For today’s home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.

The 15-year/30-year interest rate spread is near its 5-year high.

Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments.  This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.

As compared to 30-year terms, 15-year products repay 3 times as much principal each month.

Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting.  The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.

Another negative is that the sheer size of the payment.  If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do.

In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term.   If you can manage it, though, the rewards are tangible.

At today’s rates, a 15-year fixed and 30-year fixed costs $230 extra per $100,000 borrowed.

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In a week in which stock markets moved 1 percent or more on four separate days, mortgage markets displayed a relative calmness that helped pull rates lower.

It was the second consecutive week that mortgage rates improved in Cincinnati. 

Last week’s biggest story came Monday when the housing bill was passed into law.  The new law provides lifelines to the housing market’s far-reaching corners including to homeowners, to lenders, and to mortgage-bond securitizers like Fannie Mae.

To the mortgage markets, the law adds stability to the system.  Because the severity of losses is likely to reduce, mortgage debt is suddenly more attractive to global investors which includes pension funds, hedge funds, and other nations. 

With fewer mortgage-related losses expected, demand for mortgage debt increased and that helped pressure mortgage rates lower.

There was other big news last week, too, and it came in the form of employment data. 

For the seventh straight month, the economy lost jobs and it has now shed close to a half-million jobs so far this year — a minuscule one-third-of-one-percent of the entire U.S. workforce.

Despite that smallness, though, unemployment among Americans is a trend worth watching. 

When fewer Americans are working, fewer Americans are spending and that can slow down the U.S. economy.  For now, this sort of mild slowdown appears to be leading mortgage rates lower but too many lost jobs could reverse the trend.

This week, there are two big events on the calendar — Monday’s Personal Spending and Personal Income figures, and Tuesday’s Federal Open Market Committee meeting.

The Fed is widely expected to hold the Federal Funds Rate at 2.000 percent but — as is always the case — it’s not what the Fed does, it’s what the Fed says.  If the Fed talks tough against inflation, expect mortgage rates to rise.

(Images courtesy: The Wall Street Journal Online)

Mortgage rates soared in Cincinnati last week as mortgage markets experienced a 4-day freefall. 

By the end of the trading week, conforming mortgage rates had jumped by as much as 0.500 percent.

The spike in rates can’t be pinned on any one factor, but 3 contributing factors include:

1. The lingering impact of high energy prices on inflation
2. The ongoing weakness of the U.S. dollar
3. A rally in the financial sector, marking a return to risk-taking

Inflation and a weak dollar both devalue mortgage repayments, a well-chronicled relationship on this Web site.  In short, when mortgage bond investors find that their repayments are worth less, they demand a higher return.  This causes mortgage rates to rise.

But, it wasn’t inflation or the dollar that caused the majority of the damage to mortgage rates last week — it was the rally in the financial sector.

Rates had edged higher Tuesday on the inflation data but it wasn’t until Wednesday’s morning stronger-than-expected announcement from banking leader Well Fargo that mortgage rates really started to spike. 

In its quarterly report, Wells Fargo said that its balance sheet was strong and that it planned to increase shareholder dividends.  The rosy announcement sparked a strong demand for all things financial and — by day’s end — the sector scored a 12.3 percent gain on Wall Street. 

It was the largest one-day gain in financial stocks ever.

Then, following Wednesday’s rally, financials picked up additional momentum and ended up closing out the week higher by 21 percent. 

Unfortunately for mortgage rate shoppers, a large chunk of the money that fueled the rally came out of from the mortgage bond market. 

As investors looked for cash to buy financial stocks, many chose to sell mortgage bond holdings, creating excess supply.  More supply leads prices lower and, in the mortgage world, when prices fall, rates go up. 

Because mortgage bond prices fell a lot last week, mortgage rates rose by a lot.

This week, expect momentum to be The Big Story.  There is little data beyond Thursday and Friday’s Existing Home Sales and New Home Sales, respectively, and Friday’s Consumer Sentiment Index.  And only a few members of the Fed will be speaking in public.

The one bright spot last week was falling oil prices. 

After an 11 percent decline, Americans are waking up this morning to lower gas prices.  This is anti-inflationary and could help tug mortgage rates lower.

Mortgage rates fell slightly in a week that included a bank failure, more oil price spikes, and questions about the health of the nations’ mortgage market. 

