The Mortgage Man

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Archive for August, 2008

Thursday August 28, 2008

Here is how the market is shaking out today.

Today, the preliminary Gross Domestic Product report came in at 3.3% above expectations of 2.7%, and well over the previously reported 1.9%.  The final number for this report is not due out until next month, but the preliminary reading has people exiting bonds and buying stocks today.

Because of this, you might want to lock your rate if you have a loan in processing.  Additional pressure on bonds is being created by oil prices trading above $120 per barrel again on fears of Hurricane Gustav and how it will affect the 3500 oil drilling platforms in the Gulf of Mexico.  if there is significant damage done to oil drilling operations from Hurricane Gustav, we may see a greater spike in oil next week, creating even more pressure on the bond market.

Lots of uncertainty on the horizon, but prudence may be the word of the day in my advice to lock in and protect from potential loss.

Gustav Threatens The Gulf Coast

Here we go again!

Well, we don’t get wildfires or mudslides or earthquakes, but we do stand in the way of nature’s fury in the way of tropical hurricanes.  Just as most of Florida is still wringing out their shorts from the deluge of rain in Fay, we are again squarely in the cross hairs of Hurricane Gustav.  Many didn’t take Fay seriously because it never reached hurricane status, and yet it set records for rain fall and is the only named storm in history to make landfall 4 times in the U.S.

Gustav, however, commands out respect from the start.  Already reaching hurricane status before it even gets into the gulf, Gustav threatens to be a category 3 before making landfall somewhere along the gulf coast early next week.

In keeping with the theme of this blog, we will focus on the potential implications of this storm as it relates to real estate and the economy.

If you are purchasing a home, make sure that you have your insurance in place immediately.  A Citizens policy (in Florida) will not write new coverage, increase coverage, or make any policy changes “when a Tropical Storm or Hurricane Watch or  Warning has been issued by the National Weather Service for any part of the State of Florida.”  Other insurance companies have a map of the Gulf of Mexico and draw a dotted line border around a certain geographic area called “The Box”.  If a named storm (tropical or hurricane) enters that box, they will not write new policies or make changes to existing policies until the storm hits land.  In some situations, this could delay closing for a week or more until the storm runs its course.

If you already own your home, now is the time to prepare.  Even with the number of hurricanes that we are exposed to on an annual basis, there are a shocking number of people that do not prepare.  Preparing your house means:

  • Check the trees around your house for dead limbs, these are the first to come down
  • Make sure that you have adequate protection for doors and windows.  Taping the windows is a waste of time.  Either board them up, or spend your time on other things.  Tape will not stop debris and it will not keep the glass from shattering.
  • Take photos of your property for insurance purposes.  If you happen to be the minority that keeps receipts for everything you own, this may be less important.  Be as specific as possible, and a video recording of everything is the preferred method.
  • Pack up anything that can not be easily replaced.  This would include family heirlooms, photos, jewelry, etc.  Also take insurance forms and important paperwork such as deeds and wills.
  • Assume that when you get back to your home, there will be no power and no water.  Fill a bath tub full of water to use for flushing toilets and possibly boil for drinking water.

There are many more resources on how to prepare your family and pets at NOAA.gov .

Existing Home Sales Better Than Expected

Does today’s existing home sales report mean that we have finally hit bottom?

Existing home  sales for July came in at 5.0 million ahead of estimates at 4.9 million.  Despite this seemingly positive news, stocks are down today fueled by uncertainty with Fannie and Freddie, and traders are moving money into mortgage bonds searching for more security.

Mortgage bonds are currently up slightly today, and we can continue to watch bonds to determine where mortgage rates are going to go in the next 24 hours.  Over the last few days of trading last week, mortgage bonds broke through both the 25 day and the 50 day moving averages.  This could be a positive trend longer term if they can hold these levels.  Currently, bonds are trading in a sideways channel between the 50 day and 100 day moving average.  Today is probably a good day to float your rate pending any major movement.  If stocks start to recover, it would be prudent to lock your mortgage rate to hedge against pending corrections in the futures market.

Reduce your Mortgage Burden

A mortgage is necessary for almost every person buying a home or other piece of property. If you thought that finding a good mortgage lender and finalizing interest rates and other details to your satisfaction was an ordeal, wait until you experience what comes later – the toughest part of the whole mortgage, the repayment.

Making payments each month, on time every time, sometimes the stress of debt gets to you. Wouldn’t life be so much easier if we were free of debts? Well, there are ways to meet this monster head on and see it off as soon as possible. Read on to see how you can pay off your debt sooner and clear your debt long before you are required to.

