Another Balancing Act

Volume 12 Issue 8 August 2017

T

he Federal Reserve Board met

last week to decide

what to do with

short-term

interest rates. With Chair-

person Yellen having

testified before Congress

recently, the tone of her

remarks led the markets to

believe that there was little

chance of a rate hike this

time around— and they were

correct in this regard.

However, analysts were watching for

any wording in the announcement

regarding the Fed starting to sell off

their bond and mortgage assets later this

year. As usual, the Fed is trying to

maneuver through a delicate balancing

act.

Recent moves to raise

short-term rates demon-

strate that the Fed is com-

fortable with the current

state of the economy.

However, if the Fed

floods the market with

their assets, this could

cause a rise in long-term

rates, which might in turn slow

down the economy. Thus, the Fed will

need to carefully divest itself of these

assets taken on during the recession and

long recovery. Just as Yellen has indi-

cated that the Fed is looking to raise

rates gradually, the selling of these as-

sets will need

In This Issue P2 Face-to-Face Preference || P2 Mistakes to Avoid When Financing Your Home

P3 Another Balancing Act || P4 Retiring and Staying Put

Did you know…

The impact of first-time buyers on the

American housing market has been

highlighted in a new report from

mortgage insurer Genworth. The data

shows that in the first quarter of 2017,

first-time buyers bought the most

single-family homes since 2005;

424,000 or 38%. It was an 11% rise

from the first quarter of 2016. "Over

the past three years, first-time home-

buyers have accounted for 85% of the

growth in home sales, and have

become an important indicator for

understanding market trends," said

Tian Liu, Chief Economist for Gen-

worth Mortgage

Selected Interest Rates

July 20, 2017

30 Year Mortgages——–3.96%

2017 High (March 16 %

2017 Low (June 29)—— 3.88%

15 Year Mortgages—— 3.23%

5/1 Hybrid ARMs——–—–3.21%

10 Year Treasuries—–—2.27%

Sources—Fed Reserve, Freddie Mac

Note: Average rates do not include fees

and points. Information is provided for

indicating trends only and should not be

used for comparison purposes.

Continued on Page 3

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Mistakes to Avoid...

B

uying and financing a home is the most important personal finan-cial decision we

will make in our lifetime. Over a lifetime, the average homeowner may pay one-

half of a million dollars or more in mortgage in-terest, many times more than any other single expense.

Yet, the process and substance of home finance remains a mystery to the average American. We tend to know much more about our automobiles than we do about mort-gages that make our home purchase possible. Because of our unfamiliarity, many Americans have no idea if they are making the right decision in relation to their personal financial situation. This is because we tend to make up to ten essential mistakes when involved in the home buying process.

We do not have a relationship with a loan officer. An individual formulates a multitude of professional relation-ships in his or her lifetime. These include a doctor, attorney, accountant, financial planner and even a car deal-ership. We tend not to have a relation-ship with a mortgage lender because the need for the home finance transac-tion arises much less frequently than our trips to other professionals such as a tax preparer. With the advent of adjustable rate mortgages and refinances, chances are you will need the help of a

professional more frequently. If you have no relationship with

someone qualified, you are much less likely to find qualified advice when the need arises.

We have no idea whether the lender we pick is qualified. Since we do not tend to have long-term relation-ships, we do not tend

to shop for the right reasons. We know how to ask about a compa-ny’s rates, but not the background of the entity with whom we are dealing. For example, what is their experience level? You are about to make your most important financial decision. Would it not make sense to check ref-erences?

We do not know how to shop. Most homebuyers know how to ask: what is your rate on a mortgage? We do not know how to ask about lock options, miscellaneous fees, annual percentage rates, or even the variety of programs available.

We do not know enough about mort-gages in general–especially how the choices might affect our economic gains or losses. Since we do not know about mortgages, it is not likely we will know how to shop or what to look for in a mortgage. We tend to know that there are fixed rates and adjustables. We may not know that there are op-tions that may require less of a down payment or closing costs. We tend to

Page Two

“…we tend to know

more about automobiles than we do about

mortgages…”

W

hile the majority of

prospective home-

buyers do their

research on home

loans online, they prefer to handle

their applications in the presence of

a loan officer. According to a survey of

nearly 2,000 adults conducted on behalf

of the American Bankers Association,

60% stated that while they use

the Internet to research their home

loans, they would rather apply

for a home loan in person.

