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The End of the Low Interest Rates Era in Sight?

 

April 02, 2013  |  Loan-America.com Insights

There may be some potential changes to the ultra-low interest rates in the US in the near future. Read below to find out how to take advantage of them while they’re still around. 

The economy, labour markets and stock indexes are all showing conservative yet positive signs of recovery. Many believe the policy interventions of the U.S. Fed have played a big role in facilitating this recovery. 

Some analysts and policy experts, however, have begun questioning the long term fiscal soundness of the easy-money policies for the economy. Most are afraid that the policy response to this crisis may fuel yet a new crisis all together!

To date, to ward off deflation and jump-start the economy, Ben Bernanke, the Chairman of the US Fed, cut the Fed’s benchmark interest rate to zero in 2008 and has since pursued unconventional economic policies – such as buying back junk mortgages – to drive down longer-term rates.

One risk many analysts have pointed out in pursuing a prolonged easy-money and ultra low interest rate policy is that it could indadvertedly encourage speculative activity, undermining the very process of restoring sustainable growth and financial stability to the economy. 

Another risk that some economists have highlighted is the rise of “reaching for yield,” which is a term that applies to investors taking on more risk in their quest for better returns. This becomes more common during low-interest periods, such as the present, when traditionally safe assets offer lower rewards. If interest rates change quickly and investments are illiquid, the added risk could lead to unsustainable liabilities in one’s investment portfolio.  

Finally some analysts believe that given such low interest rates for borrowing, the government also has little to no incentive to cut back on its spending in the short term but will be faced with a sizeable debt in the long term . A that point, given the rate of spending, interest rates are surely to go up to help make appropriate corrections to the macro economic context. 

Given the most recent economic activities, most analysts are unsure if the current stock-market highs, for example, are signs of economic strength to come (i.e. investors being forward-looking) or a reflection of the makings of another bubble. 

Though many experts still see how the short term benefits of pursuing these policies probably outweigh the costs, in light of these insights, may are also concerned that the path being pursued is unsustainable in the long term.

 

How to Take Advantage of these Rates and Circumstances

Though there is little consensus amongst experts that the current policies may lead to a full blown bubble, there are legitimate concerns that we believe the government will take into consideration. The most relevant of which to consumers is that ultra low interest rates will probably rise to normal standards in the long term. In other words, these rates may not be around for much longer. 

In light of this, Loan-America would like to strongly encourage potential consumers to take advantage of the current circumstances and try to enter the housing market as a first time buyer or re-financing an existing mortgage at a lower fixed rate as soon as possible

For help with securing low interest rate mortgages in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. We look forward to helping you!

 

Sources:

http://news.yahoo.com/former-top-economic-officials-fret-asset-bubbles-195623013--politics.html 

Top 5 Essential "To Do's" to Avoid Being Taking Advantage of When Signing a Mortgage Through a Broker

 

February 16, 2013  |  Loan-America.com Insights

Are you unclear about what to look out for when signing a mortgage through a brokerage firm? Over the years, many have been deceived into accepting “ultra low rate” mortgages but stung them badly with hidden junk fees and terms that cost tens of thousands over the course of their investment. Don’t fall for the tricks. Read this blog to help identify a few common tricks to look out for.

 

1) Beware of Conflicts of Interest around Commission Fees

Broker's are often provided a fee or commission by a credit provider for arranging a loan based on the products the broker provides. Since different credit providers pay different commission levels, this can influence what loan products the broker recommends to you. As such, brokers may be limited to a particular range of mortgage products that may not suit your circumstances. Even worse, due to the misalignment of incentives, brokers may try to sell you products you don’t need just to increase their own commission wage. [1] 

To avoid being a victim of these conflicts of interest and before signing anything, find out from your broker exactly what loans they offer, who pays their commissions and how their commission structure works. If they are unwilling to disclose any of this information, you should shop around for someone who will.

 

2) Use Online Tools to Make Sure your Broker’s Registered:

Use “BrokerCheck”, a free tool, to help you research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives. This should be one of the first resources to turn to when choosing whether to do business or continue to do business with a particular firm or individual.

Fair Isaac Corporation's MyFICO.com is another tool to reference as it can help you get a realistic estimate for a 30-year fixed mortgage rate based on your credit score.

With these two items in hand, you’ll have more peace of mind about the integrity of the professionals you deal with and the products they offer you.