Rates would have fallen more for Cincinnati residents if not for a late-Friday sell-off that added 0.125 percent to most products.

As financial markets fell under stress, most people missed the strong points that emerged about the U.S. economy last week:

• Fewer Americans filed for unemployment benefits
• Wal-Mart reported stronger-than-expected sales
• Consumer confidence rose for the first time in 7 months

And, also worth noting: homes under contract slipped but remained above the lowest levels of the year, suggesting a potential housing floor.

But, the biggest story of last week was the stock-price collapse and subsequent pressure on Fannie Mae and Freddie Mac.  It should be the biggest story of this week, too. 

So far, Fannie and Freddie’s issues appear to be more psychological in nature than fundamental, but to an already roiled market, negative perception can quickly become reality.  This is one of the biggest reasons why both the Federal Reserve and the U.S. Treasury made public statements Sunday in support of Fannie and Freddie, and in advance of the Asian markets’ opening.

Other events that may move markets this week include Retail Sales data on Tuesday, consumer inflation data on Wednesday and Ben Bernanke’s two-day testimony to Congress which takes place over both Tuesday and Wednesday.

It’s unclear in which direction mortgage rates will go, but because the markets are on-edge, expect rate movements to be sharp and quick.  In other words, if you’re in the market for a mortgage this week and you see a rate and payment you like, don’t mess around with it — just get it locked.

(Image courtesy: Wall Street Journal Online)

Mortgage rates moved higher in Cincinnati last week on lingering concerns about inflation, the fourth straight week in which rates rose.

Mortgage rates are now as high as they’ve been since October 2007.

Because inflation devalues mortgage bonds, market players are quick to unload them when signs of inflation are present.  

Last week, there were several such signs:

1. The American Consumer is spending undettered despite economic uncertainty
2. The Cost of Living is rising faster than expected
3. The Federal Reserve reports that some business are passing higher costs on to consumers

Hence, the higher mortgage rates.

This week, only Tuesday registers as a “big data day” with reports on housing, productivity, and Producer Price Index — the “Business Cost of Living” report.  

There will be four members of the Federal Reserve speaking, though, and that will add some volatility to the market.  Fed Chairman Bernanke is among the speakers, addressing Congress this morning at 10:00 A.M. ET.

So, expect mortgage rates to continue to jump and dip in the Queen City this week, taking their cues from inflation.  More inflation means higher rates and a slowing economy should cause rates to retreat. 

(Image Courtesy: LA Times)

There was no rest for the mortgage-rate weary last week. 

As mortgage bonds sold off early in the week, sharp rate hikes followed. A steady stream of better-than-expected economic reports had re-ignited inflation fears, drawing money from the bond market.

On Friday, however, the money flow reversed on a triple threat to the U.S. economy:

1. The Unemployment Rate took its biggest one-month jump in 22 years
2. Oil made its biggest one-day gain
3. The U.S. dollar lost a lot of value

By themselves, each of these events normally would be bad for mortgage rates but the Friday combination of all three led to a huge stock sell-off and renewed demand for bonds — including the mortgage-backed kind. 

Despite Friday’s reversal, mortgage rates were higher on the week, overall.

This week, there won’t be much economic data this week but there will be six Federal Reserve members making speeches to the public. 

The most anticipated of the set is Fed Chairman Ben Bernanke’s address Monday evening on the topic of “inflation”.  Markets will be closed when Bernanke speaks so expect a delayed market reaction Tuesday morning.

Throughout the week, markets should continue their long-standing battle between the fears of inflation and the fear of recession.  It’s the same back-and-forth that we’ve seen since late-2007.

It’s also the primary reason why mortgage rates rarely stay still anymore.

(Image courtesy: The Wall Street Journal Online)

So, I’ve been the victim recipient of a meme (pronounced “meem”). 

A meme is a tag-like game that passes from blog-to-blog in which the author reveals some stuff about himself.  Jeff Belonger memed me but claims that RSS Pieces’ Mary McKnight is responsible for making the meme multimedia.

I guess some people take memes pretty seriously, but it’s more like a Bubble Gum interview to me.

8 questions, 8 answers, 8 more to meme…

Who is your favorite musical artist? (Post a YouTube video)

So many of us like so many different artists that a better question can sometimes be “What’s your favorite Beatles Album?”  For me, it’s Abbey Road.

