Juicy Estates: Mortgage Blog

Archive for December, 2008

Mortgage Interest Rate Update….Take The Holiday Road

“It’s a long way down the holiday road” is the way that Lindsey Buckingham of Fleetwood Mac fame put it and the holiday road has sent interest rates adrift with very light trading in both the stock and bond markets. 

Last week as the effect of the Feds comments wore off rates ticked up by .125% which may foretell of traders intent to seek higher returns on their investment dollars buy pulling money out of the bond market in favor of stocks…for more on this see my post of December 22nd.

As always “volatility” is the order of the day and trying to time your rate lock for the lowest possible rate may be an exercise in futility.

That being said let’s suppose that you were purchasing a beautiful new home in Coral Gables for $1,250,000 and borrowing $1,00,000 what would the effect of the .125% difference in interest rate be?

Loan Amount of $1,000,000

at 5.875% = monthly payment of $5,915

at 6.00% = monthly payment of $5,995

The difference is only $80 per month and that is before you take into consideration your mortgage interest deduction.  While $80 a month is nothing to sneeze at it will not make a home “unaffordable” for you if you are looking for property of this caliber.  

Managing rate locks in an effort to obtain the lowest mortgage interest rate is something I do everyday for my clients buying luxury homes Coral Gables, Pinecrest, Miami Beach or any South Florida neighborhood.  I would welcome the opportunity to manage your rate lock, even if you are working with another lender.

Read This Before You Refinance….

The old rule of thumb was that you should refinance if you can drop your interest rate by 2% but of course that rule of thumb was from the days when interest rates were 12 to 14 percent!  The new rule of thumb is that you should refinance if you can drop your interest rate by 1%…..here’s a tip…don’t make your financial decisions based on rules of thumb.

Many loan officers will tell you that you need to calculate your “re-coup” period by dividing cost of the refinance by the the monthly payment savings in order to determine when you “break even” point is.  Obviously there is no point in refinancing if your break even point is 36 months but you plan on selling your home in a year.

For years I have been one of the few Miami mortgage brokers that have been calculating the “total cost” of any given loan structure for my clients on both refinances and purchases.  The total cost analysis takes into consideration the tax consequences of your refinance to a lower rate that the formula mentioned above does not.

In the following example we are refinancing a $400,000 30 year fixed rate mortgage at 6% to a new $405,000 30 year fixed rate mortgage at 5%.  Why is the new loan $405,000 you ask…because we are including the closing cost for the new loan in the loan amount so the home owner is not coming out of pocket with any money.

This first example illustrates the monthly payment savings achieved by engaging in the refinance.

As you will note it appears that the home owner will be saving $224 per month….nice.

But let’s take into consideration the mortgage interest deduction given a 25% tax bracket.

Because the home owner is paying a lower interest rate the tax benefit of the mortgage interest deduction is less so in actuality the month savings is only $146. 

When ever you refinance or purchase residential real estate your Miami mortgage broker should be calculating the total cost of the financing structure you choose and advising you on what will best fit the needs of your and your family.

Send me a note  and I will prepare a total cost analysis for you free of charge…because the consultation is free but the advice is priceless.

South Florida Interest Rate Update….Drifting Along

Last week was one for the record books with the Fed moving to a target of 0-.25% for the Fed funds rate which helped mortgage interest rates ended the week .125% to .25% lower.

Many traders are already away for the holiday’s and trading in the bond market is relatively light.  Even though we get GDP and PCE figures this week as well as Jobless Claims it does not appearl that any of this data will be enough have a dramatic effect on interest rates in either direction.

Beware!  Upon returning from their holiday bliss, many traders will be looking for higher returns on their investment dollars and we could see a significant amount of money flow out of low yielding Treasury’s and Bonds in search of higher yeilding opportunities.  If this projection holds true we could see 30 year fixed rates move above 5% again.

Sellers Contributions In South Florida Made Easy

Being a full time South Florida mortgage banker I sometimes forget that not everyone lives in the numbers world everyday so this post is for all of you that have found sellers contributions to be a confusing issue.  In this post I will attempt to explain sellers contributions in plain English since they are such an effective and useful negotiating tool in the current real estate environment.

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Read Juicy Estates and Save $93,415!

As evidenced by the melt down of the mortgage market over the past 18 months getting a mortgage is now, and should have always been about advice, not price.  

A client called me on Monday evening after reading the most recent South Florida Interest Rate Update.  He was being told by another lender that he should ”lock your rate immediately and you need to give me your credit card info to pay the rate lock fee”.   

My advice to him was to wait until Tuesday at 2:00 pm to see what the market reaction would be to the Federal Reserves announcement regarding the Fed funds rate and their policy regarding the credit markets.  The financial markets and traders had a .5% rate reduction by the Fed priced in, so when then the Fed surprised with a .75% to 1% cut and re-affirmed it’s intention to buy long term bonds including mortgage backed securities, mortgage rates dropped like a rock.  The Fed’s action and more importantly their words resulted in rates dropping a .375% to .5% all the way down to 4.75% for a 30 year fixed rate with no points.  

