Dennis' Mortgage Blog

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Question of the week:  Should we get a 15 year loan instead of a 30 year loan?

Answer:  Like most questions regarding mortgages there is generally not a simple “yes” or “no” answer; instead there are questions that you need to answer to determine if a 15 year, or 20 year, mortgage and the higher monthly payment is better for you and your family than a 30 year mortgage.

How long do you intend to be in the home?  If you plan on being in the house for fifteen years or less and then planning on selling the home does it make sense to rapidly pay down the mortgage?  Yes you will be saving on interest payments, but you will also be spending a lot more money on your home every month and year that you cannot direct to savings and investments.

What would you do with the money every month if you had the lower payment on the 30 year loan compared to the higher payment on the 15 year loan?  During the term of the  mortgage can you get a rate of return better than the rate on your mortgage? If so would it not make sense to invest the money and earn more in dividends and interest reinvestment than you would pay in interest?  For example if you can get a 15 year loan for 3.5% or a 30 year loan for 4.00% and over the next ten to fifteen years you feel you can average more than six to seven percent, would it not make sense to take the loan with the smaller payment and invest the difference between 15 year loan and the 30 year loan and earn a greater rate of return than you are paying in interest?

Is your home economic situation stable or is there a chance it may change in the near future?  Does your income include considerable bonus, overtime or commission income? Are those features likely to continue for a long time?  If not and you get a 15 year loan with a higher payment would you have been better off if you lose your non-base pay having a 30 year fixed rate mortgage?

Are there other expenses that will occur in the future for which having the additional money every month available to pay those expenses, or to save for those expenses, make your financial situation easier and less stressful?  If you have kids are they out of college or will you need to save for those expenses? How young are they, have you passed through the braces stage, the summer camps and programs stage, the third car stage?  If your kids are out of the house have you saved enough for medical care and retirement?

The most important question:  Do you need your home paid off in 15 years?  If you are planning on staying in your home for many, many years beyond 15 years, if you are able to easily qualify for the higher payment, if your retirement planning includes not having a housing payment, then a 15 year loan is probably a very good idea and an easy decision.  Otherwise review your long term goals, objectives and abilities before getting a 15 year loan, it may not be the wisest financial decision.  If you are considering a 15 year mortgage, or a 20 year mortgage, or even a 30 year mortgage, please contact me to go through you financial abilities and objectives to determine the mortgage product that best suits your needs today and tomorrow.

Have a question?  Ask me!

Inflation numbers came out this week.  First the Producers Price Index (PPI) was released on

Tuesday and the number was what is termed as “hot.”  Well above the number for August, September’s prices for producers, also known as the wholesale number, showed a 2.5% increase in wholesale prices.  Mostly due to increases in gasoline costs, a big jump in PPI often predates an increase in the Consumer Price Index (CPI), what you and I pay for goods and services.  On Wednesday the CPI number for September was tame, lower than expectations.  Consumer prices, or inflation, is at two percent annualized, well within the inflation rate that the Federal Reserve considers acceptable.  Which means at least for the time being there is not inflation threat to cause rates to rise…for the time being, we’ll see if September’s PPI number impacts October’s CPI.

Are you tired of me writing about Europe?  I’m tired of writing about it so many of you must be tired of reading about it.  Why do I continue to write about it? Because nothing is happening except every day and week statements are made about how a new plan is going to be approved to settle the Greek debt and financial crisis, but there is no approval.  On Wednesday Greeks to the streets of Athens in riots to try to influence their Parliament to not vote into place austerity measures, measures that are required as part of any deal with the rest of the European Community to get financial assistance.  From the birthplace of drama and tragedy in theater comes real life Greek tragedy; rioters want their government to not put in place measures to ensure financial assistance to ensure government payments, albeit smaller payments, to those on government entitlement and retirement programs, if the rioters are successful the government collapses and no one gets payments.

Sales of existing homes in September were down from August, traditionally the highest sales month, but were up over 11% from September 2010.  Challenges in California for the resale market will exist in the future as Bank of America has increased their foreclosure filings by over twenty-five percent.

Mortgage rates have settled into a small trading range after their post-Fed-twist increase.  For the past week we have seen some ups and downs but over all pretty stable.

Rates for Friday October 21, 2011: A stable week for a change in rates, slight improvement in high-balance conforming and some positive momentum to open the last day of the week.  With rumors of deal-no-deal swirling in Europe, the U.S. Debt Commission deadline looming and the PPI inflation numbers I am still calling this a volatile market in which clients should lock when they can, a rate we have one day can be gone the next.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.875%             Flat

30 year high-balance conforming           4.125%             Down 0.125%

30 year FHA*                                                   3.75%               Flat

30 year FHA high-balance*                   3.75%               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. 

* Current rates include credit towards closing costs, call for quote on rate and credit.

Early Weekly Rate and Market Update this Friday as I’m having a hooky day with a couple of friends playing golf in the desert.  Oooops, I meant, I am attending an “Environmental Seminar” with a business associate and client; that is for those who don’t want to hear we take a day off from time to time to recharge.

Recharge yourself this week, be it for a day, half a day or even a few hours, take time to get away from what creates any stress or jams your schedule so you cannot find the time to be yourself.  Turn off the smart phone, walk away from social media, get away from electronic stimuli, it is very relaxing.

Have a great week,

Dennis