Should You Refinance Your ARM, Or Let It Adjust Lower?
Jul 13th
New clients will often call me about refinancing their adjustable rate mortgage. I tell them If your adjustable rate mortgage is due to adjust this year, don’t go rushing to replace it just yet. Your soon-to-adjust mortgage rate may actually go lower. It’s related to the math behind the ARM.
Conventional, adjustable-rate mortgages share a common life cycle:
- There’s a “starter period” in which the interest rate remains fixed
- There’s an initial adjustment period after the starter period called the “first adjustment”
- There’s a subsequent annual adjustment until the loan’s term expires — usually at Year 30.
The starter period will vary from 1 to 10 years, but at the point of first adjustment, conventional ARMs become the same. A homeowner’s new, adjusted mortgage rate is determined by the sum of some constant, and a variable. The constant is most often 2.25% and the variable is most often the 12-month LIBOR.
As a formula, the math looks like this:
(Adjusted Mortgage Rates) = (12-Month LIBOR) + (2.250 Percent)
LIBOR is an acronym standing for London Interbank Offered Rate. It’s the rate at which banks borrow money from each other and, lately, LIBOR has been low. As a result, adjusting mortgage rates have been low, too.
Last year, 5-year ARMs were adjusting to 6 percent or higher. Today, they’re adjusting to 3.375%.
Based on the math, it may be wise to just let your ARM adjust this year. Or, depending on how long you plan to stay in your home, consider a refinance to a new ARM. Starter rates on today’s adjustable rate mortgages are exceptionally low in Charlotte , as are the rates for fixed rate loans.
Either way, talk to your loan officer about making a plan. With mortgage rates as low as they’ve ever been in history, homeowners have some interesting options. Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.
Household Finances : Which Bills Should I Pay First?
Jul 8th
Morning television can be “light”, but as far as personal finance interviews go, this Suze Orman segment from The Today Show is loaded with practical financial planning advice.
Titled “What Should You Do First?”, Ms. Orman addressed the real-life, money management conundrums households face, such as:
- Should I pay off credit card bills, or create an emergency cash fund?
- Should I pay off student loan debt, or pay off credit card bills?
- Should I save for a child’s college tuition, or save for my retirement?
In 5 minutes, the segment covers a half-dozen scenarios like the ones above, explaining what to do, and why to do it.
Ms. Orman’s style may not interest you and financial advice is rarely universal, but the piece is worth watching.
Watch the clip on the NBC website.
What’s Ahead For Mortgage Rates This Week : July 6, 2010
Jul 6th
Mortgage markets are at the lowest level last week as economic data revealed a slowing U.S. economy.
Major stock indices fell to 2010 lows in response to a weak jobs report among other data points, forcing worldwide investors into the relative safety of U.S. government-backed bonds. This category includes mortgage-backed bonds and the extra demand helped to drop rates.
Once again, mortgage rates improved in Carolinas and Freddie Mac is reporting new all-time lows on three popular, conforming loan products:
- The 30-year fixed rate mortgage
- The 15-year fixed rate mortgage
- The 5-year adjustable rate mortgage
Low rates mean low payments and you can’t know your options until you ask.
There’s very little data set for release because markets were closed Monday in observance of Independence Day, and because the second calendar week of a month is traditionally data-slow.
Tuesday, a consumer confidence study is published; Thursday, jobless claims plus consumer credit levels hit; and, Friday, we’ll see wholesale inventories. That’s about it. None of these reports are particularly important but, in aggregate, the numbers can show whether the economy is expanding or contracting.
In general, evidence of an expanding economy should cause mortgage rates to rise. In a contracting economy, rates are likely to fall.
Actual mortgage rates will vary by borrower, based on property type, credit score, and home equity, but if you haven’t talked to your loan officer about a refinance into today’s rates, it’s likely worth the time for a phone call. Once mortgage rates start to reverse higher, they’re expected to reverse quickly.
You’ll want to act before that move occurs..
The Year Is Half-Over. How Did The Housing Experts Fare On Their Predictions?
