Rates | Yale Roth M.A., M.Ed

Posts Tagged ‘Rates’

Mortgage Questions – How Does An Adjustable Rate Mortgage Work?

September 20th, 2011 |

Author: yroth

I get a lot of questions asking how an adjustable rate mortgage also known as an ARM works.

Here’s the mortgage answer.

The adjustable rate mortgage rate is fixed for a certain amount of time: either 3 years, 5 years, 7 years, or 10 years. After that fixed period is up the mortgage rate and payment will adjust.

What will the mortgage rate adjust to?

The adjustable mortgage rate will adjust to the yield on a specific index - most commonly is the LIBOR (London Interbank Offered Rate) index PLUS a margin. The margins range from 2.25% to 2.75%. So if the yield on the LIBOR index is 2% and the margin – which is fixed and can never change – is 2.25%, your bill mortgage rate will be 4.5%. Pretty easy.

Let’s say that you’re in a 5/1 ARM. The 5 stands for the amount of years the mortgage rate and payment are fixed. The 1 means that your mortgage rate can change every 1 year thereafter until the loan is paid off.

Adjustable rate mortgages are amortized over a 30 year term.

So to use the previous example of the 5/1 ARM, your mortgage rate is fixed for 5 years, after which time it will adjust one time a year. The ARM rate will adjust on an “anniversary date” until the mortgage is paid off.

Let’s say the “anniversary date” is April 1. So every April 1, the mortgage rate will reset to the yield on the LIBOR index – which moves and is variable – plus the margin – which is fixed.

How high can the mortgage rate go?

The mortgage rate on the adjustable rate mortgage is capped. The most common “cap structure” is called a 5/2/5 cap structure.

What this means is that the mortgage rate can move up to 5% over the start rate, which is the mortgage rate you had for the fixed period. Once the first adjustment is made to the mortgage rate, it’s fixed for one year. Then on the mortgage “anniversay date,” the mortgage rate will adjust again, but cannot increase more than 2% per year for every year thereafter.

No need to panic, as the last 5 in the 5/2/5 represents the lifetime mortgage rate cap on loan. So if the start rate was 4%, the most the mortgage rate can increase over the life of the loan is to 9% (i.e. 4+5=9).

So the interest rate may creep up 2% ever year after the fixed rate period lapses, but it cannot exceed 5% over the start rate.

Here’s an example: 5/1 ARM.

The start rate is 4% and is fixed for 5 years. After the 60th month, the mortgage rate goes to to yield on the LIBOR index plus the margin. Let’s say the LIBOR is at 4%. So, 4% plus the margin (let’s say 2.25%) is 6.25%.

The mortgage rate is now 6.25% for the 6th year of the mortgage.

Now going into the 7th year, let’s say the LIBOR index is at 8%. 8% plus the margin of 2.25% equals 10.25%. However, the 2% yearly mortgage cap will limit the rate to 8.25%. That mortgage rate and payment are fixed for the 7th year.

Going into the 8th year, let’s say the LIBOR is at 8.5%.

8.5% plus 2.25% = 10.75% however the most your mortgage rate can increase is to the lifetime cap of 9% (which was the inital 4% start rate plus the 5% cap.)

This is how an adjustable rate mortgage works.

Mortgage Questions – Should You Take Out An Adjustable Rate Mortgage?

September 19th, 2011 |

Author: yroth

I get a lot of questions about adjustable rate mortgages also known as ARMs.

The question I get the most is: “Should I take an adjustable rate mortgage (ARM) out on my home?

Here’s the answer.

It depends on what your objectives are. The main question I ask to you is “how long do you plan on keeping the home”?

If you plan on keeping the home for a short period of time, then an adjustable rate mortgage may be a better or less expensive way to go. Adjustable rate mortgage (ARM) interest rates are typically lower than a fixed rate mortgage rates, so the payment will be lower. Also adjustable rate mortgages are amortized over 30 years. So even though the mortgage rate may adjust, the mortgage payment and principal loan are still based on a 30 year period.

For example, if you know you’re going to be in your home for no more than 5 years, you may want to consider a 5/1 ARM, or 7/1 ARM. These mortgage rates and payments are fixed for 5 yr or 7 years, so you will be protected while you own the home.

