Mortgage Rates and Housing
Mortgage rates have dropped. Housing, though, continues to wobble.
The national average for a 30-year fixed rate mortgage is a bit under 4.5%. This is the lowest rates have been since the 1950's. Some banks offer 4.25%, but you need a really excellent financial profile to get the rate.
If we were in a "normal" economy, house sales would soar as mortgage rates continue to work their way lower. But we're not in anything close to a normal economy.
Still, you may want to consider refinancing now. A simple rule of thumb to follow is if the rate offered is 1.25% lower than your current rate, it should be worth refinancing.
What about the cost of refinancing? Remember that includes any fees you have to pay, as well as any "points" charged. Add these up. For every 1% of the mortgage amount, it takes about two years to break even. After that, you'll be saving the difference between your current mortgage payment and your new one.
Of course, banks aren't giving mortgage away anymore, so you've got to be well-qualified to get a new mortgage. One thing you may want to consider is simply going back to your current bank and telling them you want a lower rate. We did this recently with a client, and the bank agreed to lower the rate - and did so without points and with minimal fees. The client did have to provide thorough documentation, including proof of income, etc., but they knew the client and once the documents were provided, the terms of the mortgage were excellent.
This is one of those times when it's more profitable to spend you time and money refinancing than it is worrying whether to invest more money in stocks, or other investment ideas. The simple fact is that good investment ideas are few and far between in the U.S. and they're getting harder to come by overseas as well - meaning don't start throwing money at foreign stocks, especially emerging markets right now. The timing just isn't very good. Emerging markets especially have been driven up since March 2009 and valuations are rich (in spite of what you may have read or heard out there).
So why not take advantage of something that's sure and safe like refinancing your mortgage?
As for housing in general, it's still a pretty sick puppy. And, except for a few exceptions (e.g., Canada and Australia), housing has been dropping around the world. 20% - 30% (or more) drops in European countries, as well as in Asia, are telling us that the world economy will have a way to go before we get into any kind of reasonable "recovery." You don't get strong economies when the housing market is sick.
The big thing right now is foreclosures. You don't really see many of them advertised, do you? But - depending on what part of the country you live in - you might be surprised to find that if you go out and look at 4 or 5 homes for sale that most of them might be in foreclosure. Yes, that many.
The problem really has gotten to the critical stage, as even Alan Greenspan mentioned this past week on "Meet the Press." I don't know where he got his numbers, but he claimed that if house prices slip another 5% - 7%, a huge new wave of homes would be "underwater" (where the value of the mortgage exceeds the value of the house).
The important point here is that millions of homes are currently underwater that aren't in foreclosure. How much longer people hold on to their houses is anybody's guess. And that unknown is on top of the foreclosures that already exist - never mind all the homes that could and normally would be foreclosed by banks, but aren't because banks do not want to take losses on those mortgages.
There's a lot more to talk about here, and we'll get back to this in a later post. For now, let's stick with the good news about mortgage rates. Take advantage of the opportunity to refinance if you can.
The national average for a 30-year fixed rate mortgage is a bit under 4.5%. This is the lowest rates have been since the 1950's. Some banks offer 4.25%, but you need a really excellent financial profile to get the rate.
If we were in a "normal" economy, house sales would soar as mortgage rates continue to work their way lower. But we're not in anything close to a normal economy.
Still, you may want to consider refinancing now. A simple rule of thumb to follow is if the rate offered is 1.25% lower than your current rate, it should be worth refinancing.
What about the cost of refinancing? Remember that includes any fees you have to pay, as well as any "points" charged. Add these up. For every 1% of the mortgage amount, it takes about two years to break even. After that, you'll be saving the difference between your current mortgage payment and your new one.
Of course, banks aren't giving mortgage away anymore, so you've got to be well-qualified to get a new mortgage. One thing you may want to consider is simply going back to your current bank and telling them you want a lower rate. We did this recently with a client, and the bank agreed to lower the rate - and did so without points and with minimal fees. The client did have to provide thorough documentation, including proof of income, etc., but they knew the client and once the documents were provided, the terms of the mortgage were excellent.
This is one of those times when it's more profitable to spend you time and money refinancing than it is worrying whether to invest more money in stocks, or other investment ideas. The simple fact is that good investment ideas are few and far between in the U.S. and they're getting harder to come by overseas as well - meaning don't start throwing money at foreign stocks, especially emerging markets right now. The timing just isn't very good. Emerging markets especially have been driven up since March 2009 and valuations are rich (in spite of what you may have read or heard out there).
So why not take advantage of something that's sure and safe like refinancing your mortgage?
As for housing in general, it's still a pretty sick puppy. And, except for a few exceptions (e.g., Canada and Australia), housing has been dropping around the world. 20% - 30% (or more) drops in European countries, as well as in Asia, are telling us that the world economy will have a way to go before we get into any kind of reasonable "recovery." You don't get strong economies when the housing market is sick.
The big thing right now is foreclosures. You don't really see many of them advertised, do you? But - depending on what part of the country you live in - you might be surprised to find that if you go out and look at 4 or 5 homes for sale that most of them might be in foreclosure. Yes, that many.
The problem really has gotten to the critical stage, as even Alan Greenspan mentioned this past week on "Meet the Press." I don't know where he got his numbers, but he claimed that if house prices slip another 5% - 7%, a huge new wave of homes would be "underwater" (where the value of the mortgage exceeds the value of the house).
The important point here is that millions of homes are currently underwater that aren't in foreclosure. How much longer people hold on to their houses is anybody's guess. And that unknown is on top of the foreclosures that already exist - never mind all the homes that could and normally would be foreclosed by banks, but aren't because banks do not want to take losses on those mortgages.
There's a lot more to talk about here, and we'll get back to this in a later post. For now, let's stick with the good news about mortgage rates. Take advantage of the opportunity to refinance if you can.
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