As a result of reading this post and contacting me I was able to lock his rate for the purchase of his new South Florida home at 4.75% (for information on why I advised him to lock on Wednesday click here) with no rate lock fee and no points, just good advice.  The result of the lower interest rate is that over the life of the loan my client will pay $93,415 less in interest….now those are juicy savings!

South Florida Interest Rate Update…Should You Lock?

The saying goes “the pen is mightier than the sword” which was the case today as 30 year fixed rates dropped below 4.875% for the first time in history!  Contrary to popular belief the fact that the Fed lowered it’s “target” for the Fed funds rate to 0-.25% is not why mortgage interest rates dropped.  Mortgage interest rates dropped because of what the Fed said not what they did.  So what did they say you ask……

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South Florida Interest Rate Update – Drifting Lower Ahead of Fed Meeting

Mortgage bonds, those pesky little things that seem to be causing so much trouble in the financial markets are at their best prices of the last 5 years.  As a result mortgage interest rates are at their best levels of the last 5 years ahead of the Fed meeting on Tuesday December 16.   We have witnessed a significant rally in MBS prices since October and in a normal environment you would expect that at some point this rally would run out of steam but these are strange days indeed. 

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Primo Levi’s Glacial Ice and A Special Pinecrest Home

For some unknown reason upon seeing this photo the first thought that popped into my head was the famous quote of Primo Levi who wrote of drinking a glacier’s melting snow, “that water tasted like sky.”   I hesitated to include this reference in this profile of Pam Mayer’s listing of 6131 SW 128 Street in the Village of Pinecrest because, as we all know, no one likes the pretence of an obscure possibly irrelevant literary reference….but then again, sometimes relevance is overrated.

The relevance of architectural style is something that is, in my opinion, under appreciated and sometimes apparently ignored here in South Florida.  Many of the newer homes in South Florida appear to be Disneyesque and far less timeless than homes being built in older cities which is something that I imagine will change as South Florida matures.  In my opinion this home has a style and grace which give it that timeless appeal.  The property, which is currently listed for $3,100,000 is a refreshing change from most of the homes built in South Florida over the past 10-20 years which tend to exhibit primarily Mediterranean influences.

As you approach the home from SW 128 Street you immediately take note of the indigenous foliage anchored by the juvenile Dade County Pines which contrast nicely against the stone accents.  From the exterior it is evident that this home would fit in equally as well in any elegant neighborhood located in one of the more genteel southern states.[slideshow=2]

Upon entering the home you are greeted by the well proportioned foyer which opens up the soaring two story ceilings of the formal living room.  The architectural feat of making the home feel warm while also giving you the sense of being open and light, which is accomplished in the foyer, is repeated throughout the home through the use the appropriate surfaces, ideal ceiling heights, colors and finishes.  This home itself is worth making a visit but as an added bonus the current owner is a talented artist who’s work adorns the walls.

As indicated on the MLS listing this elegant Village of Pinecrest home offers:

7 Bedrooms, 7 bull baths and 2 half baths.  A summer kitchen, 7,934 square feet of living area located on a builders acre. 

To take a virtual tour of this very special home click here.

Recession – Calling A Bottom

It is worth noting that there have been six major recessions since the Great Depression; three of them lasted one year and three of them lasted two years.  The most recent economic data indicates that the current recession will most likely last a couple of years.  This recession officially began in December of 2007 which would put us at the half way point right in the middle of the road.

That being said with the massive amount of economic stimulus that will be pouring into our economy shortly after January 20th (inauguration Day) coupled with the trillions of dollars the major industrialized nations will collectively be pouring into the global market place in the coming months, it is almost certain that our domestic economic picture will be considerably improved by this time next year.

A lot of fence sitters are trying to time the bottom of both the real estate and stock markets and of course as I have written before you don’t know it’s the bottom until it’s to late.  I think one could make the argument that we are about half way through the recession and speculate that more jobs will be created in the coming months.  These factors in conjunction with historically low interest rates and “reasonable” underwriting guidelines make it a very good time to be buying a Luxury home in South Florida.

“The smart money is buying now!”

South Florida Interest Rate Update…Talk Is Cheap

In the midst of water cooler talk of the Fed buying mortgage backed securities in an effort to push 30 year fixed rates to 4.5% rates actually ended the week worse by an 1/8 (.125%).   Even the worst jobs report the US has seen in 35 years couldn’t move bond prices higher.   Remember, as Bond prices move higher mortgage interest rates will move lower.

The Treasury engaged in a bit of system gaming with the irresponsible release of the hint that they may buy mortgage bonds in an effort to move mortgage interest rates significantly lower.  This release of this information included no definitive plan, no indication of who might qualify, or what the restrictions would be. Like many other recent legislative “solutions”, the restrictions might be very tight, with income limits set very low, and as a result, helping very few people. Remember, it may make sense for you to act now, and take advantage of current historically low rates…with the possibility of refinancing should rates decline further.