Wednesday, March 25, 2009

Will mortgage rates turn housing around?

With mortgage rates at historic lows, CNBC talks to Susan Wachter of Wharton Business School and Howard Glaser, a mortgage industry consultant, about whether there will be a springtime recovery in the housing market. Wachter said the economy still needs to turn around before the housing market really improves. Glaser said the money the federal government has been pumping into the system has gotten stuck at the level of the major banks and isn't trickling down to consumers.

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Posted by Andy at 3/25/2009 09:00:00 PM | | Comments

Monday, December 22, 2008

Buying becomes more attractive. . . especially when you can afford the bigger home

Most people know that the lower your mortgage interest rate, the less money you waste in interest payments to the bank. However, did you realize the lower your mortgage rate, the faster you build equity in your home

Let's say our friend in Hoboken is currently paying $1,000 a month in rent, and would rather spend that $1,000 a month on a mortgage payment instead (I know, you'd be hard pressed to find a $1,000 Hoboken rental but work with me, it's a nice round number). If he got a 30-year fixed-rate mortgage at 7%, that would cover a $150,000 loan. Since $1,000 a month for 360 months works out at a total of $360,000 in mortgage repayments, on average about 42 cents of his mortgage-payment dollar will go towards building equity. What's more, most of that is back-ended: after five years, he will have paid down his principal amount outstanding by just $8,820.64, or less than 15% of his total payments.

On the other hand, a $1,000 payment on a 30-year fixed-rate mortgage at 4.5% would cover a $200,000 loan -- which means that 56 cents of every dollar you spend on your mortgage goes towards equity. And after five years, he will have paid down his principal amount outstanding by $17,450.82, which is 29% of his first five years' payments.

So yes, the house is $50,000 more expensive, but it's just as affordable, and you're building up more equity, not less, with the lower mortgage rate. If you look at an amortization curve for a high-interest-rate mortgage, it starts off pretty flat: most of your mortgage payments are going to interest. The lower that mortgage rates fall, the more equity you build up in the early years.

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Posted by Andy at 12/22/2008 11:24:00 PM | | Comments

Wednesday, December 3, 2008

Potential borrowers lured by enticing mortgage rates?

Mortgage applications surged by the largest amount on record last week as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 28 soared a record 112.1 percent to 857.7, the highest reading since the week ended March 21 when it reached 965.9.

Potential borrowers were lured by enticing mortgage rates, which dropped dramatically after the Federal Reserve unveiled a plan last week to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae, Freddie Mac, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Consumers who were previously on the fence to refinance or purchase a home are in a position to take advantage of the decline in rates.

In the Hudson county area rates for a 30 year fixed mortgage are currently around 5.5%.

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Posted by Andy at 12/03/2008 11:28:00 PM | | Comments

Tuesday, November 25, 2008

Fed steps in and trys to say, this is the bottom!!

The Federal Reserve attempted to end price declines in the housing market on Tuesday with two new programs aimed at making it easier for consumers to obtain loans for homes, cars and on credit cards.

Under the new mortgage program, the Fed will buy up to $100 billion of debt issued by government-sponsored mortgage enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It will also buy up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae. The Fed said that the actions were taken "to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."

Fannie Mae's current-coupon 30-year mortgage-backed security, which is tightly correlated on a spread basis to Freddie Mac's weekly survey of consumer mortgage rates, has fallen 38 basis points on the day, which means that the 30-year mortgage rates are likely to fall a similar amount. If they do, it would bring the average rate to 5.66%, its lowest since January when the average 30-year mortgage rate was 5.48% (the 2008 average is 6.11%). In Hudson County rates were as low as 5.50% as of Tuesday morning.

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Posted by Andy at 11/25/2008 01:04:00 PM | | Comments