CLIENT:
ok wanting your advice on this . We have the house up there in MI that we have an ARM on and we are so upside down that its ridiculouse , then we have the house down here in [out west] that we bought at the bottom of the market and are ( hopefully ) going to make money on . We are going to sell the house in MI as soon as is financially profitable to do so , and i was thinking of re financing the one up there . I don’t know how the market is up there and i havn’t the time ( work commitments and all ) to work this out , so i would appreciate some in[ut from you guys .

Due to the distance involved we would really like you guys to handle everything if a re fi is the way to go . I’m not looking long term on this ( like 20 years ) we just need to sell and make a few, and call it a right off if needs be

MY RESPONSE:
Hey, great to hear from you – hows the weather out west!?

Send me your mortgage statement and I will confirm my thoughts with it, but as I recall, your loan rate is currently less than or around 3% right?  Your payment has got to be quite low as a result and even if you made the lowest payment option you are given each month you would be reducing your principle balance considerably over the course of a year.

In addition, the Feds just came out with a statement that they would like to keep short term interest rates “very low for a very long time”.  They are using the year 2012 as the first date they will be moving their rate.  This is never a sure thing but I certainly like the sound of this more than the sound of hyper inflationary rising rates!

My advice for anyone in an ARM type mortgage who will be holding onto their home for just the next 3 to 5 years is to NOT refinance.  Fear on the one side will cause us to move toward the certainty of a 30 year mortgage and incur whatever expense it takes to get it.  On the other side, some are in a low rate ARM mortgage and are making their decision based on greed.  As long as greed is the motivator, they will likely wait too long trying to hold onto the relatively small amount of savings and then in a year or two they will end up in a higher fixed rate for the next two decades as a result.

In your case, you don’t have a long term outlook on this home or mortgage.  The level headed approach is to sit tight and make your payments.

That said, you don’t have an option to refinance right now anyway because your home is worth less than you owe on it and neither Fannie Mae nor Freddie Mac are the current paper holder on your mortgage.  None of their open access programs will apply.  Enjoy 3% it will likely be around a little while.

Thinking back, when we wrote this loan for you a few years ago, we said that this could be the last mortgage you write on a home in Michigan.  At that time we did not know you would be moving West (we thought East) but we DID like the fact that you would not be spending money on closing costs again here.

I wrote a post a while back called YOUR economy vs. THE economy.  I think YOUR economy is fairing quite well in THIS ecomomy.  Lets add it up:

1.  You were able to secure a VERY low price on a home out west that you will be in for a longer period of time.
2.  On the home you can’t sell right now you have both a very low mortgage rate and a tenant making your payment.

It looks to me as though you are landing right on your feet!

Your thoughts?
evan

home mortgage

One of the financial magazines I read weekly is Business Week. It can be a little bit politically charged, but depending on who’s writing the economics ‘short’, it can be very good.

This week’s is written by Peter Coy. Google his name and you’ll find him to be a bit pessimistic on the economic recovery and not quick to get on band wagons that others are riding. His is a level-headed report of the facts, and he doesn’t generally over play his theories. Just the kind of guy you want to hear good news from.

The article I’m referring to – linked here – will not disappoint you. It explains simply and clearly why Bernanke is so committed to a VERY low rate standard.

His reason in a nutshell:  The economy at large has a ton of excess capacity right now, which will take a long time work through. What do we mean by capacity? You see it practically as high unemployment and high inventory of homes on the market. Both examples are resources that are more plentiful, more in “supply” than we need. It will take a lot of economic growth just to work through what is already here and to use up this excess.

Another reason for extra capacity is the recent rise in productivity. The productivity numbers rose again this month, though they were expected to remain flat. So, not only do we have an excess in resources, we;re also getting more efficient at producing them. This will create slow growth in the economy, in Big Ben’s opinion, and support for his theory is growing.

Take five minutes and read the article. You might also consider who you know who might appreciate this information.