After the 5 or 7 years lapse, the mortgage rate will adjust and so will your payment – sometimes up and sometimes down.

If you’re not afraid of risk and you plan on keeping the home for a specific amount of time and you are confident you’ll be out of the home within that time period, then look at the adjustable rate mortgage that will protect you through that time period.

Look at the payment as well and compare that to a 30 yr fixed mortgage rate and payment. See what the difference in payment and interest rate are. Compare it to the adjustable rate mortgage ARM rate. Are the lower mortgage rate and payment the adjustable rate mortgage is offering worth going into?

If you believe the savings is justified as the adjustable rate mortgage rates and payments will be typically lower than the 30 year fixed mortgage rates, then the adjustable rate mortgage is for you. If not, stay with the conservative loan – the 30 yr fixed mortgage. This way you know that your rate and payment won’t change through the life of the loan.

FHA Mortgage FAQ – What’s A FHA Streamline Refinance? Do You Need An New Appraisal For The FHA Streamline Refinance?

September 6th, 2011 |

Author: yroth

If you’re currently in an FHA mortgage and are considering refinancing that mortgage, you may want to consider an FHA streamline refinance.

The FHA streamline is just what is sounds like – an faster way to refiance the FHA mortgage into another new FHA mortgage (with a lower mortgage rate.).

FHA streamline refinances can be with appraisals or without appraisals.

The benefit of doing the streamline refiance without the appraisal (in addition to not having to pay for a new FHA appraisal) is if you’re unsure about your home’s value or you think you may have no equity in the property or even if you think you owe more than the property is worth, you can still refinance your mortgage and lower your rate and mortgage payment

This way, an appraisal isn’t needed so the loan to value ratio guideline isn’t considered.

To do an FHA streamline without an appraisal you cannot borrow more than the original mortgage amount you borrowed – not including the Upfront Mortgage Insurance Premium.

Also, you are no longer allowed to finance your closing costs or prepaid interest or escrows – however you can finance the Upfront Mortgage Insurance Premium.

On a FHA streamline with an appraisal, you can borrow more than the original FHA mortgage amount.

In addition, (and this applies to FHA streamlines without the appraisal) you must have made at least 6 mortgage payments with no lates and your toal mortgage payment must drop by 5%.

If you have more than 12 months payment history, FHA doesn’t allow more than one 30 day late payment in the preceding 12 months.

If you’re going from a fixed mortgage to an adjustable mortgage ARM, the mortgage rate must drop by at least 2%.

If you’re going from a ARM to a fixed mortgage rate, the mortgage rate can’t increase more than 2% and your payment can’t increase more than 20%.

Please note: you cannot do a FHA streamline refinance if you’re currently in a 30 yr FHA and want to go to a 15 yr fixed FHA mortgage. So FHA won’t allow a term reduction for the streamline program.

Finanlly, discount points cannot be included in the mortgage if you’re doing a streamline with an appraisal and you want to finance your closing costs.

If you’re paying discount points to buy the mortgage rate down, you must show assets to support the cost of the discount points. So, if the discousnt points amount to $2000, you need to provide a bank statement showing you have the $2000.

In a nutshell:

Borrower must have made 6 payments to the existing FHA mortgage (no lates)
If existing FHA mortgage is over 12 months old, you can have 1, 30 day late, in the last 12 months, but must be over 3
months ago.
Benefit of streamline refinance -total mortgage payment must drop 5%.
If going fixed to ARM, rate must drop at least 2%.
If going ARM to fixed, rate can’t increase more than 2% (and payment cant’ increase more than 20%)
Can’t reduce mortgage term, so you can’t streamline from 30 yr to 15 yr fixed mortgage
Streamline without appraisal, – max loan is now current outstanding mortgage balance plus you can finance MIP, so
you can no longer roll in closing costs or prepaids

Mortgage Services Alert! Mortgage Rates Drop On Poor Jobs Number. September 2, 2011

September 2nd, 2011 |

Author: yroth

Labor day is upon us. Take this upcoming weekend to relax. I know I will.

