So Why Do Mortgage Rates Change So Much?

Have you ever called a mortgage company and received a quote and then called back the next day and the same rate was no longer available??

Mortgage companies, Banks and Credit Unions are subject to potential daily and even hourly shifts in the market. Interest rates fluctuate on the simple principal of supply and demand.   

Mortgage rates trade based on Mortgage Back Securities and The Bond Markets as well as the overall economy.  The vehicles that mortgage rates are based on are considered very conservative, stable and tend not to have the wild swings that one would find in the Stock Market.  If the Stock market begins to see large increases or decreases, Investors will shift Billions of dollars in and out of the Stock Market and move them in to the Mortgage Markets.  This will cause mortgage rates to either rise or fall.  Stock Market tanks, good news for Mortgage Rates, Stock Market rallies and rates suffer.   Investors and Traders will constantly shift funds out of the riskier stocks into the safe haven of the mortgage markets.  These shifts can occur as little as once a day or in some cases can happen multiple times during a trading day. Thus causing mortgage rates to possibly change multiple times in a day.

These markets are affected globally as well; so even after the markets are closed in US, whatever is happening in Europe, Asia and around the world will cause our markets to move one way or the other.

What drives interest rates (click here for quick facts)

Here are some of the variables that are being watched in today’s market:

• Covid-19 – Global Pandemic
• Ukraine
• Europe and Asia’s Economy
• Comments by the President
• Politics
• The US Housing Market
• Unemployment in our Country
• The Price of Oil and Gas
• The “Feds” decision to move short term interest rates
• The overall health of the US Economy

Any of these items can trigger a rally one way or another.  Even a simple comment at a breakfast meeting by the President, the Fed Chairman or someone in power is enough to influence the markets.

Additional Mortgage Rate and Index Information:

To help us understand why mortgage rates change, it is important to realize that there is not one interest rate, but multiple ones. Below are some of the most prevalent interest rates and indexes that also have an impact on mortgage rates:

Prime rate – This rate is often offered to a bank’s best customers. If you are shopping for a home equity line of credit, then it is important to familiarize yourself with the prime rate. HELOCs are typically based upon the prime rate -plus or minus a certain percentage.

LIBOR – Stands for London Inter-bank Offered Rates. Libor rates are based upon the rates that a select group of London Banks offer each other for inter-bank deposits. Many adjustable rate mortgage programs use the Libor index.

Treasury bill rates ”T-bills” and Treasury Notes – These are short-term and intermediate debt instruments used by our Government to finance their debt. The treasury index is based upon the auctions of U.S. Treasury bills or on the Treasury’s yield curve. Like the LIBOR index, the U.S. Treasury index is a popular index for adjustable rate mortgage products. Also, the Twelve Month Treasury Average (12 Month MTA) is a popular index which is based upon the twelve month average of the monthly yields of U.S. Treasury securities (maturing in one year). The MTA is a popular choice for option arm mortgage programs.

Treasury Bonds – Unlike T-bills and Treasury Notes, treasury bonds are long-debt instruments. These bonds are used by the U.S. Government to finance its debt.

Cost of Savings Index – often referred to as the COSI index. This index is based upon the annual average of interest rates on World Savings deposit accounts. The average is pulled on the last day of each month.

11th District Cost of Funds – Often referred to as the COFI index – The COFI index is based upon the average of the borrowing cost to member banks of the Home Loan Bank of San Francisco of the 11th District. Unless you are shopping for an option arm mortgage, it is unlikely that your loan will be affected by this rate.

Certificates of Deposit Index – Often referred to as the CODI index – this index is arrived at by calculating the average of the past twelve months rates of 3 month CD rates.

Federal Funds Rate – The fed funds target rate is the rate which federally chartered banking institutions lend balances to other depository banks overnight.

This is a lot of information to weigh each day when calculating mortgage rates.  In general, most Banks, Investors, Lenders etc. will set rates around 10:30am once most of the morning economic reports have been released and the markets have had time to react to the information.  In a calm trading day on Wall Street, these rates would be good for that day.  In a day where lots of Economic reports and World events are occurring, these rates can be reset a few times as the Markets fluctuate.  It is important to call your lender or bank often to check on these rates as they can and will change.  It also important not to follow online rate sites that may be posting Average Rates as this information can be old as well a different Financial Picture then you may have.  The Freddie Mac rates are based on closed loans from last week and an average of .7 Points of fees in the rate. This may give you a range, but not accurate enough to base your mortgage payment on or what is happening today in the markets.

