Mortgage Rates Newsletter - Market Analysis

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One of The Biggest Paradoxes You'll Ever See For Mortgage Rates
Fri, 11 Jun 2021 22:25:27 GMT - No, this isn't one of those click-bait headlines that promise to share "one weird trick" or proclaim "you'll never believe what happened next." Well, actually, some people might have a hard time believing this one. In the interest of respecting the time of those who are already up to speed on this week's economic data and interest rate movements, we're about to talk about the paradoxical drop in rates despite decades-high inflation. Everyone else, read on!
Mortgage Rates Fall As Inflation Fails to Spook The Market
Thu, 10 Jun 2021 21:02:32 GMT - Inflation is one of the mortal enemies of interest rates. If dollars in the future buy less stuff than they do today, investors need to set higher and higher rates on the money they lend in order to realize the same returns. With that in mind, we'd be well within our rights to assume a surprisingly high reading on a key inflation report would push rates higher. In many past instances, that's exactly how things play out, but that's not what happened today. To be fair, markets traded according to conventional wisdom in the first 20 minutes after the inflation report was released. But from that point on, the bond market rallied (i.e. bond prices rose and yields fell, thus implying lower rates for the mortgage market). What's up with the paradoxical reaction? There are a few moving parts. The simplistic
Rates Move Lower Again as Bond Demand Stays Strong
Wed, 09 Jun 2021 19:51:50 GMT - The bond market is the main ingredient that lenders use to determine lending rates. The mortgage market is no exception . In fact, mortgages have specific bonds that dictate the prices of loans that sold between investors on the secondary market. Those prices let lenders know where to set their mortgage rates on any given day. There's a longstanding belief that the 10yr Treasury yield guides mortgage rates as well. While that's not exactly the case, longer-dated Treasuries (think 5, 7, 10yr) tend to move in relative lock-step with the rates implied by mortgage-backed bonds. As such, when "things" happen that help longer-dated Treasuries, mortgages tend to benefit as well, even if the timing and magnitude can vary. That's exactly what happened . A scheduled 10yr Treasury auction showed very
Lowest Rates in Nearly 2 Weeks
Tue, 08 Jun 2021 20:07:21 GMT - Mortgage rates haven't been in the habit of making epic swings recently. That's not a bad thing considering they continue to operate in very low territory in historical terms. For the average lender, today brought one of the bigger recent examples of improvement. In the best cases, borrowers may be seeing a rate quote that is an eighth of a percent lower versus the highs from the end of last week (Thursday afternoon or Friday morning, depending on the lender), but most would simply realize the improvement in the form of lower upfront costs or a higher lender credit. Purchase loans continue carrying the best rates. Expect to see rates move up at least an eighth of a point for a refinances , and more still for cash-out refinances. That all assumes an owner-occupied primary residence. Due to recent
Buying a Second Home

Buying a Second Home

Does it Make Sense to Buy a Second Home?

It may sound sweeter than it actually is.

Owning a second home may sound like something only the wildly rich do, but that isn't always so. Sometimes people buy a new house when they haven't had success selling the first. Other homeowners might like the idea of buying a second home to fix up and sell at a fat profit – or to rent out.

For the right individual, two homes may be a great plan. But for the wrong homeowner, plenty can go awry. If you're thinking of getting a second mortgage for practical or profitable reasons, now is a good time to have second thoughts, because... 

1. You need to have plenty of money. You don't have to belong to the 1 percent to pull this off, but for a bank to allow you to purchase a second home without plans to sell the first, you can't be just getting by, hoping a second house will fix your financial picture.
 
"Underwriters will want to know you have significant reserves – potentially a buffer worth six months of payments on both properties – before approving the loan," says Brian Seibert president of Michigan First Mortgage in Waterford, Michigan.
 
And while every lender will be different, as a general rule, you'll need to pay a higher down payment for a second home than you would a first.

2. You shouldn't have too much debt. You're taking on more debt when you buy a second home – something lenders take into account.

In most cases, the debt ratio can be 36 percent to 42 percent. That means, of course, that your debt – including mortgages, credit card debt, car loans and student loans – shouldn't exceed that 36 to 42 percent.

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Of course, if you're planning to offset some of that debt by bringing in monthly rental income from your second home, mention that to your lender, Markowitz says.

Renting out a home certainly lowers the risk of being rejected by a mortgage lender ... the general rule of thumb is to provide as much reassurance as possible.

3. You have to spend money to make money. It isn't just that you'll need a hefty down payment. Your monthly mortgage may well be higher than it would be if you just had one home.

Investors are viewed by banks as riskier customers; they are often subjected to higher interest rates. To avoid financing issues, many investors use cash financing or existing lines of credit to purchase investments."

You are also going to be maintaining two homes. You thought it was hard to make sure the bushes were trimmed for one house? Now, you get to double the fun.

Most people grossly underestimate the carrying costs of the investment in real estate. It's more than just taxes and insurance. Consider this scenario: Eventually – assuming you are hanging onto the second house and not selling it soon – you'll have two roofs to replace, two homes to paint and twice as many appliances, such as hot water heaters and refrigerators, to purchase, she says.

If you're spending money and losing money on the house but are truly looking at the property as a long-term investment, it may not matter to you to do that for a while, Duffy says. Some homeowners "are happy to take a loss on a property in the short term, and build up equity for a future period, such as retirement."

4. The buyers and renters may not come. Just because you have grand plans of renting out or selling a second home doesn't mean things will work out that way. If you're investing money into fixing up a property, that takes time – time that translates into money, Duffy says.

"Every day that an investment property sits empty means a loss in profitability to an investor," she says. "All repairs and renovations must be completed quickly in order to have the fastest turnaround ... Even with quality contractors, investors typically spend a significant amount of time working on houses, selecting paints and flooring, purchasing appliances or attending to the other details required to transform a home."

Even if you bought a fixer-upper that's all fixed up, you have to hope a renter or seller signs on the dotted line as soon as possible. And then, if you're renting the place, you have to hope your tenant sticks around.

"Personally, I don't recommend that my clients rely on sources of income that could suddenly stop. You have to be comfortable that if the property is not rented out, you'll still be on solid footing," says Kurt Fillmore, president of Wealth Trac Financial Group in Southfield, Michigan. (And back to the having-plenty-of-money point – Fillmore recommends having six months of emergency funds to cover the mortgages of both houses, in case something goes wrong.)

5. All of this is harder than it looks. Even if you sell or rent out a second home fairly quickly, you could have plenty go wrong later.            

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Real estate, even on a small scale, should be seen as another job or career. While it may be the right fit for some, it's not for everyone.         

It gets even harder if you're trying to flip houses and are solely thinking of them as investments. You should "understand the tax implications of short-term gains and non-primary-residence sales.

Buying a second house unless you are a real estate developer: "I would warn the average person not to get involved unless they have a unique expertise."

 

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