Author: Preferred Customer

Volume 17 Issue 6 June 2023

This Newsletter
Is brought to you by:

John Doe
Senior Loan Officer
Ajax Mortgage
111 Mortgage Way
Mortgagetown, MD, 11111
(301) 555-1212
(800) 555-5555
Ajaxmrtg.com

Specializing in
Residential Purchases
Residential Refinances
Commercial Properties
Home Equity Loans

Is The Tide Turning?

For a year we have had to deal with rising interest rates and lower home affordability. Much of this was expected after record-low interest rates helped fuel a real estate purchasing frenzy which resulted in prices increasing by double digits for the past few years. Fast forward to today, and home prices have held relatively steady in 2023, while interest rates have increased significantly, keeping home affordability low,
The question is, has the tide turned? The Federal Reserve Board hiked short-term rates ten times over the past 14 months in response to a return to normalcy in the economy and a spike in inflation. Now the economy is slowing, and inflation has been waning as well for almost a year. Could the Fed cycle be over -- and could we see lower mortgage rates during the second half of 2023? And if this scenario came to fruition, would this help homes become more affordable? There are three facets of affordability: income, mortgage rates and home prices.
Income has continued to rise over the past year, but has not kept up with the increase in home prices or interest rates
and a slowing economy should result in smaller gains in personal income as well. Home prices have stopped rising, but they have not fallen as much as predicted because of the shortage of inventory.
Thus, interest rates become a major factor in this equation. A significant move downward would definitely help with regard to affordability, with one caveat. The lower interest rates would have to encourage more sellers to list their homes in order to prevent home prices from starting to accelerate again under this scenario. In a perfect world, this would be where the tide would be heading...q
.

Continued on Page 3

Did You Know…
The number of Redfin.com home searchers looking to relocate to a new metro fell 4.2% from a year earlier in Q1, compared with a 15.6% drop for those looking to move within their current metro, marking the biggest drops in Redfin’s records
Annual home price growth fell again to 3.1% again in March 2023, the lowest rate of appreciation since the spring of 2012—still, growth continued its upward trend now increasing for the 134th consecutive month, according to CoreLogic.

Selected Interest Rates
May 18 2023
30 Year Mortgages———6.39%
2022 High (Nov 10)—–—–—7.08%
2022 Low (Jan 6)———–-3.22%
15 Year Mortgages———5.75%
10 Year Treasuries—–—–3.64%
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.
.

In This Issue

P2 Buying The Rate Down || P2 Profit From Using A Second Mortgage
P3 Is The Tide Turning? || P4 Homeowners Build Equity
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Buying The Rate Down

In their ongoing quest for affordability, more buyers are turning to buying points to pull down the interest rates on their loans, according to a new study by Zillow. Mortgage points, also known as rate buydowns and discount points, are an option available to homebuyers who wish to reduce their monthly payments by “buying down” the interest rate on their loan.
The points are often presented in the form of an upfront fee; essentially, borrowers pre-pay interest to lower their rates and, therefore, the amount due every month for the life of the mortgage.
The 2/1 buydown, a similar program that has likewise gained traction, lowers the interest rates on a loan for its first two years before reverting in the third year; usually, the rate is two percentage points lower in the first year and one percentage point lower in the second.
Almost 45% of conventional primary home borrowers paid mortgage points in 2022, Zillow found. That’s far more than recent history, considering that interest rates from 2019 to 2021 were historically low. Just 27.3% of homebuyers opted to purchase points in 2019, while 28.4% and 29.6% of buyers in 2020 and 2021, respectively, paid mortgage points...q
Source: Scotsman Guide

Profit From Using A...

