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mortgages

We Sat Down With a Mortgage Expert: Here's What You Need to Know

Interests Rates Extend Declines

Mortgage Rates have been been on the decline year over year, and touched a 16-month low in recent weeks. While rates have been at historic lows for quite some time now, they are once again at very low rates. Near the end of May, the 30-year fixed, the benchmark Mortgage product, was at 3.99%. Many factors are putting downward pressure on Mortgage Rates such as U.S.-Chine Trade War concerns, Brexit, and concerns of weak economic growth.

Given rates are low, now is a great time to lock in a rate if you are considering financing. We often get asked many questions from our Buyers surrounding Mortgages - what’s best for me? Is this a good rate? Given Mortgages are top of mind for many in the current environment, we sat down with Mortgage export, Donna Vitalone, a Senior Lending Officer with Citi.

Victoria Shtainer: What are some of the most important factors to consider when deciding between a fixed rate and adjustable rate mortgage - time in residence? Affordability in the future? Etc.

Donna Vitalone: A number of important factors come to mind that the borrower should consider and weigh when deciding between a fixed rate and an adjustable rate mortgage.  First and foremost is determining where you are in the human life cycle based on your age plus your marital and employment/job status.  I think it’s equally important that the borrower also take into consideration:

  • whether or not it’s the borrower’s first home;

  • the length of time the borrower expects to own the property: 5 years, 10 years, longer than 10 years;

  • is the borrower upwardly mobile or is planning to downsize; 

  • is the borrower’s job the type that could possibly require relocating at any time in the future; 

  • does the borrower have a particular objective with regard to the mortgage such as either having the flexibility to manage monthly cash flow or is likely to rapidly pay down mortgage with bonus income or receipt of a large inheritance.

Victoria Shtainer: What is the most common mistake you see Buyers make when selecting a mortgage, or the biggest misconception about Mortgage product options?

Donna Vitalone: I’d say the most common mistake buyers make when choosing a program is to regard of a mortgage as just a loan when in fact they should consider choosing the program in much the same way they would any other financial planning tool where future plans will likely be given consideration;

Among the many misconceptions the most common I hear is “avoid paying points because it’s expensive”.  However, the truth is paying points can be a smart financial planning tool for primary home buyers who, by taking advantage of federal income tax benefits, by paying points not only buy down their interest rate but also see a reduction in their taxable income.

Victoria Shtainer: If you take a fixed rate loan, and rates drop continue to drop, are you locked in, or do most fixed rates loans give borrowers the flexibility to refinance to a lower rate?

Donna Vitalone: Because most fixed rate mortgage programs do not include prepayment penalties, they give homeowners the ability to take advantage of a lower interest rate environment by refinancing their fixed rate mortgage.  However, in deciding whether to refinance the borrower should be sure to first ask the loan officer to prepare a cost benefit analysis to confirm an advantage exists. 

Victoria Shtainer: As a Buyer, should I be most concerned about my credit score as it relates to getting the best rate?

Donna Vitalone: Definitely; a buyer whose financial house in order is also a borrower with a high credit score and one the bank will regard as being low-risk.  The borrower is certain to save money by the lower interest rate that will most likely be offered by the bank.   

The opposite is true for the buyer with a lower credit score who the bank will see as a high-risk borrower that should expect to be offered a much higher interest rate.  That buyer first think about engaging a credit repair firm that works with borrowers to improve their credit score by removing the derogatory information responsible for impacting their credit.  However, planning ahead is key for the prospective borrower when choosing this approach as the credit repair process often can be a protracted one. 

Victoria Shtainer: What is a Mortgage Product you have been leaning into recently that most Buyers may not be aware exists as an option to finance?

Donna Vitalone: Well there are three programs that come to mind with the first being relationship pricing.  While talking with clients I’ll often try to identify certain eligible assets which can lead to interest rate discounts on their mortgage if moved to my bank.

Another involves buying down the interest rate by paying points because for a client whose looking to manage their monthly payment it sometimes can be a more cost effective strategy than reducing the loan amount with a larger down payment.  This recently came up with one my clients who wanted to have a specific monthly payment.  I was able to show her that spending roughly $20,000 to pay points that would buy down the interest rate turned out to be a less costly approach than reducing her loan amount by adding another $90,000 to her down payment.  Needless to say, she was thrilled. 

Last, for clients wanting liquidity to meet unexpected expenses I’m most likely to suggest taking out Home Equity Line of Credit.