 

3) Never Sign Blank Agreements and Get Things in Writing

If a mortgage broker asks you to overly exaggerate your income or sign blank or incomplete documents, this strongly resembles the behaviour and tactics used by predatory mortgage lenders and is indicative of dealing with a dishonest company. Evidence has surfaced over the years that some brokers have used similar tactic to structure mortgages to promote default, because simply giving out a product lined their pockets and met their needs more than those of the consumers.

Before signing a mortgage, get a “good faith estimate” in writing to help mitigate any surprises. This will allow you to weigh one option against another. Such an estimate or written agreement should tell you:

  • The type of loan being arranged for you
  • The amount of the loan
  • The term of the loan
  • The current interest rate, and
  • Any fees you have to pay.

 

4) Cross Compare Lender Fees

Home buyers also have to deal with title insurance companies, surveyors and inspectors, all of which have their own fees. If you’ve done some comparison shopping already and have found a better rate, ask the lender to use your preferred vendor instead of theirs.[2]

 

5) Judiciously Review the Good Faith Agreements to Avoid Junk Fees

After being pre-approved and getting a quote through a “Good Faith Agreement”, make sure you judiciously review the document to identify any inflated charges.

Most charges found on your Good Faith Statement should not be higher than 1-1.5% of the loan amount.[3] On the statement, locate the loan processing fee and make sure you are not being charged more than approximately $400.[4] The fees could include broker's fees or commissions, fees to the credit provider or lender for setting up the loan, and/or any early termination fees.[5]

Look out for excessive processing and documentation fees in the following categories:

  • Application fee
  • Underwriting fee
  • Mortgage rate lock fee
  • Loan processing fee
  • Broker rebate

If you do notice anything that resembles an application fee, lock fee, broker administration fee, or courier fees, these are most often junk fees that you should be contested. As a rule of thumb, ask which expenses go into each fee and challenge anything that seems inflated (like overly pricey charges administrative tasks).[6] Most often, by simply raising your concerns companies will consider reduce the fees significantly or eliminating them completely from the deal. This advice applies to other fees as well.

Some mortgage companies and brokers may try to mark up the interest rate you qualify from the wholesale lender that approved your loan. This tactic is called ”Yield Spread Premium” and there is a way to avoid paying it. When your mortgage company or broker provides you the written guarantee, ask to see the guarantee from the wholesale lender. If they refuse, find another broker that will show you this document.[7] Discrepancy between the two fees can cost your tens of thousands of hard earned dollars over the lifetime of the loan.

2013 Forecasts for California’s Real Estate Market

 

January 27, 2013  |  Loan-America.com Insights

 

Curious what California’s property market may look like in 2013? Would it be a good time to invest or purchase that first home? Our Loan-America analysts are equally curious about future conditions and surveyed a series of industry reports, national news sources and expert blogs to uncover insights to help clients better understand the key drivers shaping California’s real estate market in 2013 (and beyond).

Though slightly dated, just last month the New York Times reported that “there is evidence of job growth, economic stability, a resurgent housing market and rising spirits in a state that was among the worst hit by the recession.”[1]

This positive outlook is coupled with declining unemployment rates, where California reported a 10.1 percent unemployment rate last month, down from 11.5 percent in October 2011 and the lowest since February 2009. [2] The housing market appears to be on the rebound as well - houses are sitting on the market for a shorter time and selling at higher prices, and new home construction is rising. For example, home sales rose 25 percent in Southern California in October compared with a year earlier.[3] According to Richard K. Green, the director of the Lusk Center for Real Estate at the University of Southern California, the foreclosure storm is beginning to subside, and fewer foreclosed homes are flooding the market, meaning that homes are selling faster at higher prices — which also means fewer homeowners owe more than their house is worth. [4]

Spirits amongst the average Californian appear relatively high (emphasis on the word “relatively”). According to a survey conducted in late November 2012 by U.S.C. Dornsife/Los Angeles TimesPolls, 38 percent of Californians say the state is heading in the right direction, which appears weak under normal circumstances, is double what the figures were 15 months ago! [5]

Lastly, some experts are spotting signs of incipient growth, including a surge in rental costs in the Bay Area, possibly suggesting an influx of people looking for jobs.

California’s Department of Finance released its January 2013 Finance Bulletin which was broadly supportive of the narrative above. Its bulletin includes information on the latest economic indicators for California.

