Dennis' Mortgage Blog

Weekly Rate & Market Upate 3-31-17
March 31st, 2017 10:22 AM

Question of the week: Can we make a large payment down on our mortgage and lower the payment?

Answer: Yes, probably.

I have been getting this question a lot lately, or using the option as part of consultations with clients on long term strategy with their mortgage, retirement, etc.

You have/get a mortgage of say $400,000, you are 50 years old and want to retire in 15 years and will still have a balance on your mortgage. You have a large amount in the bank and are thinking about putting down on the mortgage and possibly lower the payment. Can you do this?

This is called recasting and most lenders will allow this with certain conditions. If you put a large payment down on your mortgage you can ask the lender to reamortize the mortgage for the new balance and remaining term of the mortgage. PLEASE NOTE Before you make the payment you must contact your lender to make sure they will recast the note and lower your payment and also what their process and possible fee for the process will cost.

Just because you can put a large amount of money into your mortgage to lower the payment, or term, does not necessarily mean you should---there are many factors you should consider before you do.

First, keep in mind that it costs money to get money out of your home. Depending on your situation you may find that you need some or all of the money you paid into your mortgage to have it recast, now you have to qualify, have costs and possibly a higher interest rate to get money you already had in cash.

Second, what is your current interest rate and what is the expectation of return on the money if you retain it until you need your home paid off, possibly when you retire? You may be net neutral and if that is the case you may want to keep your funds working where they are getting compounding returns rather than paying down your mortgage while you are still working and getting deduction for the interest.

Finally, if you are considering a major paydown of your mortgage I strongly suggest you consider obtaining and equity line of credit. Should you need a large amount of money in the future but it is not accessible since you have transferred liquid savings into illiquid equity a line of credit will enable you to access the needed funds.

A couple of things that are hard to do in life are lose and keep off weight, save money and pay off debt. When paying a large amount of your saved money into your mortgage you are faced with the dilemma of saving versus reducing debt. Before you do consider all the different options for the short, and especially the long, term and what your needs may be in the future.

If you need help with the decision please do not hesitate to contact me.

Have a question? Ask me!

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

A good week for economic data geeks, with plenty of reports released for February’s economic data. The most surprising of the reports was the Consumer Confidence report released on Tuesday by the Conference Board which had the highest reading since December 2000—two economic cycles ago. The strongest support is in income expectations, over 20% see their income increasing in the next six months and only 7% see their income declining. The strong consumer confidence data is interesting as usually strong confidence leads to strong consumer spending, but spending has been lagging. Independent of other factors such a surge in confidence would be negative for mortgage rates since it usually predicts strong consumer spending, which is 60-70% of our economic activity and strong economic activity usually drives rates higher.

Data released today for Personal Income and Outlays is very interesting in light of the confidence report in that personal income in February maintained its strong 0.4% growth from January, but personal spending grew only 0.1%--indicating that Americans are earning more but spending less faster than their income is growing, especially on services which held back total consumer spending in February. Reflecting the slower growth in spending prices in February also increased only 0.1%, though year over year prices increased a healthy 2.1% largely due to lower prices last year than stronger prices this year. The data has mixed impact on interest rates as higher income should lead to higher income leading to higher rates, but….lower spending impacts rates to the downside.

Gross Domestic Product for the 4th Quarter had its final revision and the number crunchers increased the data upward from 1.9% to 2.1% growth in the final quarter of 2016. Leading the revision upward was consumer spending in the 4th quarter. This revision puts either a bit more confusion or a bit more clarity on the February spending data. Why the slow down after a fairly strong 4th quarter of spending? It’s evidently not income, it’s not confidence, what is it? Perhaps consumers buying the 4th quarter tapped them out going into the first quarter of 2017 and what we are seeing is a deep breath before they start buying again. The GDP revisions were expected so there is minimal impact on mortgage rates.

Rates for Friday March 31, 2017: As expected with the economic data this week there is some downward pressure on rates, not enough to break out downward but some softness. After a brief spike earlier in the week we saw mortgage rates drift back down to last Friday’s levels. We are in a market where it appears lenders are hanging on a bit to higher rates before moving down to where they should be to correspond with the pricing in the secondary markets. Rates are great for buying or refinancing!

30 year conforming 4.00% Flat
30 year high-balance conforming 4.125% Flat
30 year FHA 3.50% Flat
30 year FHA high-balance 4.00% Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages.

I often tell people that I love my job, especially when I tell people they just bought a new front door. Well we are looking for a new front door this weekend….literally. Leslie has wanted to replace our front door for some time and the time has come to visit the various stores to see what is happening in the door market. Between door shopping and the basketball tournament I think it’s time for my least favorite activity of the year—collecting all my information for tax preparation, blech.

I hope you have a great weekend,


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Posted by Dennis C. Smith on March 31st, 2017 10:22 AMPost a Comment

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