About Donna Vitalone:

Donna joined Citibank in 2018 bringing with her nearly thirty years’ experience in the mortgage banking industry. She has held positions as Market Development Manager, Correspondent Account Executive, Producing Sales Manager and Mortgage Loan Officer with organizations including JPMorgan Chase, Wells Fargo Bank, and Bank of America.  During that time, she has closed over $900 million in residential mortgages and winning many production and management awards as a result. 

 

What Do Rising Interest Rate Mean for the Housing Market?

rising mortgage rates

Mortgage rates of been on the rise lately, with the most recent tear higher garnering quite a bit of attention. The 30-year fixed rate is approaching 5%, a number that hasn’t been seen since around 2011. Remember, while rates are high relatively speaking, rates are still lower than what was observed in the 70s, 80s, and 90s.

The expectation is that rates will continue to rise with economists forecasting we will see 5% by the end of 2018 and could possibly see 6% by the end of 2019. Why are rates rising so rapidly? The most recent jobs report was indicative a strong economy with unemployment the lowest it has been in decades. A strong job market translates to a strong economy, and a strong economy means rising interest rates. 

So, what do rising rates mean for home buyers and the housing market? Remember the following

You Have Mortgage Options 

When headlines and the press speak to mortgage “rates” they are referring to the 30-year fixed rate. This is the most expensive mortgage product as it has the longest built in protection period. But what if you do not plan to be in the home for that long…why pay a premium for time protection that you may not need?

Many buyers are shocked to see all the various mortgage products that exist when they sit down and discuss their needs and options with a Mortgage Broker. A qualified Mortgage Broker will be able to advise on which product makes the most sense given your qualifications and time horizon. 

Control What You Can 

There are aspects that you can control when it comes to financing your home and getting the best rate possible. Two of the biggest influencing factors are 1) down payment and 2) credit score. 

Down payment:

The amount of money you put down on a home is one of the biggest tools you can use to lower your monthly payment because the more you put down, the less money you are borrowing. We understand getting a substantial down payment can be challenging, especially for first-time homebuyers who may be younger and faced with high student debt.

It is also important to remember that any down payment 20% or greater will remove the need for Private Mortgage Insurance (PMI) which can be a substantial savings on your monthly payment.

Credit Score:

If you have ever borrowed money, you know the importance of a strong credit score as it relates to getting the most favorable rates. Yes, you do not need the best credit score out there to qualify for a mortgage, however, the better your score the better the rate you will receive which means the lower your monthly payment will be. Turning a credit score around can take some time, so if purchasing a home with financing is in your future and your credit is damaged, start working hard now to get it on the rebound.

Tax Benefits

There are tax benefits to having a mortgage which are something to consider. While many do not know exactly where they stand in terms of tax liability given the new changes to tax code, we expect to get more clarity after filing 2018 returns.  

With that said, interest paid on a mortgage is generally tax deductible. Under the new tax laws, if you take out a new mortgage, you can deduct up to $750,000 in mortgage interest from your taxes.  In a sense, this makes your effective mortgage payment lower as you are getting benefits when you file your taxes…something to keep in mind.

Questions about taxes? We are not tax advisors and would defer you to your qualified tax advisor who has a full picture of your tax liabilities.

If You Are a Seller

Rising mortgage rates may not only impact buyers, those actually taking on a mortgage, but could also have an impact if you are a seller, so it is important to say abreast of market trends. 

Sellers – enlist the advice of your broker in regard to pricing. Your broker will be attuned to trends in the neighborhood and know if impacts are being felt as a result of rising rates. This is especially important for sellers who are selling property that is more likely to appeal to first-time home buyers who are more pressed for cash and concerned with monthly payments. Will a reduction in price make your property more attainable for them?

It is important for sellers to understand the buyer’s perspective given we are currently in a Buyer’s Market. Buyers are faced with a one-two punch of rising rates plus increased home prices over the past few years. Price your property according to what the market is dictating if you want to sell.

What does it all mean? We feel rising rates will certainly have impact on some home buyers that are on the cusp of affordability, however, we do not feel that rates are at a point where it could completely stall the market and put large downward pressure on pricing. In fact, some pent-up demand may be spurred to “jump” in to the market as affordability (of monthly payments) becomes a concern. People see the pace at which rates are rising and do not want to be priced out because of higher rates in a few months.