On real estate trends and forecast, they reported that:

  • After slowing in the preceding two months, home sales rebounded in October. Sales of existing, single-family detached homes was up over 10 percent from October 2011.[6]
  • Even though home prices slipped in October, they were still up substantially from a year earlier. The median price of existing, single-family homes sold in October was $341,370, up 23 percent from 12 months earlier.[7]
  • The California Association of Realtors’ unsold inventory index fell to 3.1 months in October, which was the lowest inventory reading since August 2005.[8]

 

California’s fiscal outlook for the near future?

On fiscal and budgetary matters, the independent California’s Legislative Analyst Office (LAO) reported that  California’s budget situation has “improved sharply,” which is a drastic improvement from recollections of the state nearly declaring bankruptcy.[9] “The state’s economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges,” they argue.[10] Furthermore, assuming steady economic growth and restraint in augmenting current program funding levels, the group argued there is a strong possibility of multibillion–dollar operating surpluses within a few years.[11]

 

A Less Optimistic Picture Ahead?

Despite the positive outlook, caution is advised since these forecasts depend on a number of key economic, policy, and budgetary assumptions. Conversely, some experts expressed less optimistic projections about the health of the housing market in California. For example, in their latest report, economists at the UCLA Anderson Forecast called for only a "modest" recovery in housing starts, which are expected to grow 12 percent this year, to 658,000. For sake of comparison, housing starts peaked at 2.1 million in 2005, and bottomed at 554,000 in 2009.[12]

That said, Jerry Nickelsburg, Senior Economist at UCLA Anderson Forecast expects California's growth will "run slightly hotter" than the U.S. overall, thanks to increased international trade and business investment in equipment and software.[13] Though the state may be losing jobs to other states (like Texas), it continues to attract more venture capital, which is sustaining growth and investment.[14]

UCLA Anderson Forecast Senior Economist David Shulman corroborated these statements, arguing that "the economy is being propelled higher by strong increases in corporate spending on equipment and software. The fuel for this spending is coming from extraordinarily low interest rates, a rapidly recovering stock market and investment incentives coming out of Washington, D.C."

 

Summary

In summary, the size of California’s economy and its diversity are challenging factors to overcome immediately. In all fairness, however, the state budget appears to have been stabilized and provides a platform for reinvesting in education and other public systems and services that are essential to all Californians, which provides the basis for sustainable growth.[15] All in all, it appears the state is turning a corner and emerging from the recession...

 



[11] http://www.lao.ca.gov/reports/2012/bud/fiscal-outlook/fiscal-outlook-2012.aspx

Factors supporting these assumptions include:

1)  an assumption that the existing projected $1.9 Billion Budget Problem will be Addressed and reconciled by June 2013, stimulating a better economic climate.

2)  Based on current law and our economic forecast, expenditures are projected to grow less rapidly than revenues. causing surpluses in the operating budget projected over the next few years.

Should You Refinance Your Mortgage? Tips, Tools and Insights to Help you Decide

 

January 21, 2013  |  Loan-America.com Insights

 

If the current hype of today’s real estate market has you thinking if you can save some valuable money by refinancing your mortgage, this Loan-America blog will hone in on some key factors you need to consider before going down this track.

Though interest rates are a key consideration, a number of other factors are equally important when deciding whether to refinance. The length of time you plan to stay in your current home, the costs associated with getting the new loan, and the amount of equity you have in your home, as well as other things are good places to start.[1]

Tempted by the potential savings illustrated below in the chart? See if you can clear the following 3 hurdles to know if refinancing is right for you:

 

An Example of the Potential Significant Savings Opportunity [2]

describe the image

 

1. Do you qualify?

Prior to starting the entire process, review your credit report to make sure that you'll first qualify for lower rates.

For those potential borrowers that are unsure or have poor credit, refinancing may not be their best route, since a bad credit score can often translate into higher refinancing rates. In fact, most industry experts believe you’ll need a credit score of at least 720 to get the best rate and some argue that "for every 20 point drop in credit from 740, you pay higher in closing cost, interest rate, or both - almost by 2 percent or more...”. This can completely negate any marginal savings accrued over time from securing a lower interest rate.[3]

That said, even if you don’t have the best credit, some experts argue that borrowers aren't powerless in the process. To help improve one’s chances at securing a good refinance deal, one should start with shifting assets to one’s mortgage lender, cleaning up outstanding bad credit and understanding the new government programs.[4]