Bill Nickerson has been in the Mortgage industry since 1991. Please leave a comment, email or call me anytime with questions you may have about mortgage programs, rates and to get approved for a mortgage.

   NMLS# 4194  www.billnickerson.com  978-273-3227

Bill Nickerson

10 Things to do before listing your home

 To help make the selling process easier for you, it makes sense to have your home inspected before listing it.  It may sound like a hassle but it could save you a lot of money and stress early on.  The inspection will pinpoint red flags and areas that have potential problems.  It also gives you the opportunity to address those issues before listing your home.  Having your home already inspected ultimately also gives the prospective buyers the comfort and confidence that the seller actually cared about their home in the first place.  Be sure to share this information with prospective buyers by supplying a copy of the home inspection.  It is perfectly okay to choose not to have your home inspected before listing.  If you take this route, just be sure to do your own pre-listing home inspection to keep things significantly less nerve-racking and not terribly costly before the buyer’s home inspector comes through.

Here are 10 areas to look at/fix up before listing your home.

1.  Fix any deteriorated paint jobs.  Touch up any dings on the walls or woodwork, scrape and paint any flaking areas.

2.  For furnaces over 10 years old; pay to have it serviced and cleaned.  Then display the inspection papers (store them in a Ziploc bag) by taping to furnace.

3.  Make sure all toilets are flushed.  Nothing worse than having a seldom used toilet not functioning properly.

4.  Run water down sinks and bathtub drains.  All drains need to flow steadily.  No slow drains!

5.  Check for leaks under sinks and in vanities.  Tighten up joints if necessary.

6.  Check out the condition of the roof.  You want things to look normal: no missing shingles.

7.  Clean out the gutters.  They need to be free of debris for good drainage.

8.  Open and close all windows.  Check for springs working properly so windows don’t slam down. Make sure all the locks work and windows close tightly.

9.  Test any appliances like the dishwasher that you are leaving behind.  You want them working properly. Make sure all burners/oven are working on your stove.

10.  Test the auto reverse on the garage door.  Make sure the safety mechanism works.

For more information about Home Inspectors or how to prepare to list your home, call or email me anytime.  Bill’s Email  | Phone 978.273.3227

What are Closing Costs?

Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers in Massachusetts, closing costs will come to about $3500 plus lenders title insurance and any pre-paid items such as real estate taxes, insurance and interest.

There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

Third Party Fees (The Hard Costs)

• Attorney’s fees (yours and your lender’s if applicable)
• Appraisal
• Credit Report Fee
• Lenders administrative costs
• Recording fees
• Plot Plan or Survey fee
• Title insurance (yours and your lender’s)
• Loan discount points (click to the left to see if points are worth it)
• Any documentation preparation fees

Pre-Paid Items:

• Property taxes (to cover tax period to date)
• Interest (paid from date of closing to the following first of the month)
• First payment to escrow account for future real estate taxes and insurance
  • 3 to 4 months of real estate taxes to be held in escrow
  • 2 months of homeowners insurance to be held in escrow
• Paid receipt for homeowner’s insurance policy (including fire and flood insurance if applicable)
• First premium of mortgage insurance (if applicable)

Additional Items that No One Tells You About:

• Purchase and Sales Review
• Recorded Homestead Act
• Representation from a real estate attorney other than what the bank provides
• Home Inspection
• One Year of Homeowners Insurance up front
• Owners Title Insurance
• Buying the Oil in the Oil Tank of your new home

For more details regarding these items, please see my blog post: Home Buying Closing Costs: What to Expect

Or for more clarification on closing costs and how you can save your buyers money, feel free to contact me anytime at bill@billnickerson.com 

 

 

Can I give you a Piggy Back?

Whether you call them Piggy Back Loans, Blended Mortgages, A first and second, 80-10-10, these loans are extremely helpful in avoiding Private Mortgage Insurance (PMI).