Take advantage of the Principal Prepayment Technique (PPT): You don’t have to wait for the entire mortgage period to come to an end for you to be debt free. If your loan does not come with a prepayment penalty, paying an extra amount every month towards your principal will ensure that you repay your debt much earlier than you’re supposed to. Since you pay a higher interest amount the longer you take to pay off your loan, the money you save in terms of interest when you repay early is an added cherry that adds appeal to the cake of being debt free. Follow this link for more on the principal prepayment technique.  On a 30 year loan, adding one extra payment per year reduces the term on your loan by about 6.5 years.  This means that if you had a $1000 mortgage payment and you added an extra $83 to the principal every month, you will reduce the term of your loan by almost 25%.

Refinance your mortgage at lower rates: If your home has risen in value over the years, use the equity on it to refinance your mortgage at a lower interest rate. A new mortgage with different rates is a godsend for those who are struggling to make each monthly payment

Work on your credit ratings: Your mortgage amount and your interest rates are based on your credit ratings; improving them improves your chances of asking for a reduction in your interest rates when you refinance, leading to an overall reduction in the total amount you have to pay.

Put your cash back credit card to good use: Cash back credit cards are much better than those that earn you points. First, the benefits are easier to calculate in terms of value, and secondly, well, you can use the cash for anything rather than the select gifts that points award you. Use the cash you get back from using your credit cards towards your mortgage payments. But make sure that you don’t go overboard by spending rashly using your credit card and exceeding your credit limit or spending on unnecessary things. Remember, the purpose of the whole exercise is to reduce your debt burden, and you certainly don’t want to be jumping from the frying pan into the fire, or from the horrors of one debt to another.

This article is contributed by Sarah Scrafford, who regularly writes on the topic of luxury real estate in Canada. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com

Lambda Rail Coming To Pensacola

The Lambda Rail could provide high paying jobs in the Pensacola area.

For those of you not familiar with a Lambda Rail, you are not alone.  It is a way of transmitting data digitally over great distances at high speed with virtually no loss in quality.  It was described on the news as compared to existing high speed Internet.  if your existing high speed connection is the size of a drinking straw, a lambda rail would be more comparable with a PVC pipe.  The bandwidth and speed is exponentially faster than current Internet connections.

So what does it mean to Pensacola?  Pensacola has been approved to be a “Hub city” for lambda rail, and it is one of only a handful of cities in America with this distinction.  What this means is that there is now a rock solid draw for technology companies to set up shop here and connect to the hub.  With technology companies come high paying jobs, and a better outlook for the local economy.

According to the report, the lambda rail could be operational by the end of the year.  You can see a transcript of the news segment on WEAR’s website here.

Monday August 18, 2008

Mortgage bonds break above the 25 day moving average.

Mortgage bonds have been moving in a sideways channel for almost a week with strong support levels below it, and the 25 day and 50 day moving averages showing resistance above.  As these moving averages continue the downward slope to catch up with the lack luster market, it is only a matter of time before the charts are forced to move above resistance or below support levels.

Friday, bonds squeaked above the 25 day average then came back down.  And today, they opened above the 25 day, and have been solidly testing the 50 day.  Since there is no economic data due out today, this push for strength in bonds is based almost solely on weakness in Stocks.  With oil making a move back up today, it is very possible that mortgage bonds may close above the 50 day moving average.

If this were to happen, it would be a real positive note for a trend in better mortgage rates to come.  Of course there is more to the market than just trends on a chart.  But, it can be seen as a psychological victory on the part of traders.  Based on this information, it might be advisable to float your rate today to see if you can lock in a slightly lower rate tomorrow.  The choice is yours, but it is worth watching.

How Much Would You Like To Pay In Taxes?

I came across an interesting statistic today from the IRS.

Did you know that, according to the IRS, the top 1% of US tax payers are responsible for 40% of all federal income tax revenue?  Ten years ago in 1998 the figure for the same group of people was 35%.  And, twenty years ago in 1988, the figure was 28%.

This got me to thinking.  As we continually move more and more towards a robin hood society, what are we actually teaching the youth and future entreprenuers of tomorrow?  Is this the land of opportunity….until you get too successful?  Is it better to be an entreprenuer off shore?  At what point do we place such a penalty on the wealthy that they decide it is just easier to move to the Caman Islands or Costa Rica?

Perhaps we could vote in a new president that wants to raise taxes on the wealthy, yet again.  If it ain’t broke, don’t fix it right?  It seems as though a democracy can only survive until the majority figures out that they can vote in whatever incentives they want until there is nothing left but too many programs, and no more money to fund them.  I really hope we still live in a democracy when I retire.  But, since that is about 30 years away, i’m beginning to have my doubts.