Financing a home can be a very confusing proposition. There are literally hundreds of mortgage programs and rate combinations available: fixed rates, ARMs, buydowns and more. Even more confusing, many consumers may not know that they can purchase or refinance using more than one loan against the property.
There is no way we will have the time to discuss all the financing alternatives available. This report will deal with the second mortgage alternative—namely when is a second more advantageous than having just one mortgage on your property?
When you don’t need to borrow much. Suppose you need $20,000 to finance your child’s education. If your present mortgage is $200,000 and the rate is near the present market, there is no reason to incur the costs necessary to borrow $220,000. Many of the costs of borrowing are a factor of the loan amount. For example, a point is one percent of the loan amount. If you were to incur two points in refinancing, these points would total $4400—an astronomical sum for one receiving $20,000 in benefits. If your first mortgage had a high interest rate and the costs were incurred to achieve a lower rate on $220,000, our advice would be different in this regard.
To achieve conforming rates or guidelines. Conforming mortgage limits are the maximum mortgage amounts that Fannie Mae and Freddie Mac can purchase. Especially with regard to fixed rates, mortgages greater than conforming limits may contain a slightly higher interest rate or more stringent guidelines, such as a larger down payment. Borrowing slightly more than these limits? Why pay a higher rate on the total loan, when you can achieve a lower rate on the majority of the mortgage by adding a small second mortgage?
To avoid paying mortgage insurance. Mortgage insurance protects the lender (not the borrower) from the possibility that the loan is not repaid. Mortgage insurance is usually required for conventional loans with a down payment less than 20% of the sales price. If one were purchasing a home for $300,000, the purchaser would have to pay mortgage insurance if he or she borrowed more than $240,000. When the minimum down payment is being made (five percent of the sales price) avoidance of mortgage insurance payments may be a bit more complex. However, if one were putting 15% down, it would make sense to use a second mortgage so that the first mortgage was less than 80% of the sales price (otherwise known as 80% loan-to-value, or LTV). In this case, paying a mortgage insurance premium on the entire loan amount does not make sense as compared to taking a second mortgage.
To purchase with an assumption.
FHA and VA mortgages can still be assumed at their present rate of interest, though credit approval is required. If a second mortgage is placed on the property at the time of assumption, the down payment will be smaller. The owner may be willing to take back a second mortgage to facilitate the assumption if a commercial second is not available.
To help with future monetary needs. Most of us do not know when we might need an infusion of cash. Many second mortgages are available as open lines of credit which can be used at the convenience of the homeowner. One might open a line of credit for $50,000 that would be ready any time we had a fiscal emergency or it would make sense to borrow against the home rather than through other sources.
Advantages of borrowing in this manner might include a lower interest rate or tax deductibility* of the payments of the home equity line of credit. Also having the line available may make it easier for you to pay your first mortgage off more quickly as you will in essence not need as much cash available for emergencies because the line is there. Why not put the money you have in checking and savings to work for you instead of it just sitting there?
Each individual situation will vary, therefore our advice is to visit your lender if you have questions as to whether a second mortgage is a viable alternative for your needs...q
*You are advised to speak to your tax advisor before assuming a second mortgage is deductible.

“…many consumers may not know that they can purchase or refinance using more than one loan against the
property…”

Page Two

…Second Mortgage

Is The Tide Turning?
Continued from Page 1

Sources: BLS,
Yahoo Finance

“....the economy is slowing, and inflation has been waning as well for almost a year....”

©2022, All rights reserved
The Hershman Group www.originationpro.com
1-800-581-5678

Page Three

My goal is to
provide expert
advice and
direction for my clients with an overall goal of providing a real estate finance transaction that exceeds their
goals and
expectations.
— John e
Senior Loan
Officer

Homeowners Build Equity

Most owners have earned more than $100,000 in equity over the last decade, according to new NAR data. Property appreciation has surged along with home prices in the last decade, giving most homeowners more than $100,000 in equity over that time period and lending further evidence that homeownership is an important avenue to build household wealth. Middle-income homeowners have seen their properties appreciate by 68% since 2012, accumulating $122,100 in wealth, according to a new report from the National Association of REALTORS® released during the 2023 REALTOR® Broker Summit.
Low-income homeowners who earn less than 80% of their area’s median income saw $98,900 in equity gains in the same time period, while upper-income households who earn more than 200% of their area’s median income accrued $150,800 in equity, according to NAR’s report, “Wealth Gains by Income and Racial/Ethnic Group.” “This analysis shows how homeownership is a catalyst for building wealth for people from all walks of life,” says NAR Chief Economist Lawrence Yun. “A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.” ...q
Source: REALTOR® Magazine

In This Issue:
Is The Tide
Turning?

Joe Customer
Joe’s Appliance Center
111 Center Way Drive
Suite 1005
Happyville, VA 20000

Address Correction Requested

John Doe
Senior Loan Officer
Ajax Mortgage
111 Mortgage Way
Mortgagetown, MD, 11111
(301) 555-1212
(800) 555-5555
Ajaxmrtg.com