The Piggy Back

When you have less than 20% to put down on a home, you are charged Private Mortgage Insurance, this added cost is based on the actual down payment as well as your credit score and in some cases can be in the hundreds of dollars per month.   Several years ago, many banks, lenders and mortgage companies created a program that would allow having a first and second mortgage to avoid the high cost of mortgage insurance.  At the end of the Housing Bubble, many banks, lenders and mortgage companies went out of business, these second mortgage and lines of credit nearly disappeared.  They were still available, they were just really hard to find.

Based on your purchase price, you would take out a first mortgage in the amount of 80% of the price and a second loan in the amount of 10%.  You would still be borrowing 90% of the purchase price (10% down payment).  In doing so, you have lowered the loan-to-value ratio (LTV) of a first position mortgage to under 80%, thereby eliminating the need for private mortgage insurance (PMI).

Example: Here is a comparison of using the Piggy Back Mortgage versus a mortgage with PMI.  This is based on a purchase price of $400,000 with 10% down on a single family home and assuming a credit score of 740 or greater.

Without the Piggy-Back:  You would have a first mortgage of $360,000, using a mortgage rate of 4.5% on a 30 year fixed.  This would give you a mortgage payment with PMI in the amount of $1,980.07.  $156 of this payment would be PMI.  PMI payments do vary based on the actual down payment as well as the credit score of the borrower, but this will give you a good idea of what the payment would be.

With a Piggy-Back loan using the same purchase price.  In this example you would have a first mortgage in the amount of 80% of the purchase price, $320,000 and a second mortgage in the amount of $40,000.  The second mortgage can also be a line of credit and in both cases the second mortgage rates is typically higher.  Using a rate of 6.00% for the second, this gives you a total mortgage payment of $1,861.21.  This is a total savings of $118.86 per month.  This is a conservative estimate.

The savings can be in the hundreds, most of these piggy-backs are in the form of a Line of Credit (home equity line of credit) and are adjustable rate products.  This rate is tied to the Prime Rate that the Federal Reserve sets and can be adjusted a few times a year.   Even though the rates are still at all-time lows, these lines of credit will go up in the future.  When obtaining a piggy-back mortgage, you  need to have a strong financial plan of how you can either make additional payments to this loan or be in a position to pay it off within several years.

For more information in regards to Piggy Back mortgages and other programs that eliminate mortgage insurance, feel free to call or email me anytime.

Bill Nickerson -NMLS #4194  978-273-3227 cell

 Bill Nickerson 

How to Shop for a Mortgage

After hitting record lows of 3.250% last year, mortgage rates have inched up a little and in the grand scheme of things…it is only a little!  The trend of course is upwards and like the stock market, it is not a straight line up, we have good days and bad days in the markets and Mortgage Rates can sometimes and do change a few times inside a trading day. These rate changes are influenced by the global economy and while rates are still extremely low, refinancers and homebuyers are always looking for the lowest. Rates trade in real-time and react to each little development. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage.  Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.

SO HERE’S HOW TO SHOP FOR A MORTGAGE IN THIS NEW WORLD.

Shop For Loan Agents, Not Rates

Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate.

Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they’ve analyzed the client’s entire financial profile and analyzed their home’s value and condition—also known as pre-approving them. The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.

Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms.  What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it.

These guidelines are for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.

Rate Targeting

Their are two reasons for the pre-approval and rate targeting tactics discussed above:

(1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on.

(2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don’t first get pre-approved then set a rate target with a standing lock order, it’s nearly impossible to hit the lows AND close with no surprises.  Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you’re not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what’s impacting the rate market ups and downs to deliver you the best terms.

*Mainstream media is almost always off the mark on rate data and commentary. Conversely, Mortgage News Daily strives to provide accurate and realistic rate data and commentary daily. Still, the premise of this piece is to explain what a mortgage consumer must do to manage extreme rate volatility.

Do you have any questions?  Feel free to call or email anytime!!

Bill Nickerson can be reached at 978-273-3227 and email at bill@billnickerson.com

 

The Good Faith Estimate

A good faith estimate (GFE) must be provided by a mortgage lender or broker in the United States to a customer.  The estimate must include an itemized list of fees and costs associated with the loan and must be provided within three business days of applying for a loan.  These mortgage fees, closing costs and pre-paid items cover every expense associated with a home loan from legal fees, recording fees, title insurance, taxes and other charges.  A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.

