Mortgage leads loans Rates

In case you haven’t noticed the mortgage market and the real estate market have been blazing a trail into the record books. Never before has there been such explosive, sustained growth of these two markets. The key factor here is that one seems to feed off the other. Is this a good thing, or are the two markets headed for a collapse?

You have analysts that will argue for either side. But, you need to have a better understanding of how this process works, and what elements have come together to allow this kind of growth, before you can accept or disprove either argument. What has happened to spur this kind of growth? Well, there are several key factors that managed to come together at precisely the right time, some of them attributable to natural disaster that has generated a booming market.

The first contributor was the falling interest rate that has leveled out around 6 – 7%; the second great contributor has been the increase in mortgage loan options. There are mortgage products out there to fit every type of buyer. The third contributor, (and this one is purely from nature) was the horrific hurricane seasons of the past couple of years, including the season we had this year.

How have all these elements come together to generate growth? Here’s exactly how: lower interest rates meant cheaper monthly payments, refinancing options were open, and people could afford to buy bigger homes for less. Add to that mix a more varied loan market, and you have an increase in buying, selling, and building. If you also throw in the fact that hurricanes destroyed massive quantities of homes along the coast, and most will rebuild, you have a burgeoning real estate and housing growth market.

We have also managed to create an environment very conducive to investment, construction, and resort development. Now, if you factor in a booming market for investors, you have a prime situation for increases in real estate value, increases in construction, and increases in mortgage loans.

How does the average citizen ready to buy or build a home interpret all this information? Well, it creates a wonderful situation for the homeowner looking to sell a home, simply because the value of the home should show a tremendous increase over the purchase value, especially if you’ve owned the home for more than 10 years. However, if you’re buying or building, you’re not going to like the situation. Why? Because home prices are up, thanks to the rising real estate prices, and so are is the price of building materials, needed to build a new home. We can attribute much of this to high gas prices and hurricanes. The good news, in all this, is the low interest rates. You can still borrow at an extremely affordable interest rate.

For the consumer shopping the market, you need to really educate yourself about the rising costs of real estate, the local values in your community, and what mortgage products would most benefit you, when you consider your individual objectives. If you’re like most, you aren’t buying your home for an investment, and you aren’t buying with the intent to sell in a few short years. In the market of today, it would be a wise choice to meet with a financial advisor; someone that has a background in finance, and can help you to clearly define your objects, and choose a mortgage that will reflect those objectives.

Many of the individuals, who are the doomsayers, seem to think that the market can’t sustain this type of growth. That is has occurred too quickly, and like the bubble of the stock market, will burst, leaving many homeowners and mortgage lenders “holding the bag” so to speak. But, you also have many of the intellectuals that say the real estate market was due a burst of growth; that it is normal, healthy, and we should have no trouble sustaining this type of growth. Whatever the end result, right now, the real estate market and the mortgage market are hot items; if you own real estate, you’ve hit the jackpot. If you’re looking to buy, get ready to pay.

Chances are unless you’re right in the throes of purchasing your home, you’ve never even heard of private mortgage insurance. But, if you intend to purchase a home and you don’t want put the 20% down that traditional lending institutions require, you’re going to become very familiar with private mortgage insurance. What is private mortgage insurance and who pays for private mortgage insurance? This article will take the opportunity to discuss private mortgage insurance and why you’re required to purchase it; we’ll also examine the latest federal regulations governing private mortgage insurance.

Let’s first define what private mortgage insurance actually is, and why you might be required to purchase the insurance. Private mortgage insurance is an insurance purchased to protect the lender, not the borrower. The borrower however pays for the mortgage insurance, and is provided to the lender instead of the 20% down payment normally required when purchasing real estate. The insurance provides the difference between the fair market value of the home and the actual price a lender may be able to sell the property for, in case of a default on the loan. Normally, the lender will require a 20% down payment and forgo the private mortgage insurance option. However, under certain circumstances if the buyer has an excellent credit card debt rating, is well known to the lender, and is deemed to be low risk, private mortgage insurance may be an option offered by the lender.

The current mortgage market seems to be flooded with such varied products as the interest only loan and the 125 loans that private mortgage insurance seems to be a thing of the past. You rarely encounter a situation when the buyer is required to purchase the private mortgage insurance; those situations most likely to continue to require the purchase of the private mortgage insurance are those where the lender is a traditional lending institution. Mortgage companies have long since ceased requiring borrowers to purchase private mortgage insurance.

Mortgage investors, such as the Fannie Mae and Freddie Mac programs, have recently come to the aid of the borrower by introducing an option to the primary mortgage market that allows borrowers to pay as little as 5% down and purchase only enough mortgage insurance to cover 25% of the loan; this creates a potential citing situation for the borrower. The borrower may pay a slightly higher interest rate in order to lower the cost of insurance that the advantage lays here: mortgage interest is fully tax deductible, private mortgage insurance is not.

