Category Archives: Finance and Taxes

Possible Lower Mortgage Interest Rates for Spring Homebuying

Finance and Taxes, Market Update

Once the outcome of the presidential election was known, 30-year mortgage interest rates slowly decreased through the end of 2024 from the high 6% range, into the mid-to-low 6% range. Forecasters predicted that they’ll continue to soften in time for the spring 2025 homebuying season.

  • Wells Fargo agrees that rates will dip below 6% in Q2 2025.
  • Fannie Mae predicts that mortgage rates will average 5.7% in 2025.
  • The Mortgage Bankers Association says rates between 2024 and 2025 will drift between 6.3% by Q4 2024 and 5.9% by Q3 2025.
  • The National Association of Home Builders predicts that rates will average 5.94% in 2025, with “sustained, sub-6% mortgage interest rates” beginning in Q2 2025.

Federal Reserve leaders say that forecasting interest rates is highly uncertain. While there are trends that suggest that the interest rate forecast for spring 2025 will be lower, it all depends on developing economic conditions. For that reason, don’t try to time the market. You can always refinance if interest rates drop.

Why Timing the Market Rarely Works

Finance and Taxes, Market Update

Mortgage interest rates are slowly drifting lower, giving a much-needed boost to both homebuyers and home sellers. Yet, home prices continue to rise, even as more sellers put their homes on the market. Why? The U.S. is still several million homes short of a balanced market. So, do you want to wait for cheaper rates or go ahead a buy a home before home prices rise further?

To time the housing market perfectly, you need to:
1. Find the right home.
2. Buy at the right price.
3. Obtain the right mortgage interest rate.

You may get lucky and get one out of three or even two out of three, but it’s nearly impossible to get all three at the same time unless the market is in a recession or depression. Only then will there be plenty of homes to choose from, low prices, and low mortgage interest rates.

    Start with finding the right home—one that best meets your household’s needs for space and features, your finances, and a reasonable interest rate.

    How to Avoid Becoming House-Poor

    About the house..., Finance and Taxes

    According to the U.S. Department of Housing and Urban Development (HUD), affordable housing means that you should be paying no more than 30% of your gross income for housing costs, including mortgage principle and interest, property taxes, home insurance premiums, and utilities. In reality, home ownership costs much more when HOA fees, maintenance, and repairs are included. 

    You can avoid becoming over-extended by taking the following steps:

    Buy below your means. Your lender will qualify you for the maximum you can afford, so be wise and buy a less expensive, smaller home. Use the difference for savings and investments. You can always move later.

    Plan for rising costs. Property taxes are based on sales prices, so you’ll only pay the seller’s rate until the next assessment which will be much higher next year. Home insurance, utilities, etc.  will rise in cost most years.

    Plan for the long-term. It takes time to build equity in real estate. When you buy a home, plan to live there for at least seven years, then rent it out.

    When is it Worth it to Refinance Your Mortgage?

    Finance and Taxes

    Refinancing your mortgage is worth it if you get a lower interest rate, a shorter term, or a smaller monthly payment. It’s usually beneficial if you can lower your mortgage interest rate by one percentage point. For a $400,000 loan, reducing the rate from 6.5% to 5.5% saves $257 per month, nearly 20% of the payment. With $8,000 in closing costs, you’ll need to keep the loan for 2.6 years to break even.

    Avoiding Closing Costs. You can ask your lender about a no-closing-cost refinance, where you pay a slightly higher interest rate, but avoid upfront costs. This strategy allows you to sell your home anytime without penalty. Alternatively, you can roll closing costs into your new loan, ideal if you plan to stay for several years. You’ll pay more interest, but it can be cheaper than a higher-rate, no-closing-cost loan.

    You can also replace an adjustable-rate mortgage with a fixed 30-year term, or switch a 30-year loan to a 20- or 15-year term. Principal payments will be higher, but the interest rate will be lower.

    Are Mortgage Interest Rates Going Down?

    Finance and Taxes, Market Update

    Homebuyers saw a turning point in interest rates beginning in June 2024. The Federal Reserve decided not to raise overnight borrowing rates, keeping them at 5.25%-5.50%. This is a sign that inflation is moving closer to the Fed’s 2% target. However, the Fed anticipates only one rate cut by year-end, which could impact the housing market.

    Mortgage rates have decreased to their lowest levels since March 2023 but remain around 7% for the 30-year fixed mortgage. This rate is typically available only to those with excellent credit and a 20% down payment, which might explain why housing sales are 10% below mid-2023 levels.

    Most economists expect rates to drop slightly by the end of 2024. Fannie Mae predicts an average rate of 7%, while the Mortgage Bankers Association, Realtor.com, and Wells Fargo forecast a drop to 6.5%. The difference between 7% and 6.5% is $122 per month on a $400,000 mortgage.

    How to Get Your PMI Canceled

    Buyer Information, Finance and Taxes

    When you take out a conventional mortgage loan (not insured by the U.S. government), with a down payment of less than 20%, your lender will require that you pay monthly private mortgage insurance (PMI) which protects the lender in case you default.