The good faith estimate is only an estimate. The final closing costs may be different; however the difference can only be 10% of the third party fees.  Once a good faith estimate is issued the lender/broker cannot change the fees in the origination box.

It is important to look at everything that is listed, but it is especially important to see if additional costs are being built in such as Points, Broker Fees or high Administrative fees.  In all, a consumer should look at the bottom line number of the cost;  one, to make sure it is affordable to them and two, to be sure the costs are accurate and not over inflated in any way.  Click for more details about closing costs.

For more information about the good faith estimates or if you have questions regarding other home financing, please email me at bill@billnickerson.com or call me at 978-273-3227

FHA to increase fees…Again!!

FHA is once again increasing mortgage insurance premiums (MIP) on all new purchase and refinance transactions. Effective for FHA loans that have been assigned on or after June 3, 2013 and in addition to this increase, the Annual Mortgage Insurance Premium will remain for the life of the loan. Meaning, you can only remove the mortgage insurance by refinancing out of the mortgage or selling the home.

FHA had just increased all its rates just over a year ago to 120 basis points (1.2% of the loan amount) of the loan amount and now it will be as high as 155 basis points. On a $100,000 loan amount, the old mortgage insurance payment would have been $100 per month; the new Mortgage Insurance payment will be $129.17. Considering just 2 years ago, the mortgage insurance premium on all FHA loans was 55 basis points (just over a half percent) and that payment on $100,000 would come to $45.83.

So even though mortgage rates have come down over the last 2 years, this increase in Mortgage Insurance has caused the cost of this loan to increase dramatically. Also with this additional cost, you can no longer have the mortgage insurance just drop off once you gain 20% of equity in the home.

Now, these may not seem like big increases to you, but for someone borrowing $400,000; this would have the Mortgage Insurance going from $183.33 to $516.67. Imagine…paying $516.67 for mortgage insurance!!

Now is the best time to get pre-approved by a qualified Loan Officer to give you several choices of mortgage programs. It is not always wise to chase to the lowest rate available without truly understanding the overall mortgage program.

Call me to find out about low down payment loans, as low as 3% with-out any mortgage insurance at all.

I can be reached at 978-273-3227 or feel free to email me at bill@billnickerson.com

National Open House Weekend April 20 and April 21, 2013

Did you know it is National Open House Weekend?  The National Association of Realtors is expecting to sell almost 10% of the current inventory. With lots of homes on the market and great low rates, this spring market is turning out to be fantastic!  This weekend real estate agents from around the area will be hosting open houses as part of the national Open House Weekend.  The Open House Weekend provides a great opportunity to visit some of the many homes in your local area while learning more about homeownership from a professional real estate agent.  Be sure to take advantage of this weekend and attend some of the open houses in your area!

Call me today to see the closing cost credits you are eligible for!!   

Need a realtor? Call me.  Need a real estate attorney?  Call me.  Need a mortgage or pre-approval?  Call me.  Have financing questions?  Call me.  Bill Nickerson 978-273-3227

Or send me an email at bill@billnickerson.com  If you need to apply online, visit my website at www.billnickerson.net

What is a Business Cycle?

The “Books” say an average business cycle is 44.4 months and we have lived through many of them. Some longer than that and some as short as a season in New England.  A business cycle is like the exhibit from our youth…“What makes an ocean wave, wave” at the New England Aquarium.  In the exhibit, you get to move the wave with a lever and if you move the lever too much you have to pull it back as the wave comes crashing down…and again, you go too far the other way and the wave crashes in the other direction.  It’s impossible to control an ocean wave.  So here we are now in the middle of a business cycle “The Ocean Wave”. 

As Americans we do the same thing.  When we feel confident and wealthy, we tend to spend a little too much; perhaps buy a car that has all the bells and whistles or buy the  house we all dreamed of or even dined at the newest expensive restaurant we’ve never been to… building up that ocean wave.  We did this as a nation and created a very large wave.  We are in the “Trough” of the business cycle which is like a dead calm in the sea.  Nothing moves.  We are paralyzed by our own actions and cannot find a direction to get back…there is just no wind for our sails.  As individuals, we are going through our own personal process of what will get us back on track.  In some cases, we cancel our vacations, limit the activities our children participate in at school or even bring lunch every day.  By drastically cutting our spending, we have moved the “wave” too far in the other direction thus hurting the economy even further.  Not only have we given up those fancy dinners…we are not even going to the local diner for the blue plate special.

