Friday, October 14, 2005

Mortgage Rates on The Rise

For the first time since March, the average rate on a 30 year fixed mortgage passed the 6% mark. Rates are continuing to rise which will affect homebuyer’s bottom lines.

The rate on a 30 year fixed averaged 6.03 this week up from 5.98% last week. In the adjustable rate market, the average was 4.77% a week ago – today holding at 4.85.

Everyone blames the FED. Treasury yields are being pushed up by the Federal Reserve’s credit tightening campaign and be the threat of worsening inflation from continued high energy prices.

Mortgage rates have been projected to rise gradually over the next year, with the 30 year fixed rate expected to stay at or near 6% through 2005 and rise to 6.4 by 2006. This, according to Frank Nothaft of Freddie Mac.

Thursday, October 13, 2005

Mortgage Deductions Threatened

President Bush’s Tax Reform Commission agreed to limit the amount of mortgage interest a homeowner may deduct from their taxes.
The cap and how it would be determined has not yet been decided. One possibility is basing it on FHA’s current mortgage cap, which, is now at $312,895. I don’t know how they’ll use that but the details will be finalized in a meeting scheduled for October 18, 2005.

Currently a homeowner can deduct mortgage interest on a loan up to $1,000,000. A lower limit could affect many homeowners in California because we have the most over 1 mil homes.

As Vince Malta put it, “Real estate has been driving the economy, but it won’t much longer” if mortgage deductions are curtailed.

Read the full text of the article here,

Tuesday, October 11, 2005

Long Beach Property Tour

Dixie and I are going on a Property Hunt today. We've got 20 or so houses to look at in Long Beach. If you'd like to come along, call my cell phone, 562-449-8421 or e-mail Mobile E-mail

Monday, October 10, 2005

Refi Refi Refi

In the Los Angeles Times’ Business Section today, there is an item about the apparent mortgage refinance boom. Essentially, we’re talking about Adjustable Rate Loans and Interest Only Loans that have created a potentially dangerous situation for borrowers who may see their payments skyrocket over the coming months or years.

As interest rates increase so too will monthly payments. On interest only loans, the payment will increase to include both principal & interest in the monthly payment once the fixed term of the interest only payment ends. This can be anywhere between 3-5 years.

There is somewhat of a panic among these borrowers who chose these creative finance options, and, perhaps rightfully so. If the loan is getting near the end of its term, where the interest rate may increase if a variable rate loan, or interest only payment now includes principal, in an interest only loan, then they should definitely refinance out of those loans.

For the rest of us, we need to change the way we think about these Creative Finance Options. Sometimes we consider these things a way to get a cheap mortgage. I like to consider them, a Finance Tool. A tool that enables us to leverage our investment. Basically, lower investment, lower monthly payment, higher return.

These loans also, are probably the only way some buyers will ever be able to afford a home. But there are some considerations to take into account with these loans.

First off, you should condition yourself into paying more than the minimum payment all the time, on time. If you don’t expect your income to increase drastically within the next couple of years or if you don’t plan on moving anytime soon, perhaps these loans aren’t for you. It is necessary to refinance out of or sell the house in order to avoid increases in payments which you might not be able to afford. Also with these types of financing, if the property value drops, you might end up owing more on the house than its worth. So, to avoid a disaster should a drop in value happen, it is highly advisable to get equity built up to help cushion a slight drop in value.

For more information regarding the creative finance options available to home buyers, please e-mail

Sunday, October 09, 2005

Sunday morning talking points

Sunday morning… Good day for touring clients around available properties. I’m actually waiting for an appointment and while enjoying my coffee and funny papers, I had a few thoughts I’d like to share.

First on my list of talking points is, all this chatter about real estate bubbles and declining markets. Well, most of you know my views on these sour matters but I noticed a piece in the paper about PMI and thought it was good information to share.

If you have PMI (private mortgage insurance) you can save yourself some money on your monthly payment if you have paid down your loan to at least 80 percent of its value. PMI can add $100 or more to your monthly payment, and, it seems a waste if you don’t need it.

PMI is an insurance policy that you pay for that the lender will use in lieu of a full 20% down payment on a home purchase. This policy covers your lender in the event that you default on the loan.

Most people who are paying for PMI don’t realize that they can terminate the policy under the Homeowner Protection Act of 1998. Basically, this law empowers homeowners with PMI to cancel their coverage if their loan has been paid down to 80% or more of the ORIGINAL VALUE. Also under the law, even if a person forgets to ask for cancellation, the policy must automatically cease after the loan has been paid down to 78% of value. Most of these are requirements of FHA loans but also apply to other loans varying requirements. You’ll want to check with your lender or real estate professional about the requirements for canceling PMI on your mortgage.

  • You must be current with your payments &

  • There may not be any other loans on the property

If there is a decline in the value of your home, it will be harder to cancel your PMI because the loan to value ratio will be higher, so, if you can – cancel it now. The money you save could be invested elsewhere.

Second. Since were on the topic of insurance… Renters! According to a poll, 70% of renters don’t have Renter’s Insurance. Their reason? They assume their landlord’s policy will cover their losses in a disaster, fire, flood, earthquake, etc…

Their assumption is faulty. As a landlord, any policy I have on a property covers me, not you (my tenant). It is the renter’s legal responsibility to insure his or her personal property against loss. Coverage is very much like a homeowner’s policy and usually much less expensive. So, if you rent, call your insurance agent and ask about Renter’s Insurance.