Weekly Info 11/30/2012

Global markets have synchronized their trading on the Fiscal Cliff and little else. A positive public statement by anybody, then immediately stocks run up and bonds sell off. A negative slant to an eyebrow, a down-turned lip, no matter how minor the official... stocks tank, buy bonds, rates down. This preoccupation has some merit, but only half. If no deal, and over the cliff we go, Wile E. Coyote in an Acme parachute with no ripcord, the landing will be unpleasant. On the other hand, exuberance at a deal will be fleeting, replaced by awareness that the deal, any deal, will be the beginning of the largest round of tax increases and spending cuts in US history. Just as Mr. Coyote thinks he's caught the Roadrunner, an Acme safe lands on him. Beep-beep.

"Warren Buffett" Says Buy "Real Estate" Now!

Weekly update. 11/02/2012

Now, that's over. Two years of standing around, now down to business. Fast. One piece at a time, stocks first. The sell-off has not been a repudiation of Obama's re-election. It began in Europe and Asia, issues deepening there, not improving. Some certainly sold stocks in fear of higher taxes on capital gains (an extra 3.8% right now, including sellers of homes, courtesy of ObamaCare), and they are right, but that's not nearly as important as weakening global trade undercutting corporate earnings. Housing will benefit from this week’s decisions. Had Romney been elected, Republicans' compulsive hatred of Fannie and Freddie would likely have resulted in premature efforts to shut them down before any private market for mortgages had been revived. There is no telling what clamp would have put on the FHA in exchange for the bailout that it needs for no fault of its own; now it will get what it needs -- and the nation needs

30 Year vs. 20 Year vs. 15 Year Fixed Mortgages Today I want to talk about a refinance trend that we have seen on the rise in recent months. Everybody knows that rates are at historical lows. Many people are refinancing into new 30 year fixed mortgage and lowering their payment as much as possible but there are also a lot of people who are refinancing into shorter term mortgages so they can pay off the debt faster. This month’s article is going to compare the three most common terms of fixed rate mortgages: 30, 20 and 15 years. Please note, all rates contained herein, are not a rate quote and just used for comparison. 30 and 20 year mortgages usually have similar rates and so will my examples. 15 year mortgage typically have a better interest rate than the 20 or 30 year, so that will be used for comparison. We will use a new mortgage amount of $200K and assume that we are at an 80% loan-to- value. If you have a 30 year fixed mortgage at 3.625%, you will have a principal and interest payment (P&I) of $912.10. Over the next 30 years, you will pay $128,356 in interest if you make every scheduled payment on time. While that in itself does seem like a lot, it is substantially less than a good rate in a normal market. At 6.00%, that total interest payment is over $230K. Now a 20 year fixed mortgage is going to have the same interest rate as the 30 year fixed but it will pay off 10 years earlier and save you thousands in total interest payments. The exchange for this savings is a higher monthly payment. In this example, the new monthly principal and interest payment would be $1172.81 or $260.71/month more than the 30 year payment. If you are refinancing out of a 30 year mortgage at 6.00%, you would still see a decline in your monthly payment while still knocking years off your mortgage. At 3.625% on a 20 year fixed, your total interest payments would be $81,473. That is ~63% the total interest for the 30 year fixed or a savings of $46,883. Finally, 15 year fixed mortgages usually have a better interest rate than the 30 and 20 year fixed. In this example, we will use a rate of 3.00%. The principal and interest payment on a $200K mortgage at 3.00% is $1381.16/month. This is $208.35 more per month than the 20 year mortgage and $469.06 more than the 30 year P&I payment but the interest savings are huge. The total interest paid for this 15 year mortgage would be $48,609. That is ~38% of the total interest paid for the 30 year fixed and 60% the total for the 20 year fixed. There are a lot of factors that go into determining what mortgage term is right for you. While the overall cost of a 15 and 20 year fixed mortgage is much less than a 30 year mortgage, it is also a greater monthly commitment. For borrowers who have a lot of additional high rate debt, a 30 year fixed may be a better option so that the other debt can be paid off sooner but the shorter terms would be better for those borrowers who don’t have much other debt and have more flexibility in their monthly expenses. Give us a call today to discuss which option is best for you. The Kunselman Team is always available to talk about your options and how they can help you achieve your goals. The Minimal Down Payment Options for Buying a New Home Did you know you can purchase a new home with little to no money down? In this article, we will examine three of the most popular loans for getting in to a home with the least out of pocket up front; FHA, VA and USDA mortgages. Maybe one of them is just right for you. All of these loans are government insured mortgages so they all have an upfrontmortgage insurance/guarantee fee that can be rolled into your new loan and two of them also have a monthly mortgage insurance/guarantee fee. Because these mortgages are all government insured, rates are similar on all of them. We will use a rate of 3.25% just for comparison purposes. First is FHA. FHA is a very popular type of loan right now. These loans can be used to purchase a 1- 4 unit property, owner occupied without any restrictions to location. The required down payment for an FHA mortgage is 3.50%; so a $200K purchase will require a down payment of $7,000. These can be the borrowers own funds or it can be a gift from a family member. FHA does have a high monthly/annual mortgage insurance premium of 1.25%. The total monthly principal, interest & mortgage insurance payment (PIMI) in this example would be $1059/month. The next mortgage we will look at is the USDA Rural Guarantee Program. This is an income and location restricted program. Income limits are determined by family size and the county the property is located in. Location is restricted to areas deemed rural by the USDA. In our local area, these areas include (but are not limited to) Mead, Frederick, Firestone, Johnstown & Milliken. The USDA program requires NO MONEY DOWN! Like FHA the USDA program does have a monthly mortgage insurance requirement but it is much less at only .40%. In our example, the PIMI payment is $955.82/month. The last mortgage we are going to examine is the VA Guarantee Program. This loan is restricted to borrowers who have had some sort of military service, with some restriction. Like the USDA program, the VA program does not require a down payment. There is an upfront guarantee fee that varies depending on the type of military service but there is no monthly mortgage insurance. For our example, we will assume this is the 1st use of the VA benefit and they are a veteran. This gives a total PIMI payment of $889.13.

Weekly update 11/2/2012

The last economic data to be released before the election has given no advantage to either candidate. We did pick up 171,000 jobs in October, a little better than forecast, and revised up another 84,000 in prior months. However, the average workweek was unchanged for the fourth month in a row, and hourly earnings fell slightly, over the last year rising only 1.6%. "U-6", the measure of unemployment including "involuntary part-time," is still 14.6%. On net a brighter sign than the jobs report: the ISM survey of manufacturing in October crawled 0.2 further into positive ground at 51.7. Markets are flat, I think suppressed more by the election than anything, although stocks are clearly hurt by diminished earnings. Foreign action has also been muted and deferred by our election, especially in Europe.