Guess what? We’re seeing mortgage rates drop this morning on July’s jobs report.

Nonfarm payroll employment was unchanged in August, and the unemployment rate held at 9.1 %, according to the U.S. Bureau of Labor Statistics.

This is below the market expectations for a 60,000 increase, still suggesting the economy is in the crapper.

Momentum in the private job market has clearly stalled even though it has been widely reported that U.S. corporations have trillions of dollars in capital sitting on the sidelines they are not willing to invest.

The markets will now look ahead to President Obama’s upcoming jobs speech for some guidance.

If you were on the fence re: refiancing your mortgage, now is the time. Mortgage rates have ticked back down again.

Do a personalized rate search on the blue Amerisave Mortgage box on the right side of the screen. Look for the mortgage rates with lender credits. This will minimize or eliminate all costs so you can lower your mortgage rate or shorten your mortgage term for free!

Mortgage Services ALERT! Mortgage Rates Drop. September 1, 2011

September 1st, 2011 |

Author: yroth

Mortgage bond prices opened higher this morning and mortgage rates have dropped as a result!

Initial Jobless Claims dropped 12,000 to 409,000 from last week’s revised figure of 421,000, according to the U.S. Dept. of Labor. This is more or less in line with market expectations of 407,000.

The four-week moving average increased to 410,250, an increase of 1,750 from last week’s revised moving average. July’s month end four-week average was 408,250. The Labor Department cited no special factors in this week’s report.

Nonfarm business sector labor productivity decreased at a 0.7 percent annual rate during the second quarter of 2011, the U.S. Bureau of Labor Statistics reported today, with output and hours worked rising 1.3 percent and 2.0 percent.

The report points to rising labor costs and decreased productivity, signs that may keep some businesses reluctant to hire.

Tomorrow brings the nonfarm payroll report. This can have a big impact on mortgage rates. If the jobs number comes in higher than expected, we may see mortgage rates rise. Conversely, if the jobs number comes in lower than expected, we could see mortgage rates drop more.

If you’re surrently floating your rate and are gaming the market to get a lower mortgage rate, you may want to consider locking the rate as there is the potential to lose what you already have.

To see current mortgage rates, do a personalized mortgage rate search on the blue Amerisave Mortgage box on the right side of this page. It’ll show you current mortgage rates, payments, and closing costs.

Mortgage Services ALERT. Mortgage Rates Unchanged. August 31, 2011

August 31st, 2011 |

Author: yroth

Amazing, August 31 already! The summer is over, kids are back to school and football season is upon us.

The last day of August shows little movement in the mortgage bond market as mortgage bonds opened flat this morning.

Mortgage rates are unchanged from yesterday’s pricing.

This morning’s Mortgage Backed Securities Weekly Mortgage Application Survey shows seasonally adjusted mortgage applications decreased 9.6 % last week. This is an interesting statistic as mortgage rates are very, very low.

The unadjusted Refinance Index was down 12.2 %, while the unadjusted Purchase Index decreased 1.3 %.

My only take on this is that people may be vacationing and not thinking about refinancing thier mortgage.

The seasonally adjusted refinance and purchase indexes were -12.2 % and -0.9 %.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.32 % from 4.39 %, with points increasing to 1.3 from 0.88 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans, according to the data.

“Accounting for the increase in average points paid, effective mortgage rates were little changed last week.

Refinance application volume declined for a second week from recent highs, despite rates staying near a 10-month low, while purchase volume remained near 15-year lows,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

The fact that purchase applications remain down suggests to me that people are still insecure about their employment as now is a good time to buy a new home. Mortgage rates are low and home values are down to 2003 levels.

The ADP employment report released this morning shows nonfarm private payrolls increased 91,000 from July to August on a seasonally adjusted basis.

The change from June to July was revised down to 109,000 from 114,000. According to the report, “the trend in employment moderated somewhat in August at a pace below what would be consistent with a stable employment rate.” No surprise there.

The Challenger job-cut report released this morning showed layoff announcements slowed in August to 51,114 from July’s 66,414. This follows three consecutive months where layoff announcements had increased.