Other helpful hints at potentially improving your credit score in the short run include paying part of your credit card balances, generally maintaining a balance less than 30 percent of the available credit on your card, and checking for errors and reconciling them prior to an application.[5]

 

2. What are the associated costs?

If credit isn’t an issue, the next thing you want to consider when thinking of whether or not to refinance your mortgage, assess the kinds of costs involved and compare this against how long you plan on being in the home for. This is critically important because closing costs typically total about 1% of your new mortgage's principal, and amy amount to thousands of dollars, covering such things as home appraisals and lawyer's fees. According to the Federal Reserve, “it is not unusual to pay 3 percent to 6 percent of your outstanding principal in refinancing fees," including but not limited to application fees, loan origination fees, appraisal fees, and more. "These expenses are in addition to any prepayment penalties or other costs [you would incur] for paying off any mortgages you might have." A prepayment penalty "is a fee that lenders might charge if you pay off your mortgage loan early, including for refinancing," according to the Federal Reserve.[6]

You want to know what these costs will add up to in order to calculate your break-even point if you were to refinance.

Costs can vary and there are several ways lenders work these fees into refinancing deals, including:

1) Upfront charges. The traditional way of paying for closing costs, which involves simply paying with a certified check.[7]

2) "Rolled-in" closing costs. With this option, the bank adds all closing costs to your new loan's balance rather than making you pay upfront. Consumers won't spend any money out of pocket, but will pay slightly higher mortgage bills each month throughout the loan's lifetime.[8]

3) No- or low-cost refinancings. These deals often don't charge any closing fees, but they carry higher interest rates, which compensates the lender for including your new loan's closing costs.[9]

As a rule of thumb, generally If you plan to possibly move out in three years or less, a refinancing deal may not make sense for your circumstances simply because replacing an existing 30-year loan with a new 30-year loan may take months of lower-cost loan payments to make up all the upfront costs involved in the refinancing process. That is precisely why it is crucial to determine in advance how long you plan to stay in the home to then assess if the cost involved in refinancing are worth securing the lower interest rate.[10]

 

3. Do you have any equity?

After determining the costs involved and your credit-worthiness, borrowers need to assess how much equity they have in their homes. Surveying banks across the US, it appears that most banks will require 20% equity in order to refinance a mortgage. Though we’ve found some examples where it may still be possible to refinance without that much equity, we’ve found that you'll likely get the best deal if you have at least 20% equity.

Some good news -- for victims of the sub-prime mortgage scandal or borrowers with loans backed by government-controlled mortgage companies Fannie Mae and Freddie Mac the Obama administration has pushed for making it easier to refinance, even if borrowers don't have any equity in their homes or strong credit. For example, changes taking effect this year will allow borrowers who owe more than 125% of their home's value to refinance to lower, more affordable rates under the government's Home Affordable Refinance Program, or HARP.[11]

 

Some Potential Downsides:

If after clearing these three major hurdles, you still feel refinancing is right for you, consider the following:

1. It’s a time consuming process. Given the favourably low interest rates and hot refinancing market, mortgage transaction pipelines appear clogged, which means it now takes the nation's biggest mortgage lenders more than 70 days to complete a refinance, on average, according to the consulting firm Accenture, up from 45 days a year ago. Some big lenders routinely advise borrowers that their refinance can take as long as 90 days.[12] Be prepared to wait for this period.

2. You’re often starting from scratch. Refinancing can extend the term of the loan as new borrowers are effectively starting from scratch on new 30-year loans. One way to mitigate this is to consider opting for a shorter loan period, which may result in marginally higher mortgage fees. For example, some people are refinancing from a 30-year to a 15-year loan if they already have already built some equity into the home and have a number of years of payments under their belts.

See below for an example of the possible savings one can gain over the life of their loan.

loan comparison 2
  

3. You could consider alternatives to “Refinancing”, such as “Recasts” or “Re-Amortization”

If you may not want to go down the refinance route, you should look into the possibility of modifying your loan terms via either the “recast” or re-amortization” routes.[13] Either of these rare options basically entail modifying your existing loan down to a lower interest rate, but without the hefty upfront costs and the hassles of refinancing.

The only catch is that despite costing at times as little as $250 for application fees, some banks can require borrowers to provide additional sums of money to “substantially reduce the unpaid principal balance of [their existing] loan,”

That said, given the expense and paperwork involved in refinancing, it’s still worth asking considering and asking about.