There’s another option, also regulated by the federal government and passed into law in 1999, known as the homeowners protection act of 1998 established rules for regulation of private mortgage insurance requirements once a homeowner reaches a level of 20% equity. What the law requires, in layman’s terms, is that a lending institution must notify you once your equity levels reach 20% of the appraised value of the home. Once you the kind of 20% equity level, you must be given the option to drop private mortgage insurance. If this proposal had passed into law some 20 years ago, it would have been met with great resistance among the lending community; today, the interest only loan and loans that offer mortgages in excess of the appraised value of the home overshadow the effect of the 1998 homeowner’s act.

Many homeowners seem to mistake the private mortgage insurance purchased in order to secure the loan, with that of the homeowner’s liability insurance. Lenders are responsible for making clear the distinction between private mortgage insurance purchased to protect the lender versus the homeowner’s liability insurance purchased to protect the homeowner. Both forms of insurance will need to be purchased, and the borrower will be responsible for payment of both insurance premiums.

Quite often as we go through the mortgage process, we encounter many unexpected expenses; private mortgage insurance is normally one of those unexpected expenses. As a consumer if you’re contemplating the purchase of a home, contact your local lending institution, or a mortgage company in your area, and asked for information concerning the purchase of a home for first-time homeowners. The information you’re provided should contain all the terms, conditions and terminology explanations that you will need in order to make an educated decision when choosing lenders and homes.

Interest only products and the mortgage market don’t seem like they would have anything to do with an MSA, SEP or an IRA; but they can, and sometimes it’s to your advantage if they do. First, let’s explain what an MRA and IRA are, and how you can use them to your benefit. While offering the explanation, we’ll look at how they can be used in conjunction with interest only mortgages as a benefit to the consumer.

An MSA, or medical savings account is a tax-deferred way to save money, especially if you are self-employed, and do not have a 401k or medical insurance. The medical savings account gives you a tool for taking a deduction straight off your bottom line, thereby reducing the amount of tax you owe. The mortgage interest portion of your mortgage only provides a tax deduction in the form of an itemized deduction, and it is limited to a certain percentage of your income. Refinancing, or first-time financing of your mortgage with an interest only mortgage, can be used to pull more of the equity out of your home, or save money on mortgage payments that can be used to fund an MSA account. The biggest drawback to this kind of savings is the penalty you pay if the money is not withdrawn for its intended purpose, paying for medical expense. If you find yourself in a situation where you must have the money, and it’s not for medical expenses, you can pay up to 10% in penalties.

The IRA or individual retirement account works on the same premise as an MSA. The IRA is intended to give the consumer a way to save for retirement, when there is not a retirement plan where they work or they’re self employed. The interest only mortgage can be used in the same way as was explained above, and with the same restrictions. The IRA account is supposed to be used by the consumer as a tool for retirement savings; if the money must be withdrawn prior to reaching a certain age, there is often a 10% penalty to be paid on early withdrawal.

The SEP is the equivalent of the 401(k) for the self-employed individual. How does the SEP work? Basically, you as a self-employed individual can allocate up to $20k each year to be put into an SEP, or self-employed pension. The money is treated as tax deferred income, and it comes directly off your AGI, just as if you participated in a 401(k).

As you can see, the MSA, IRA, or SEP offer the consumer direct one-to-one savings by reducing their AGI, or the amount of income for which they are going to incur a tax liability. The mortgage interest portion of their itemized deductions is not a dollar for dollar reduction; it is limited to a percentage of your AGI. But what if you could find a way to benefit from both deductions? Would that not create a more beneficial tax and savings situation for the homeowner? Quite possibly, and the only way to assess your real savings is to sit down with a financial analyst and look at your individual situation.

The only way to really benefit from this possible scenario, however, is to make sure that you have ample savings from the interest only mortgage payment versus the traditional payment, to justify making such a move, and that the money will actually make it to a tax-deferred savings account.

What is the potential savings for the consumer? Well, imagine the following situation: self-employed taxpayer wants to buy a home. He has $10,000 available in cash to either put down on the house, or put into an SEP; his tax liability without the SEP will be $8,000. With the $10,000 SEP, he would receive a refund of $600.00. He can only afford to make mortgage payments of $600; the house he’s chosen financed with a fixed rate mortgage would be $826 each month. Using the interest only mortgage option, his monthly payment for the next 5 years is only $488 and the mortgage product does not require a down payment. It frees up the $10k to be put into the SEP and the taxpayer benefit will also include deductible mortgage interest. As you can see, with this illustration, financial planning and fully utilizing your options can make a tremendous amount of difference in your life.