, someone with a 760 credit score and a 10% down payment would pay 0.39% per year ($65/month for a $200,000 mortgage), while someone with a 660 credit score and a 5% down payment would pay 1.15% per year ($191/month for a $200,000 mortgage).
How does one get rid of mortgage insurance?
Mortgage insurance may or may not be permanent:
- FHA Loans – FHA loans originated after January of 2015 have permanent mortgage insurance.
- Conventional Loans – When you have 20%+ equity in your home (a loan-to-value ratio of 80% or less), then your mortgage insurance can be dropped. So, as your home value increases and your mortgage balance declines, you will be closer to that point.
I heard of someone who got a loan for less than 20% down and isn’t paying mortgage insurance…
This happens sometimes and there are usually 3 possibilities as to how this can occur:
- It’s a VA Loan – VA loans require no down payment and have no mortgage insurance. They’re beautiful.
- They have a Lender-Paid Mortgage insurance policy – Mortgage insurance can actually be paid as a 1-time lump sum, called a lender-paid policy. This ranges anywhere from under 1% of the loan amount to almost 7% and again depends on credit and equity. Oftentimes with a home purchase, where the seller is paying the closing costs, the buyer can use those funds to by a lender-paid policy. The result is that they put down less than 20% and don’t pay monthly mortgage insurance (because it was paid as a 1-time fee and was part of the closing costs).
- They really do have mortgage insurance – Oftentimes, the borrower doesn’t realize they’re paying it.
So, is it good or bad?
The easiest way to look at mortgage insurance is to see it as an increase in the interest rate. An FHA loan may have a 3.375% interest rate, but adding the mortgage insurance (0.85%) takes the effective interest rate to 4.225%. Whether that is good or bad all depends on what you are getting in return for paying that mortgage insurance and what your other options may be.
If you can avoid mortgage insurance with a higher down payment (or a cheap lender-paid policy) go for it, but here are some instances where it’s not bad to have it, or where you can’t avoid it:
- You have less than 10% to put down and/or your credit isn’t perfect: If this is the case, a Lender-paid policy would be quite expensive. An FHA loan will likely be your best bet (which carries mortgage insurance).
- You’re getting a really good deal on the home: If you’re pretty certain that you will have 20%+ equity in the home in a short amount of time, a conventional loan will not have mortgage insurance for long. It is an expense that will likely go away quickly.
- You’re consolidating debt with an FHA refinance: An FHA loan will have mortgage insurance, giving you an effective rate of 4.225% (as of today’s rates), but if you’re paying off credit cards with interest rates of 15%, this makes sense. FHA loans also let you borrow 85% of the value of your home in a cash-out refinance (instead of just 80% with a conventional loan).
Considering dropping your FHA mortgage insurance?
If you have an FHA loan and your insurance is permanent, it might be wise to consider dropping it by refinancing to a conventional loan. Just consider the following:
- Do you have enough equity? – Remember that you’ll need 20% equity to not have mortgage insurance at all (or at least 10% with good credit to get a lender-paid policy).
- What will you’re new rate be? – There is a good chance a conventional loan may actually have a higher rate. You just need to compare the new rate to your effective interest rate, as well as the payments, to see if it makes sense.
- What are the costs? – If a refinance saves you $100/month by dropping your mortgage insurance, but adds $5000 to your loan in closing costs, it’s going to take a while to make up those costs with the monthly savings. Just make sure you will be in the home long enough to justify that (or feel like you have a need for that $100/month).
At the end of the day mortgage insurance is not inherently bad. The more you know about it the easier it is to understand and to decide if it works best for your circumstances.