 

Tips

1) Research shows the average American family moves every seven years. If you are confident that you will not be in your home more than five years an adjustable-rate mortgage may actually be the best course of action for you.[14] A careful analysis based on a projected timeline will help  calculate your break-even point (i.e. how many months it will take to recoup your closing costs), which will be a strong indicator as to whether you should refinance or not. [15]

2) As a general rule, anyone who can find a deal that will recapture the closing costs within 18 months should "just do it.”[16]

3) Another good rule of thumb is that refinance only if you can cut your mortgage rate by 0.5 percentage point or more from what you're paying.[17] The below chart illustrates what 0.5 percent off an existing mortgage can look like over a 10 year spread. Incredible!

loan comparison 3
 


Tools

• Federal Reserve Board’s Guide to Mortgage Refinancing ––> http://www.federalreserve.gov/pubs/refinancings/refinancing.pdf

• Federal Reserve Board Break-Even Calculator –> http://www.federalreserve.gov/pubs/refinancings/default.htm#breakeven 

• Compare Fixed Rate Mortgages to Adjustable Rate Mortgages– http://homes.yahoo.net/mortgage/quote/?kid=1MNR0&ywa=1

 

How Loan-America Can Help

For those who can clear the apparent inconveniences and key hurdles, today's low rates may present a once-in-a-lifetime opportunity.

 

It’s unfortunate to see how many homeowners simply ignore the benefit of refinancing and continue to pay exorbitant mortgage payments on loans with interest rates over 5%. Converting to a lower rate loan today could help homeowners save immensely over the long term. We strongly encourage you to take time to check your loan rate and determine whether it makes financial sense refinance. There are many quality mortgage brokers who will assist you in reviewing your savings at no cost to you.[18]

Loan-America is one of these organisations here to help you determine how you take advantage of these unprecedented and favorable conditions. In particular, for help with securing low interest rate mortgages in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. We look forward to helping you in 2013!

 

Further Reading

• General info about refinancing – http://financialplan.about.com/od/realestatemortgages/qt/RefinanceOrNot.htm

• Refinancing’s hidden costs – http://realestate.msn.com//article.aspx?cp-documentid=30846683

• Christian Science Monitor’s thoughts on refinancing – http://www.csmonitor.com/Business/2012/0926/Time-to-refinance-your-mortgage-Rates-hit-historic-lows

 


[16] http://homes.yahoo.com/news/pros-and-cons-of-refinancing-20121109.html, interviews with Lou Barnes, a mortgage banker in Boulder, Colo.

US Mortgage Rates Still at Record Lows – How to Take Advantage

 

January 9, 2013  |  Loan-America.com Insights

 

A recap from 2012

Over the last quarter of 2012, we shared exciting news about the US mortgage rates were hovering near record lows in nearly a century, strongly favouring prospective new buyers or consumers wishing to re-finance their existing mortgages.

 In early October, we followed up with reports of unorthodox policies being pursued by the US Federal Reserve (Fed) of “quantitative easing”, whereby the central bank would purchase $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely to help stimulate the economy, and support lending, borrowing and spending by driving interests rates as low as possible until evidence arose to show the economy required less support.

 We argued that these reports suggested that interest rates could remain relatively low for the long-run, and would significantly benefit consumers by increasing their  purchasing power. 

 We also warned consumers that securing financing in the future could be more difficult since government support would not be indefinite since it was heavily policy/politics dependent.

 

The New Year Brings New Market Lows

Earlier this week, The Associated Press broke news that the average U.S. rates on fixed mortgages have once again moved closer to record lows experienced in late 2012, where the average rate on a 30-year loan slipped to 3.34% from 3.35%, 30-year fixed mortgage rate averaged 3.66% and 15-year fixed mortgage ticked down to 2.64% from 2.65 percent, making home buying more affordable and helping sustain a housing recovery.

Already, these record-low interest rates have begun attracting new buyers and persuading many homeowners to refinance their existing mortgages. According to the Mortgage Bankers Association, U.S. mortgage refinancing applications have risen substantially as rates declined. 

However, tightened credit restrictions are barring some borrowers from filing loan applications and taking advantage of these rates.