In comparison, 17% of respondents

preferred to apply for a home loan

online, while the remaining 23%

said they were unsure. Furthermore,

only 34% considered their knowledge

about the process to be above

average or excellent.

“Organizations invest billions of

dollars to offer their customers the

latest technology,” said Bob Davis,

ABA Executive Vice President

of Mortgage Markets, Financial

Management and Public Policy.

“But at the end of the day, nothing

compares to sitting across the table,

face-to-face with a lender when

you’re making the single most

important investment of your

life.”...����

Source: National Mortgage

Professional

Face-to-Face

Preference

Page Three

be clueless when asked how the down payment might affect our overall rate of return on our investment in the long run.

We think we know what type of loan we would like–without knowing all the options. Many of us begin by shopping for a 30-year fixed or a one-year adjust-able because we are familiar with only one or two options and we have made our decision. There are several addition-al major loan types that should be con-sidered. Are you familiar with buydowns, long-term ARMs and 20-

year loans?

When we refinance our mortgage, we forget about the long-term. With lower rates, we think that we come out ahead when we refinance. Many times, we use the equity in our homes to finance additional debts. It seems very attractive to lower a payment from $500 monthly to $200 by stretching out the term. Did you know there are options that can accelerate your mortgage payoff?

We have no idea how the approval pro-cess works. Many of us sign a contract to purchase a home and then address the idea of obtaining a mortgage. Most do not know that it makes more sense to obtain an approval first. This helps our own piece of mind while we shop and also increases our bargaining power with the seller.

We do not know that the lock options may be as important as the rate. Most shoppers have no idea that many lock options exist. There are options which allow us to lock in the rate and points from 15 to 90 or more days. Some of the lock options may cost money up-front and the fees may or may not be applicable to closing costs. Many people shop different companies in

order to save $250 in points and then make the wrong decision with regard to lock options.

We do not know what to ask the lender with regard to their services. The quali-ty and service options can vary. For example, many lenders offer quick ap-proval programs that will allow these lenders to render a decision in a few days. A smaller broker that sends your loan to a larger lender might offer you a wider range of programs than a bank. The important thing is that you are aware of what services are available and that tradeoffs must be made in order to make a final decision.

We are intimidated by the process. Buying and financing a home seems to be a very large task. The reason we become intimidated is that we are not knowledgeable. The decision is important enough to spend time learning. With knowledge comes confidence. With confidence comes the right decisions...����

...When Financing Your Home

Continue from Page 2

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1-800/581-5678

Another Balancing Act

Continued from Page 1

to follow the same course.

The good news is that recent

economic reports have shown

inflation to be under control. Absent

the threat of increased inflation, the

Fed can be more deliberate when

implementing these actions.

At this point, there seems to be no

sign that the economy is quickly

gaining steam and will reignite

inflation. Of course, with the first

reading on the second quarter

economic growth and the July em-

ployment report coming out as we

go to press, the balance we cur-

rently are seeing could change very

quickly. While stronger growth is

good, if economic growth be-

comes too strong, the Fed’s plans

could accelerate...����

“…the first reading on the second

quarter economic growth...”

Retiring and Staying Put

Address Correction Requested

In This Issue: Another

Balancing Act

M

ost retirees are deciding not to relocate. During the past seven

years, more than 80% of people aged 55 and up who live in 17 of

the nation's largest housing markets remained in the same county

or state, according to a analysis by real estate data firm CoStar

Group. “Most people retire in the same metropolitan area,” says Hans Nordby, a

CoStar economist who authored the firm’s report. “You don’t see the migration

of snowbirds you would expect to see to the Sun Belt.”

Instead, nearly 90% of older Americans say they want to age in place, and 80%

say their current home is where they intend to live out the rest of their lives,

according to research by the National Conference of State Legislatures. “Retirees

don’t want to leave home for a coastal community where they are not connected

to anyone,” says Paul Irving, chairman of the Milken Institute Center for the

Future of Aging. Newer retirees value lifelong learning and job opportunities

more than better weather, adds Irving. But not every retiree is casting aside ideas

of retiring to a beach town. Americans 55 years and older with annual incomes

of $75,000 tend to favor markets with warmer weather and friendly tax

policies...����

Source: CNBC