Jul 1st
As 2009 was ending, the “experts” were busy making forecasts about the U.S. economy and what to expect in 2010.
With respect to the housing markets, two predictions were made again and again:
- Home prices would fall in the first half of 2010
- Mortgage rates would be higher in 2010
Well, it’s July 1 and the year is half-over. Both predictions are proving to be incorrect. Home values are rising in most markets and mortgage rates are down. Way down.
It reminds us that economists are much more skilled with analysis of the past versus predictions of the future.
A pile of data can only get you so far. Think of Charlotte housing market predictions like watching a local weather forecast. A meteorologist can look at the radar and tell you that rain is coming, but it’s never with 100% certainty. There is always a chance of change.
The housing market is the same way. Just as the U.S. economy is unpredictable, so are housing prices, and so are mortgage rates.
Therefore, when you have a personal finance decision to make, evaluate your options based on the information at hand today rather than an educated guess about the future. The future, after all, is subject to change — despite what the experts forecast.
Case-Shiller- Home Price Improvement In 90% Of Cities including Charlotte
Jun 30th
Standard & Poors released its Case-Shiller Index Tuesday. The index is a monthly home valuation report from select cities and among the private sector’s most popular home pricing models.
In reviewing the April Case-Shiller Index and its accompanying analysis, it appears that the housing market’s rebound is gathering momentum.
In the index’s 20 tracked cities:
- 18 of 20 improved from March to April 2010
- Versus April 2009, home prices are up nearly 4 percent
- The two “down” cities from April — Miami and New York — are off just 0.5% and 1.0% annually, respectively
Furthermore, as another sign of strength, San Diego, a city in which homeowners have lost a lot of equity since 2007, has now shown 12 straight months of home price improvement.
However, the Case-Shiller Index must be kept in context. It’s far from perfect.
For one, the index reports on a 60-day delay; it’s only now showing data from the end of April, when the federal homebuyer tax credit was expiring. Home sales have been weak since then it’s been reported.
And second, the Case-Shiller Index is limited to just 20 cities nationwide. Therefore, the index doesn’t consider every home sale in every American city — it only considers a select few. Many more U.S. homes are excluded from the Case-Shiller Index than are included.
But, despite its flaws, the Case-Shiller Index remains important with respect to economic analysis. Much like the government’s Home Price Index, Case-Shiller helps to identify broader trends in housing that shape government and monetary policy.
What’s Ahead For Mortgage Rates This Week : June 28, 2010
Jun 28th
Mortgage markets improved last week in response to mostly negative data about the U.S. economy, and the Federal Reserve’s acknowledgement that Eurozone financial ills could cross the Atlantic.
Conforming and FHA mortgage rates fell last week, extending a rate rally that dates to early-April. Mortgage rates have fallen to several, new, all-time lows during this period and last week was no different.
The best rates of last week hit Thursday morning.
This week, mortgage rates should be volatile, and may rise, too. There’s a bevy of data due for release, and market volume will be light with the long weekend looming.
Monday, the Personal Consumptions Expenditures Price Index is published. More commonly known as “PCE”, the index is the Federal Reserve’s preferred inflation gauge. When inflation is running higher than expected, mortgage rates tend to rise.
Conversely, when inflation is running lower than expected, mortgage rates tend to fall.
Tuesday, the Case-Shiller Index will be released for April’s home prices, along with two consumer confidence reports. As with PCE, strength tends to lead mortgage rates higher and weakness draws them lower.
Thursday, the National Association of REALTORS® releases its Pending Home Sales Index for May and the Department of Labor releases initial and continuing jobless claims number.
Then, Friday, the Bureau of Labor Statistics publishes June’s jobs report, including the Unemployment Rate. This number is always a market-mover, but with the long vacation weekend looming, it’s expected that Friday’s volume will be light on Wall Street, creating extra volatility.
Mortgage rates may be erratic, in other words.
If you’ve been shopping for mortgages, you’ve been rewarded with falling rates. However, will rates cutting new lows almost weekly and expected to reverse soon, it may be a good time to lock up your savings.
Talk to your loan officer ASAP about locking in your rate.