 

How to Take Advantage of these Rates and How We Can Help

In light of this news, Loan-America would like to remind clients that were here to help you take advantage of these unprecedented and favorable conditions. We strongly encourage consumers to take advantage of the low rates by trying to get into the market or re-financing their existing mortgages at a lower fixed rates as soon as possible. Specifically, for help with securing low interest rate mortgages in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. We look forward to helping you in 2013! 

Warren Buffett Just Made A Huge Bet On The US Housing Market

 
Perhaps the most bullish indicator for U.S. housing is Warren Buffett.

 

The legendary investor has been buying up real-estate brokerages around the country as he bets on a housing turnaround. Now, he is partnering with Brookfield Asset Management, a Canadian real-estate investor, to more than double the size of his brokerage business.

warren-buffet.jpg

Bloomberg Businessweek's Noah Buhayar has the details:

Berkshire’s HomeServices of America Inc. unit will be the majority owner of the venture to manage a U.S. residential real-estate affiliate network, according to a statement on the new company’s website. The firms plan to offer a new franchise brand, Berkshire Hathaway Home Services, starting next year. Brookfield’s network has operated under the Prudential Real Estate and Real Living Real Estate brands.

Berkshire’s managers have been positioning the firm to benefit as the U.S. home market recovers from its worst slump in seven decades. The Omaha, Nebraska-based company has bought a brickmaker, won the loan portfolio of bankrupt mortgage lender Residential Capital LLC at auction and built its HomeServices unit by agreeing to acquire real-estate brokerages in states including Oregon and Connecticut.

The press release says the brokerages that will make up the new company did a combined $72 billion in sales in 2011. That's more than twice the $32 billion in sales that Berkshire did in 2011 without the new brokerages.

More from the release:

The combined networks of more than 53,000 Prudential Real Estate and Real Living Real Estate agents generated in excess of $72 billion in residential real estate sales volume in 2011, and operate across more than 1,700 U.S. locations.

“Berkshire Hathaway HomeServices is a new franchise brand built upon the financial strength and leadership of Brookfield and HomeServices,” said Warren Buffett, chairman and CEO of Berkshire Hathaway Inc. “I am confident that these partners will deliver value to the residential real estate industry, and I am pleased to have Berkshire Hathaway be a part of the new brand.”
...
“The strength of the Berkshire Hathaway name, coupled with the operational excellence of HomeServices and the franchising experience of Brookfield, positions Berkshire Hathaway HomeServices® as a leading real estate franchise in the U.S., building on our traditions of exceptional client service and innovation. Brookfield is excited to be a partner in creating a home for the best real estate brokers and agents in the country,” said Bruce Flatt, Brookfield Asset Management CEO.

Buffett has been public about his bullish housing call for a while as he's built his residential real-estate brokerage business, but this is a big addition.



Read more: http://www.businessinsider.com/warren-buffett-brookfield-asset-managment-housing-2012-10#ixzz2CDZRawqC

Loan-America Will Provide Free Disaster Relief Services to Homeowners

 

November 2, 2012  |  Loan-America.com News


In the wake of last week’s monstrous storm, Sandy, that demolished parts of the East Coast, Freddie Mac announced that homeowners with Freddie Mac mortgages whose homes were damaged or destroyed by the massive storm can seek disaster relief assistance from the company. 

Our staff at Loan-America were deeply concerned about the scale of damage inflicted on every-day consumers and believe Freddie Mac’s announcement is a source of pride for our industry. As a company deeply invested in the well being of its customers Loan-America would also to like extend its advisory services to anyone in need. Please call 1-888-LOAN-800 to so we can walk you through what options are available to you in the wake of the storm or to learn how you can protect yourself and your mortgage against future natural disasters. 

To take advantage of our other advisory services, such as guidance about the right products for home buyers in the California region, please call 1-888-LOAN-800 to arrange a consultation. You may also visit us at http://www.loan-america.com/. 

Loan-America: We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. 

How Low Interest Rates Will Affect the US Real Estate Market?

 

October 31, 2012  |  Loan-America.com Insights

 

The recent unorthodox decision by the US Federal Reserve (Fed) to pursue a policy of “quantitative easing” suggests that interest rates could remain relatively low for the long-run.  The aggressive attempts of the Fed to stimulate the economy through purchasing large amounts of bonds and assets targeting the mortgage market lead many analysts to speculate that there is no better time than now to purchase a home in the US. This Loan-America analysis will highlight some decision criteria for potential consumers to consider when assessing home ownership in the near or long term.