Consumer confidence is measured at an all-time low today and we are letting our emotions and fear govern our decisions and actions.  The News Media has the ability to heighten this fear by focusing on the negative and over emphasizing the issues at hand.   As FDR said, “The only thing we have to fear is Fear itself”.  This speech was given in 1933 in the middle of one of the biggest bank panics of the century which followed the Stock Market Crash of 1929.  There was a “RUN” on the banks where consumers wanted to withdraw all of the cash they had in the banks for fear it would be gone.  The banks had lent this money out for loans, mortgages etc. and the banks quickly ran out of cash.  FDR implemented the Federal Deposit Insurance Corporation “FDIC” that to this day insures our deposits up to $250,000.  This speech did spark a generation as well as the economy, and it was backed by a plan of how to get us moving as a country.  Today, we do not look up to our leaders.   And as of this moment, we do not have a plan of how to get out of the economic turmoil we are in.  So as a strong country, we must take matters in our own hands and move ahead…full steam ahead.

We are in a very unique situation in the economy: Mortgage rates are creating new historical lows every day, house prices are nearing levels of value we have not seen since 2004.  As we always do, we will look back on this day and say, “I wish I had bought that home, or vacation house or even that investment property”.  Trust me; it happens every time we go through these business cycles.  As I mentioned earlier, we are letting our emotions govern our business decisions.  That is not allowed in business.  It’s business and there is no crying in business!!  Remember the saying “Buy Low and Sell High”.  This is not just some catch phrase.  It is a sound business decision that should be followed regardless of your emotional ties. 

So what do we do now? 

·         Keep spending but in a healthy way.  Make sound buying decisions based on needs versus wants.  By putting some money back into the economy, we will slowly recover.

·         Look to your advisers!!  Not your friends or family, but your financial advisers.  This would be the person that handles your investments, your banking, and your estate.  These are professionals that do this time and time again all day every day. 

·         Be patient.  Throughout history we have experienced turbulent times in the business cycle.  And we have pulled out of it.  In the words of Warren Buffett, “Americans are in a cycle of fear which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We’ll break out of it. It takes time.”

For information regarding home financing or the economy, please contact me at     Bill@billnickerson.com   or    978-273-3227

Do I Really Need Title Insurance?

Title insurance is one of the important and least understood aspects of a real estate transaction. There are two types of title insurance; lenders’ coverage and owners’ coverage. Title insurance protects the lender and the owner against all types of title defects and also covers issues such as zoning, access, and protects the lender and owner against frivolous claims against title by providing legal defense against such claims.

In Massachusetts, a real estate attorney examines title to a property and must certify title to the lender and owner. However, this certification is based only upon a fifty year title search and is based only on the documents that are recorded at the Registry of Deeds.  There are many situations where an attorney has done his or her job perfectly, and yet title issues could exist. For instance, if there is a forgery in the chain of title or if there is an heir who was erroneously omitted from a probate notification, title to a property could be defective.  Additionally, if a document is improperly indexed at the Registry of Deeds or if a signatory to a deed is a minor or is incompetent, this could also make the title defective. These defects are called hidden defects and this is what makes title insurance so important to protect one’s interests.

The lender’s title insurance is required in practically every closing.  It is a common misconception on the part of buyers that if there is a lender’s policy in place, the owner’s policy adds little value, particularly where the mortgage is a high loan to value mortgage.  In fact, the lender’s policy does not protect the owner at all, as it only comes into play if the property is foreclosed by the lender and the lender is then unable to resell the property due to a defect.   In recent years, owner’s policies have saved the day when documents such as mortgage discharges and mortgage assignments have not been properly recorded at the Registry of Deeds, and the title insurance companies have provided the necessary assurances and guarantees to allow the closing to take place.

Each buyer should consult with his or her attorney to learn more about the costs and benefits of title insurance.  All title insurers provide a substantial discount when the lender’s policy and the owner’s policy are purchases simultaneously.

Courtesy of: 

Mark L. Scheier Esq.

Scheier & Katin P.C., Acton MA

MScheier@skactonlaw.com