How LIBOR Will Affect Your ARM

LIBOR (London InterBank Offered Rate) is an index set by a group of London based banks, and sometimes is used to determine the rate for U.S. adjustable rate mortgages.  In 4 years, LIBOR will be going away.  So what does that have to do with you?  Well nothing, UNLESS you have an adjustable rate mortgage.  When this changes it will create uncertainty for a borrower who can’t figure out what the rate is going to be. 

Some LIBOR loans have interest rates that adjust monthly, and others adjust much less frequently. Both principal and interest (P&I) and interest-only (IO) mortgages can be based on the LIBOR.  If you are not sure if your loan is tied to LIBOR take a look at the note you signed.  There is also an ARM disclosure that would say what the index and the margin were.

So what do we know?  That this brings about uncertainty.  When LIBOR goes away, the servicers can set the rate to any index they wish.  They will have to notify the borrower prior to the change date, but by then short and long term rates could have skyrocketed.  With both fixed and adjustable rates are still low, it may be the right time to review your mortgage with a professional.  

If you have any questions, please let me know.  I would more than happy to discuss your specific situation and address your personal questions.

Chris

FHA MIP Reduction Suspended on Inauguration Day

Today, Donald Trump took the oath of office and now has become the 45th President of the United States.   There is no doubt that his administration will be bringing about change, good or bad, there will be change.  The day is not yet over and we have already begun to see a change affecting the mortgage industry, specifically FHA buyers.  January 9th the FHA announced a reduction in the annual mortgage insurance premium rates (MIP) and there was much buzz and excitement at the potential savings to a borrower.

As of today, it has been indefinitely suspended. (It was set to take affect on January 27th).

As we go through this changing year, rest assured Cornerstone Mortgage and myself will be on top of anything that will affect our clients.  Please don’t hesitate to reach out to me with any questions.

Great News for FHA Borrowers

FHA Loans Just Became More Affordable

In a statement today, the Department of Housing and Urban Development announced that the annual mortgage insurance premium on FHA loans will drop by 25 basis points which is equal to .25% savings to any FHA borrower.  This will help ease the effect of the rising interest rates and give a little more buying power or more room in the monthly housing expense.  (The cut applies to new mortgages with a closing or disbursement date on or after Jan. 27, 2017).


“Dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA,” William Brown, president of the National Association of Realtors, said in a statement.

The FHA said that it projects that its new premium rates will save new FHA-insured homeowners an average of $500 in 2017 alone.

So what is an FHA Loan anyways?

An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance through a Mortgage Insurance Premium (MIP), a self-sufficient insurance fund that protects the lender from a loss if the borrower defaults on the loan.  FHA loans are attractive to buyers because they require a low down payment, lower rates and more flexible guidelines.  

Please reach out to me for more information on current FHA Home Loan Rates or to find a loan program that is right for you.

Sincerely,

Chris

Mortgage interest deduction on the chopping block: My Thoughts

Watch this MSN report: "Heads up, homeowners: Mortgage interest deduction on Trump's chopping block" and see my thoughts below:

The concept of mortgage interest deduction sounds sexy, the harsh reality is that you are paying $1 to save 33 cents. That is a net loss of 67 cents. Granted you get the value of a roof over your head, but that simply minimizes the cost of the roof over your head. Keep in mind as the report mentions, there is a small percentage of people that get to take advantage of the mortgage interest deduction. For people who need more money in their pocket the most (a greater percentage of the population) this will have no change to their tax return. I say, let’s get rid of it!

Rising Mortgage Rates: Why Buyers Should Get Off the Fence

I know it seems like all our messaging right now is about rising interest rates.  For the past 8 years we have been warning of this day and most people felt like we were crying wolf.  Well the Big Bad Wolf is here now and he is showing his gnarly teeth.  Rates have gone up and the trend is not your friend.  On the good side, in December of 2015 we were at 4.25%.  As of today we are less than that.  The bad news is that we will see 4.5% in 2017.  The question is will it be in January or some other month.  If you have been a fence sitter it is now time to get off the fence.

  Don't just take it from me, read more: Do Rising Mortgage Rates Mean Buyers Should Wait or Lock?

Trump Wins! You the consumer of mortgages LOSE!

Yes, today there will be a quick drop in rates as the Dow panics and there is a flight to safety.  However in the weeks and months following you will see long term rates go up by .50 to 1.0% as mortgage backed securities and other bonds go out of favor with investors.  Trump has made it clear he is going to get this country's financial house in order and to do that, we need to make interest on the money we borrow and borrow less.  Long term (decades) this could be good for you as a citizen of the United States.  Short term (next 8 years) we will see rates go up and the cost of borrowing for your home will be more expensive.

My advice, if you are thinking about refinancing LOCK TODAY!  If you are thinking about buying in the near future move your timeline up. Rates will be higher in 3-6 months and you will not be able to afford as much.

Please contact me: http://www.cornerstonemortgage.com/ChrisScheer/

Is The Next Housing Crash Coming?

This is a fantastic article if you are a person who believes in trends!  As I read it, we are currently in phase II but depending upon the market next spring we could easily move into phase III.  Not only do we have the potential for hyper supply; look around you, do you see a lot of new construction?  We are also almost assured of rising interest rates.  Those are 2 of the 3 signs with a recession being the 3^rd sign.  Any significant event on the global stage could trigger the recession which would put us right back where we were in 2008.  Maybe not as drastic, but far too many homeowners are 1 paycheck away from a missed mortgage payment.

As I have the opportunity to look at borrower's balance sheets and assets regularly, there simply is NOT enough saving happening.  Too many people are trying to live the life of a wealthy person or if not wealthy, at least the life of someone they see on television.  Those that stop trying to keep up with the Joneses and live frugally will be prepared for when the next housing crash comes.

-Chris

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