Though factors can shift to make home buying more or less attractive, the most important factor to consider at this time is the historically low interest rates, which helps significantly increase consumer purchasing power. Though the Fed has most recently used strong rhetoric to state they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, consumers should keep in mind that government support will not be indefinite and is heavily policy/politics dependent.[1] When the economy begins showing signs of recovery, the Fed will eventually cease its asset purchasing program, surrendering the housing market more-and-more to the forces of the private sector. Such a reality could be dramatically sped up in the event of a Republican Romney-Ryan 2012 Presidency since traditional free-market Republicans like Mitt Romney and Paul Ryan strongly disfavor heavy government intervention in the market. In this case, the private sector will demand higher interest rates to assure against their risk premiums. Either a slow easing of the Fed’s support or a drastic policy change resulting from a new Republican Presidency could put upward pressure on interest rates, in turn significantly reducing consumer purchasing power.

Securing financing in the future may also be more difficult than the present. Since the financial crisis, many banks have begun tightening their requirements to access credit for a mortgage. To counteract this, Congress has been guaranteeing 90% of the mortgages on the market to spur consumer confidence. Conventional wisdom suggests that as the recession recedes banks will begin to loosen stringent requirements and provide more consumer credit. Consequently, Congress will also begin re-thinking the extent to which it intervenes in the market. If government is less prepared to underwrite mortgages, the private sector will most certainly require greater collateral to help secure access to credit.

Lastly, many analysts speculate that the aggressive level of government intervention in the market will yield high levels of inflation. Inflation normally drives up nominal wages. If consumers secure a low fixed interest mortgage on a new home prior to inflation rises, they are making a smart investment as their mortgage payments will be more affordable.

Given the level of uncertainty in the economy, this analysis mostly supports purchasing housing for residency rather than investment purposes. All things considered, the benefits of securing a long term low fixed rate mortgage or switching from a variable mortgage to a low fixed rate to take advantage of the depressed rates appear to greatly outweigh current risks. 

For more information about how to take advantage of these low interest rates in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions.

 

Sources:

To Buy or Rent? How best to navigate the decision and end up ahead

 

October 09, 2012 |  Loan-America.com Insights

Given the significant drop in interest rates in the US and globally, the issue of renting versus buying has been a very hotly debated topic as of late. Despite all the analysis, the right answer is as much based on market conditions as it is on personal circumstances.

There are dozens of indices out there that exist to try to inform potential consumers on whatrent vs buy course of action is most appropriate for them based on where they are physically looking to rent or buy. Unfortunately, most of these indexes spit out a rather simplistic rent-to-buying ratio, based on a few isolated assumptions, essentially weighing monthly rent prices against mortgage payments in a given area. These conventional rent-buy ratios suffer from another major flaw. Most base their results on a methodology that compares existing prices of for-sale listings or recent sales against prices of properties on the rental market, providing interested consumers a misleading assessment of what the most appropriate course of action may be and what their potential purchasing power can get them. In most cases, there is a strong dissimilarity in the quality of rental property inventory to sale property inventory. That is, when comparing rental homes to homes for sale at similar price points, most rental homes are typically of lower quality. For example, in high-demand areas of California, one can purchase a $450K condo but look to rent the same quality condo for nearly $1000 over the mortgage rate.  This is due to the limited existing inventory and high demand for quality properties.

Buying a home is a much more complex decision drawing in a number of other factors. To get a more accurate indication of what the most appropriate course of action might be for you, consumers should consider further critical factors in addition to the simple rent to buy ratio.

First, consider the anticipated future prices and rents in the given area. Are prices predicted to rise, stabilize or fall in the short to medium term (2-5 years)? If so, by how much? Ensure you do your due diligence as even an intelligent and informed guess at these figures could help save you thousands of dollars in payments (rent or mortgage) towards your home.

Second, consider your time horizon (i.e. how long you plan on staying in your particular home). Most new home buyers should look to staying within their homes for at least 5 years to overcome the initial transaction costs and selling costs. Though this is a general rule of thumb, there are some areas in the US housing market that have been so greatly affected by the financial crisis that many analysts predict the time horizon can be significantly shortened to overcome initial transaction costs.

Third, consider the lost opportunity costs, which in other words is the return you could have earned by investing your money instead of spending it on a down payment and closing costs. Any sensible assessment should assume you would earn profit from investing this amount, but the profit you would have made in your investments will be taxed as long-term capital gains. In thinking about either renting or buying, ensure that the renting vs. buying index or calculator you use tabulates lost opportunity costs for both scenarios to yield the most optimal outcome.