    PMI costs can vary between 0.58% and 1.86% of the mortgage amount. Suppose you buy a home for $350,000, put down $35,000 or 10% with a 6% interest rate on a 30-year note, and with a credit score of 620 to 639, you’ll pay 1.50% PMI, or $394 per month. It’ll take 7.40 years for your loan balance to get to 80% loan to value (LTV). The earliest you can get a PMI cancellation is two years of ownership and an LTV of 75%. 

    You can ask your lender to remove PMI when your loan balance reaches 80% LTV. At 78%, PMI should be canceled automatically, but there are steps you can take to get it canceled more quickly.

    1. Make extra payments to reduce the principal.
    2. Make payments on time—no late payments in the previous 12 months, no 60-day late payments in the previous 24 months.
    3. Don’t have any other liens on the property, including a second mortgage.
    4. Show proof of value with a professional appraisal or broker price opinion.
    5. Make improvements to the home that add value.
    6. Refinance the mortgage and get a home equity line of credit to pay off the PMI.

    What Does Recasting a Mortgage Loan Involve?

    Finance and Taxes

    Refinancing your mortgage is expensive, especially if you just want to lower your monthly payments. Closing costs can be in the thousands of dollars because you’re essentially applying for a new loan. Is there another way to lower your monthly payment? Yes: You can recast your mortgage.

    In simple terms, a mortgage recast involves making a lump-sum payment toward the principal balance of your loan which the lender uses to create a new amortization schedule which will lower your monthly payments.

    Every mortgage has an amortization schedule that directs part of your payment to reducing principal or toward paying interest. These amounts change slightly every month, until your payments go from paying mostly interest to paying down your principal. With a recast, your interest rate and term remain the same, but your monthly payments are lower because you paid a lump sum toward the principal.

    To qualify for a recast, you’ll need a minimum of $10,000 and you’ll pay a service fee of approximately $250. Though the recast isn’t a new loan, you must qualify to get one: 

    1. Lenders may have differing requirements and fees, from the amount of the lump-sum payment, to how many on-time payments you’ve made, to how much equity you have in your home.
    2. Recasts are not available on government-guaranteed loans such as FHA, VA, or USDA.

    When you receive a bonus at work or decide to close out your savings, it’s a great idea to build equity in your home.

    Should You Tap into Your Home Equity?

    Finance and Taxes

    When you put 20% down on a home using a mortgage loan, you own 20% and the lender owns 80%. As you make payments, most of the money goes to pay interest while some goes toward reducing your principal. Meanwhile, favorable market conditions may be increasing the market value of your home, giving you instant equity.

    Equity is the amount of the home that you own, much like a savings account that pays interest on money you want to keep growing. After a few years, you may want to tap into that money to carry out home improvements, make a down payment on a second property, or pay off credit cards and other bills. Is it a good idea to use your equity?

    The answer is this: you’re putting your home in deeper debt, so your reasons for using equity instead of another means of borrowing or consolidating must be worth the risk.

    Home improvements are designed to add value to your home, a sure thing that will net you more money when you decide to sell it one day. Making a down payment on another home is riskier—as you’ll have two mortgages—but if you can afford it, you’ll have two properties potentially building equity.

    Credit cards are unsecured debt so interest rates are high. Home equity loans are far less costly, so you could get much relief by paying credit cards off. However, you must avoid “reloading” the cards with new charges, which will take dedication and self-discipline.

    Home and auto insurance coverage is steadily increasing

    About the house..., Finance and Taxes

    The severity and frequency of insurance claims, along with the cost of goods and services are why carriers are raising their base rates…and your coverage may not be keeping up with inflation. Rising replacement costs means that what used to be covered by your policy may no longer be sufficient.

    Attached are two flyers from the Hanover Insurance Group that explain why rates are increasing and underwriting is tightening up.
    Understanding Trends Impacting Homeowners Coverage

    Why you may need more home and auto coverage.

    How to Navigate High Mortgage Interest Rates

    Buyer Information, Finance and Taxes

    Mortgage interest rates are hovering at the highest levels in over 23 years, causing mortgage demand to sink to a 27-year low. Waiting for home prices to come down has had little success for homebuyers due to an unprecedented imbalance in housing supply. What can you and other homebuyers do to increase your buying power?

    One advantage of higher interest rates is that they can make you money in other investments until you’re ready to buy your home. Start with a debt consolidation loan to pay off high-interest credit cards. Do some research to learn where it’s best to park some cash in savings, the term of the investment(s), and penalties for early withdrawals, if applicable.

    High-yield savings accounts. Most savings accounts have variable annual percentage yields (APYs), which means the return is linked to Federal Reserve overnight funds rate changes. Currently, you can get yields between 4.00% and 5.00% APYs while a traditional savings account is 0.50% or less.

    Certificate of deposit (CD) accounts. The average 12-month CD is about 1.49%, still much higher than a typical savings account. But many online financial institutions are paying 4.5% to 5% .

    Corporate bonds. To raise capital, some corporations issue debt securities which means you’re loaning money to the company in return for regular income payments and the return of your initial capital when the bond reaches maturity. The benefits are lower risk for investment-grade corporate bonds, lower volatility, and greater diversification that’s not tied to the stock market.