Weekly Rate & Market Update 3-3-17
Question of the week: Why do you think mortgage insurance is good?
Answer: We have had a lot of conversations lately with buyers, and current homeowners who are refinancing, about mortgage insurance. A good part of the conversation is communicating that mortgage insurance is not a bad thing, in fact it is very good because it is an enabler.
Why is spending money on an insurance policy that does not protect you a good thing? Because that insurance policy enables you to accomplish your objective.
Client wants to purchase a home for $500,000, has terrific income, low debt but not a lot of funds for down payment and closing cost—has about $30,000. To avoid mortgage insurance the client either needs $50,500 down and can purchase with a “Piggy-Back” second trust deed which will either have a high or adjustable interest rate, or will need $100,000 to have no second mortgage nor mortgage insurance. Either option will require more time to save money as home prices and rates presumably increase during the period it will take to increase savings.
Or….the client can purchase with a mortgage product that has mortgage insurance, either a high-balance conventional mortgage with 5% down or FHA with 3.5% down payment. Because the client will not have enough money to cover down payment and closing costs if using a high-balance conforming mortgage s/he will either have to have the seller participate in paying closings costs or take a higher interest rate for the lender to pay the costs.
To compare the two:
The high balance option would have a payment for the principal and interest on the loan and mortgage insurance of approximately $2790 per month and would spend $25,000 in cash.
The FHA client would have a payment for principal interest on the loan and mortgage insurance of approximately $2766 and would spend approximately $20,000.
Is mortgage insurance bad? Not for this client as it enables the client to purchase a home they would not otherwise be able to buy for lack of funds.
Similar examples can be seen for homeowners who wish to refinance out of adjustable rate mortgages, pay off an outstanding debt or consolidate their primary and second mortgages in front of rising rates on equity lines. Perhaps they do not have the necessary 20% equity to avoid mortgage insurance, but when examining the numbers for payments with the mortgage insurance we find it is advantageous for them to refinance with a new mortgage and mortgage insurance.
If you goal is to purchase a new home, or to refinance your existing home to improve your financial position today or in the future, and you do not have the funds or equity sufficient to avoid mortgage insurance you have to options: not purchase or refinance your home, or embrace mortgage insurance for what it enables you to do.
Never hesitate to call me, or have your friends or family call, to run numbers on “what if…” scenarios. You may not think you have enough money or equity to accomplish your objective, but perhaps with mortgage insurance we discover you can accomplish it.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
A lot of data this week. Durable goods, GDP, Personal Income and Outlays, Fed governors speaking…all impacted rates this week and the impact was to push Mortgage Backed Securities prices lower, which means rates go higher. The biggest factors were increase in Personal Income and the Price Index which gave very strong support to the Fed increasing the Fed Discount Rate later this month. Further supporting this increase were comments from members of the Federal Reserve board indicating that a rate increase is all but done.
Rates for Friday March 3, 2017: With conforming rates increasing for the first time in five weeks, we have a rising rate environment, not only from the economic data and comments from the Fed but the markets’ reactions to President Trump’s State of the Union speech. Investors have been taking money out of bonds (higher interest rates) and putting them into the equity markets, causing the Dow do bust through 21,000 for the first time. The environment is volatile but the momentum is to higher rates. Lock your rate when you can through your escrow period—and perhaps a little beyond to prevent a potentially costly rate extension should something happen to delay closing.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.125% Up 0.125%
30 year high-balance conforming 4.25% Up 0.125%
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.
No more predictions…though I did call the Super Bowl, I missed wildly on the Oscar for Best Movie even after the gaffe announcement.
I was thinking we would have a sunny and rain-free weekend but it looks like we will get some showers in Southern California this weekend. I need to crawl around my gardens for several hours to pull the abundance of weeds that have thrived in our winter weather and apparently I need to do this Saturday with more rain possibly coming Sunday.
If it is raining Sunday and you are thinking of buying a new home—go house hunting Sunday! Take advantage of all this wet weather to see if your potential new home has any leaks, if water pools where it shouldn’t on the property, and how the property in general handles rain. It may help you make a decision.
Have a great week,
Dennis