Other factors to consider include your eligibility for tax deductions, your credit rating, potential maintenance costs for the new property.

Though mortgage rates have fallen and most assessments support buying over renting given the current state of real estate markets, potential consumers should carefully consider the impact of a rise in interest rates on the cost-effectiveness of this scenario. In the event of an increase in interest rates, borrowers could look to arranging fixed rate mortgages to mitigate potentially significant price hikes and protect themselves against risks of uncertainty.

For more information about renting vs. buying in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping every day consumers refinance their mortgages and make smarter real estate decisions.

 

Sources:

How FHA Loans Can Help You

 

In this week’s blog post, our team looked at how the Federal Housing Administration (FHA) loans might be best used to benefit would be consumers. Before we dig into that, let’s consider the fundamentals:

What is an FHA loan and how does it work? FHA Lender resized 600

FHA loans are a financing mechanism set up by the U.S Federal Government’s Department of Housing and Urban Development to help buyers with little to no assets, some credit history and a reasonable credit score to enter the real estate market. If eligible, the scheme helps facilitate market entry for buyers by collecting a premium on loans they provide, which they use to assure sellers against a potential default payment by a buyer, containing any market risks. 

Home buyers pay an upfront mortgage insurance premium (MIP) of 1.75%, followed by a 1.20% to 1.5% annually, paid in monthly installments for 5 year duration or more – irrespective of the amount of equity you’ve built in the home. This in turn helps assure sellers against unnecessary risks; if a borrower defaults on their loan, the FHA uses collected insurance premiums to pay off the mortgage.

In terms of eligibility, almost anyone can qualify and there are no income limits. Qualification depends on:

a) A decent credit rating, and

b) A good debt to income ratio.

 

The upside:

FHA loans are great for first time buyers, especially those with little to no upfront assets, since the down payment can be as low as 3.5% of the purchase price. In some circumstances, FHA loans can be accessed even with a very low credit score (contact us or a broker in your area for more information)

FHA loans are also great for financing home improvement projects, especially energy-efficiency improvements. Most FHA loans support fixing up a property you’re purchasing, or allows refinancing what you may owe, in case you already own a home, and adding the balance of the cost of remodeling or repairs into the final amount of the loan. Also, FHA loans allow borrowers to include the costs of energy improvements into an FHA Energy-Efficient Mortgage.

Finally, FHA loans are great for seniors over 62. If you live in your home and it outright or have a low loan balance, you may be eligible to use the FHA Reverse Mortgage to help you convert a portion of your equity into cash.

Other benefits include:

  • The loan often waives paying a repayment penalty
  • Most loans may be assumable (i.e. taken over by another buyer)
  • Most loans provide options of leniency during times of financial distress

 

The downside:

FHA loans are not for everyone, especially if you have: a) 20% down payment along with a good credit history, b) low debt to income ratio, and/or c) high earning power.

FHA loans will often not provide as much money you may need for the dream home you plan to purchase; the mechanism is more suited for less expensive properties.

Finally, the upfront mortgage premium and recurring monthly premium charges often cost more than rates provided by private mortgage insurance premiums. If one has good credit, chances are they can find a more competitive mortgage offer than the terms offered by the FHA loan scheme.

 

Current Upfront and Monthly Mortgage Insurance factors are as follows: 

Loan amounts less than $625,500 

Upfront: 1.75%

Monthly: LTV less than or equal to 95% =1.20%

             LTV greater than 95%= 1.25%

 

Loan amounts greater that or equal to $625.500.00 

Upfront: 1.75%

Monthly: LTV less than or equal to 95%=1.45

             LTV greater than 95%= 1.50%

 

To wrap up, the FHA loan scheme’s can certainly help make home ownership a reality for some people, who would otherwise not benefit from accessing this market. That said, the scheme has some downsides and surely isn’t for everyone.

For more information about FHA loans or other guidance about the right products for home buyers, please contact us at 818-788-9000 and arrange a consultation. We’re a trustworthy Californian mortgage company helping every day consumers to become a homeowner or help them refinance and lower their interest rate and make smarter real estate decisions.

 

by: Reza Rahimzadeh & Shawn Zanganeh

Loan-America.com

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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  |  Loan-America.com Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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