This could portend a strong showing for Friday morning’s job’s report. This can be a volitile day for mortgage rates. If you float into Friday, be ready!

Mortgage Services ALERT. Mortgage Rates Drop! August 30, 2011

August 30th, 2011 |

Author: yroth

Choppy, choppy. That’s how I would describe mortgage rate movement over the last week or so.

Mortgage pricing is better one day, then worse the next, suggesting some volitility in the mortgage market.

Mortgage backed securities opened higher this morning pushing mortgage rates down a tad.

The S&P/Case-Shiller Home Price Index showed home prices rose 3.6 percent in the second quarter of 2011, following a decline of 4.1 percent in the first quarter. Good news, indeed.

On a national level, home prices are at levels last seen in early 2003. Amazing.

Compared to the second quarter of 2010, home prices have fallen 5.9 percent.

Looking across the 20-city composite on a seasonally adjusted basis, 5 cities hit their price lows in 2009 and have not fallen back. They are Los Angeles, San Diego, San Francisco, Denver, and Washington D.C. Two (Boston and Dallas) hit lows in 2009, but are still near those lows. Phoenix, Miami, Tampa, Chicago, Detroit, Minneapolis, Charlotte, Las Vegas, New York, Cleveland, Portland, and Seattle all hit new lows in 2011. Atlanta hit its most recent low in December, 2010. Las Vegas, Detroit and Cleveland remain the weakest cities in the report.

In other news, consumer confidence remains weak though it increased to 59.5 in July from a revised 57.6 in June.

During good economic times, this reading would be near 80.

Ladies and gentlemen, we are still in an economic recession from a consumer standpoint. People aren’t feeling terribly warm and secure about their economic well being.

On a positive note, mortgage rates are very low.

So, if you’re in a position to refinance or buy (yes, buy a new home as there are bargins out there,) do a personalized mortgage rate search on the blue Amerisave Mortgage box on the right side of the page.

FHA Mortgage FAQ – What’s The Difference Between An FHA Mortgage And Conventional Mortgage?

August 29th, 2011 |

Author: yroth

A lot of mortgage questions I get are about FHA mortgages.

People I talk to do personalized rate searches then ask what’s the difference between an FHA mortgage and conventional mortgage? A natural question for someone shopping for a mortgage.

The first question I ask is “how’s your credit”?

For someone who has poor credit, an FHA mortgage may be a less expensive loan type.

If you have good credit, a conventional mortgage is a better mortgage. It’s that simple – really.

Also, if you have little equity in your home, FHA may be a better mortgage. Equity, by the way, is the difference between the current mortgage balance and what the home is worth.

FHA will allow you to finance a mortgage to 96.5% of the home’s value with mediocre credit. Still pretty good.

On a conventioanl mortgage, you can get 97% financing; however, your credit will have to be over 720.

If you want to take cash out of your home, FHA will allow you to go to 85% of the value of your home, while you’re capped at 80% for a conventional mortgage. The reason your capped at 80% is because it’s going to be tough getting a private mortgage insurance PMI company to write private mortgage insurance while FHA (or HUD) will insure the loan to 85% cash out of the home’s value.

Another difference that used to be in the favor of FHA is the mortgage insurance premium.

FHA mortgage charges a 1% upfront mortgage insurance premium MIP that is added to your loan amount.

So on a $200,000 loan, the upfron mortgage insurance premium will be $2000. Oh, by the way, you have to pay that no matter what the loan to value LTV ratio is.

FHA also charges a monthly MIP.

The monthly MIP premiums have increased as of April 2010, making them almost prohibitive.

Again, it doesn’t matter what the loan to value ratio is, you have to pay it for 5 years and you need 22% equity in the property before it can be removed.

On a conventional mortgage, there is no upfront mortgage insurance premium.

You will have to pay monthly PMI if the loan to value ratio is over 80%; however, you can request the mortgage servicer remove the PMI after 2 years and you have 20% equity in the property.

So, in conclusion, if your credit scores are good and you have equity in your home, a conventioanl mortgage would be a less expensive mortgage.

If your credit scores are mediocre and you have little or less equity in your home, a FHA mortgage may be better.

You can do a personalized rate search in the blue Amerisave Mortgage box on the right side of the screen.