Who is your favorite artist?

Like the musician question, there are so many to choose from.  Does Hugh McLeod count?

Who is your favorite blogger?

There’s no blogger that I read above everyone else, but I’m absolutely partial to postive thinkers that dwell on the good in the world.  Having a good attitude in life takes a lot more more effort than being negative about everything.  I respect that trait when I see it in other bloggers.

If you could meet anyone alive or dead, who would it be?

The two babies hanging out in my wife’s belly.  She tells me to be patient.

What did you want to be when you grew up?

I wanted to be the inventor of the most useless device ever.  Sadly, somebody beat me to it.  Loan Officer is not a bad second choice, though.

What’s the most interesting piece of trivia that you know?

The number you are thinking of right now is 7.

If you could live in any point in history, when would it be and why?

November 5, 1955.  It’s the day the Flux Capacitor was invented.

What’s the most interesting job you’ve ever held?

Father.  I spent years studying mathematics, chemistry and physics in school for my formal education.  Then, I prepared for fatherhood in an hour, reading a 100-page book called “Rookie Dad” .  Shouldn’t it have been the other way around?

8 More To Meme:

1. Lani Anglin-Rosales — Agent Genius
2. Jim Cronin — Real Estate Tomato
3. Joel Burslem — The Future of Real Estate Marketing
4. Jonathan Miller — Matrix
5. Mark Davison — 1000 Watt Blog
6. Todd Carpenter — RE Blog World Blog
7. David Gibbons — Zillow Blog
8. Linda Davis — Eastern Connecticut Real Estate Blog

Thanks.  It’s been fun everyone…

The market optimism that had pushed mortgage rates lower since late-March reversed last week on ever-rising oil prices and a bleak outlook from the Federal Reserve. 

When gas prices reached $4.01 around Cincinnati Friday, it re-ignited inflation concerns and inflation, you’ll remember, is the enemy of mortgage rates.

As expected, mortgage rates spiked into Friday’s market close.

Markets were closed for Memorial Day but re-open this morning with traders feeling apprehensive about mortgage market investments. There are many reasons to park money elsewhere, after all.

1. The U.S. dollar is trolling near all-time lows against the Euro
2. Oil markets are returning incredibly high rates of return
3. Big banks are still writing off large mortgage losses

All three of these reasons reduce demand for mortgage bonds and — because mortgage rates move in the opposite direction of mortgage bond prices — mortgage rates rise.

This week, a few inflation-related data points will cross the wires including the Fed’s preferred inflation gauge — PCE.

PCE stands for Personal Consumption Expenditures and it measures the cost of living for ordinary people. It’s the Fed’s preferred measurement because PCE accounts for Americans buying more chicken when meat gets expensive, or buying more fruits when vegetables get expensive, et cetera.

PCE is different from the Consumer Price Index because CPI is a “fixed” basket of products.

If PCE is running high, expect the exodus from mortgage bonds to continue and rates to run higher. If PCE is flat or lower, mortgage rates should fall.

(Image courtesy: Gasbuddy.com)

Real estate markets differ from town to town and so does the Cost of Living.

Courtesy of CNNMoney, this calculator compares living expenses changes between any major city in America and Cincinnati.

The living expenses compared are:

• Groceries
• Housing
• Utilities
• Transportation
• Healthcare

Comparison data is provided by C2ER which, on its own Web site, charges $4.95 for each city-to-city comparison.  At CNNMoney.com, however, the exact same data is licensed and available for free.

More than 130 million Americans will receive tax rebates this year as part of Congress’ $168 billion economic stimulus package. 

Payments begin in about two weeks and range from $600 for individuals to $1,200 for couples, plus an additional $300 per child.

Not everyone is eligible for a full rebate, however.

For single filers earning more than $75,000 and joint filers earning more than $150,000, the tax rebate is reduced by $50 for each $1,000 of income beyond the limits. 

An individual with no children, therefore, will not receive a tax rebate if income exceeds $87,000 annually.   The IRS provides a tax rebate calculator that can help make sense of the math.

For tax filers using direct deposit, the rebates will be paid based on the last two digits of the social security number:

• SSN ending in 00-20 will arrive May 2
• SSN ending in 21-75 will arrive May 9
• SSN ending in 76-99 will arrive May 16

For tax filers using paper checks instead of direct deposit, payouts begin a little bit later on May 16 and extend through mid-July.  The IRS makes the exact dates known on its Web site.

For late income tax filers, the IRS send rebate checks about two weeks after the returns are processed, but not before the regularly scheduled date.

It takes 18.5 years for the principal portion of your mortgage to outweigh the interest portion.

For some perspective: If you took a new, 30-year fixed mortgage when the Reds last won the World Series, you’d still be to the left of that arrow for another 11 months.

FHA stands for Federal Housing Administration, a group created in the National Housing Act of 1934 and merged into the U.S. Department of Housing and Urban Development (HUD) in 1968.

Mortgages backed by FHA are often called “FHA loans” even though it’s somewhat of a misnomer.  A more appropriate name would be “FHA-insured” loans because that better describes the FHA’s function. 

The FHA is not a lender.  The FHA is an insurer of loans and because of the FHA’s guarantee, mortgage lenders are willing to make loans to Ohioans on which they would otherwise pass.

Mortgage rates on an FHA-insured loans usually track about 0.250% higher than on comparable conforming loan, but because of new risk-based, mortgage rate adjustments from Fannie Mae and Freddie Mac, FHA loans suddenly look super-cheap.

Borrowers with sub-680 credit scores and a 10 percent downpayment, for example, are getting mortgage rates close to 1 percent lower than on comparable conforming loans.

The FHA also offers a few attractive features:

• 3 percent downpayment allowable
• Very liberal “seller contribution” policies to defray closing costs
• 30-year fixed rate mortgages

FHA loans aren’t for everyone and not every mortgage lender is approved to offer FHA-insured products. 

Home buyers with credit scores under 720 should talk with their loan officer to see if FHA loans are a responsible fit for their long- and short-term financial goals.

Source
FHA Loan
Wikipedia, April 1, 2008

http://en.wikipedia.org/wiki/FHA_loan

The Federal Reserve lowered the Fed Funds Rate by 0.750% Tuesday to 2.250 percent.

The Federal Reserve uses the Fed Funds Rate to stimulate (or slow down) the economy and that point often gets lost when the headlines blare about “rate cuts”.

Many people assume cuts to the Fed Funds Rate brings mortgage rates down, too.  It doesn’t. 

The Fed Funds Rate is not a consumer interest rate; it’s a rate that is only used between one bank and another.  So, when the Fed cuts the Fed Funds Rate, it’s starts a trickle-down effect that renders money less expensive first to banks, then to businesses, and then to consumers.

This process can take up to a year.

For real-life evidence, the chart above shows how the Fed Funds Rate has dropped in the past year, but mortgage rates have not.  To the contrary, mortgage rates have increased.

(Image courtesy: The Wall Street Journal)

Kevin Duffy of RE/MAX Unlimited tipped me about a local bank offering 5% interest rates on a 5-year balloon right now.  This isn’t the first instance of a bank offering super-low rates for a less-than-optimal home loan, 

Versus most 5-year-like products in the mortgage market today, the 5 percent rate on this bank’s balloon is actually a pretty decent rate.

But that doesn’t make it a good choice.

As a mortgage broker, I don’t often advise my clients to use the 5-year balloon mortgage because many Cincinnati homebuyers have an expected timeframe in their home of more than five years. 

The big question mark on 5-year ballooning mortgage products are:

What happens to the balloon mortgage when the 5 year balloon is over?

The answer is that it comes due in full when the initial loan term ends. 

This makes the balloon mortgage considerably more dangerous than a comparable adjustable-rate mortgage.  With an ARM, when the 5-year period ends, the mortgage payments may increase (or decrease), but they still stay within a pre-determined, well-contained range.

With a balloon, there is no new payment– the entire loan balance is due on the spot. 

The 5-year balloon rate of 5.000% is fine if the balloon product meets your needs.  Balloon products rarely do, however, so taking the 5-year balloon would be like going to Nordstrom’s in Kenwood (soon!) and buying shoes on sale in a size that doesn’t fit just because the shoes are “a good deal”.

The best rate on an ill-fitting mortgage product makes for achy feet.  Shop for a mortgage plan and a mortgage rate — it’s the best way to secure your long- and short-term financial goals.