Some concluding thoughts:

WHAT IF BERNANKE IS RIGHT?
Then we’ll have slow economic growth and keep interest rates low for some years to come. We can live with this. Let’s be honest – putting our Lansing hat back on – we’ve been living with it for some years already. But here is where we might see light on the horizon – a bright spot. It may just be Mid-Michigan’s turn for moderate jobs growth. If this happens while the rest of the country (world) is lagging, then we could have both rising home values AND low rates. Let’s not be too much the ‘realists’ to think this couldn’t happen.

WHAT IF BERNANKE IS WRONG?
Then the economy at large heats up, rates rise sooner – not a lot, most likely, but sooner. AND our 401k’s rebound again. We can handle this too! Even if he’s wrong, 1982 inflation and rates are not a likely event based on the slow growth expectations.  At least not for a while.  Most of us who need a fixed rate will get one while they’re low and few will remain by the time anything wild happens.

WHY IS THIS IMPORTANT TO ME?
If you are buying a home or refinancing a mortgage right now, then you should still consider a fixed rate.  Mostly because they’re very low right now (see my blog 24/7 for daily averages).  If you are currently in an Adjustible Rate Mortgage, you should get some advice as to what to do.  Your rate will likely be very low for the next few years.  Let’s not allow fear or greed to dictate these decisions.  A good level-headed decision based on the facts of your situation and the realities of your goals is what is needed.

LAST THOUGHTS
Let’s also be very honest with ourselves. As “smart” as Mr. Bernanke is, he does not know or hold the future.  Only time will tell if his contributions were beneficial. He’s helping us navigate right now, and I am thankful for that, as am I thankful for all like him who are in positions of great weight and difficulty. I would urge us to remember the phrase written ON our money when we think ABOUT our money:  “IN GOD WE TRUST”.  After all, low rates, housing credits, and three shifts running at General Motors will all pass away in time.

Here’s just a sample of the latest:

• Single-housing starts for August are up 7% and it looks like they’ll post the first double-digit annualized gain after 13 straight double-digit declines, that’s quite a swing.

• Market home prices are up nationwide, somewhere between 2.7% and 7.3%, depending on whose numbers you trust (Freddie on the low side, Clear Capital on the high).

• The nearly record low rates last week boosted mortgage apps up by 17%.

• We’re enjoying 6 straight months of pending sales increases.  In Lansing, we’ve already closed as many transactions as we did all of last year.

• Consumer confidence ratings are up—and in all categories: current conditions and short-term outlook in both the economy and labor markets.

So the indicators that we’ve been watching so intently, so nervously over the past two years seem to be settling in to a healthy rhythm. And that’s good.

And though we may never be as complacent as we were a few years ago, that’s probably good too. In fact, maybe those were the dark days—when we thought nothing could go wrong…maybe. Either way, I’m ready for some sunshine.

Many are asking the question about how to buy their first home.  Many are in a home and would like to move to another.  Some are interested in taking on an investment property.  Others are concerned about their investment portfolio and want to know what, if anything, they should do in light of the last year’s happenings.  One of my clients is having their fourth child in a two-bedroom home.  More and more, it’s about a job change or the desire to make a job change, or even start a business.  And most often the conversation is an overlap of two or more of these kinds of events or goals.

It’s difficult for any of us to take a non-emotional appraisal of our own situation and see it for what it is, but it’s never been as good a time to do that than it is right now.

My goal in today’s short post is to encourage my clients and readers to make one paradigm shift before approaching any of these life changing ideas and goals.

One simple change in thinking:

Look at THE economy at large through the lens of YOUR personal economy and not the other way around.  Many are coming in ASSUMING that because “things are bad out there” that their situation is bad too.  They are looking through a foggy lens steamed up with media frenzy and “get out of debt” radio ads and are having a hard time seeing their personal economy for what it is.  They look at their situation and only see a lower-value home and a lower-value 401k.  Two values that in the grand, long-range scheme of things are meaningless to most of us.

Well at least 85% of us.  Why 85%?  Well, for the 15% of Michiganders who are not employed (and want to be) their personal economy has real challenges.  But for the rest of us (and even most of you unemployed folks out there) a market like this one spells OPPORTUNITY.

Look for opportunity.  Use your personal economy to take advantage of opportunities in the greater economy.  This is an easier task now than it ever has been before.

mortgage broker Lansing