It’ll show you conventional and FHA mortgage options, the differing mortgage payments as well as the FHA mortgage upfront and monthly mortgage premiums amounts. It’s a great tool.

Mortgage Services ALERT! Mortgage Rates Rise. August 29, 2011

August 29th, 2011 |

Author: yroth

I don’t know about you, but it was hard to wake up this morning.

Not the Monday morning blues per se, it’s just getting my kids ready for school and racing around to make sure we’re not late for the bus, cooking breakfast, etc. etc.

I have to wait for next Sunday to relax a bit. Oh well…

The mortgage rate roller coaster ride continues as mortgage bonds opened lower this morning pushing mortgage rates downward a bit.

The Bureau of Economic Analysis released personal income statistics for July 2011 this morning. The report met market expectations for a 0.3 percent increase in income and beat market expectations for spending with a 0.8 percent increase.

On the inflation side, which directs mortgage rates, the price index component of the report showed a 0.4 percent increase, following a 0.1 percent increase in June.

The report shows that the consumer is not on the sidelines though job growth would certainly help increase these numbers.

This week is full of economic data with the Case/Shiller Home Price Index (which measures home sales/appreciation/depreciation), ADP Employment (which is a big Fed inflation measurer), productivity and manufacturing data, as well as the official Employment report for July adding to the normal weekly data.

The employment data will be out on Friday, so you may want to consider locking your rate before this economic indicator is released. Just depends on what you tolerance for risk!
I’m going to be updating my soon and am really excited about it. It’ll give you the opportunity to ask me any mortgage related questions, allow you to get a second opinion, check to see if you’re getting ripped off, or just get valuable and honest information.

I’ll keep you posted. In the meantime, if you haven’t looked into saving money on your mortgage or home loan, do a personalized search on the blue Amerisave box on the right side of the page. It’ll show you current mortgage rates, mortgage payments, and the fees (or no fees).

Mortgage Services ALERT. Mortgage Rates Drop. August 26, 2011

August 26th, 2011 |

Author: yroth

I don’t know about you, but TGIF!

Mortgage backed securities opened higher this morning pressuring mortgage rates down.

The Bureau of Economic Analysis released its second estimate of U.S. GDP for the 2nd quarter of 2011 this morning with some not so surprising news.

The report revised Q2 GDP from 1.3 percent growth to 1.0 percent growth. A sluggish economy indeed.

This was more or less in line with market expectations of a revision to 1.1 percent growth.

There is little market change on the news as it appears most participants are awaiting Fed Chairman Ben “Helicopter” Bernanke’s speech at 10a.m. EST.

Mortgage rates are very low, including rates on the FHA mortgages.

Do a personalized rate search on the blue Amerisave window to see the mortgage rates for the conventional and FHA mortgages.

It’s free, takes no more than 10 seconds to see the rate results and will also show you mortgage payment and closing costs.

That all the information you need to see whether you’ll be able to save money.

more to come…

Yale Roth M.A., M.Ed

Posts Tagged ‘Rates’

Mortgage Questions – How Does An Adjustable Rate Mortgage Work?

Related Posts:

Mortgage Questions – Should You Take Out An Adjustable Rate Mortgage?

Related Posts:

FHA Mortgage FAQ – What’s A FHA Streamline Refinance? Do You Need An New Appraisal For The FHA Streamline Refinance?

Related Posts:

Mortgage Services Alert! Mortgage Rates Drop On Poor Jobs Number. September 2, 2011

Related Posts:

Mortgage Services ALERT! Mortgage Rates Drop. September 1, 2011

Related Posts:

Mortgage Services ALERT. Mortgage Rates Unchanged. August 31, 2011

Related Posts:

Mortgage Services ALERT. Mortgage Rates Drop! August 30, 2011

Related Posts:

FHA Mortgage FAQ – What’s The Difference Between An FHA Mortgage And Conventional Mortgage?

Related Posts:

Mortgage Services ALERT! Mortgage Rates Rise. August 29, 2011

Related Posts:

Mortgage Services ALERT. Mortgage Rates Drop. August 26, 2011

Related Posts: