Blog – Page 10 of 838 – Mike Pfefferman

16

Oct

Home Mortgage

Understanding the Financial Power of Mortgage Points

In the world of home financing, mortgage points are a powerful yet often misunderstood tool that can significantly impact your long-term financial outlook. Whether you’re purchasing a home or refinancing, understanding how these points work can help you make more informed decisions that align with your financial goals.

What Are Mortgage Points?

Mortgage points, also known as discount points, are a way for borrowers to reduce the interest rate on their loan by making an upfront payment. Each point typically costs 1% of the total loan amount and can reduce your interest rate by around 0.25%. The idea is simple: pay more upfront to save on interest over the life of the loan.

Types of Mortgage Points: Discount vs. Origination

There are two main types of points to be aware of:

Discount Points
These points allow borrowers to lower their interest rate by making an upfront payment. The more discount points you buy, the lower your interest rate, which can lead to significant savings on your monthly mortgage payment. This option is most beneficial if you plan to stay in your home for a long period, as the upfront cost of purchasing points will be recouped through the interest savings over time.
Origination Points
Origination points, on the other hand, are fees paid to the lender for processing the loan. These points don’t reduce your interest rate but are part of the overall cost of obtaining the loan.

When Do Mortgage Points Make Sense?

Deciding whether to purchase mortgage points depends on several factors. Here are a few key considerations:

Long-Term Homeownership
If you plan to stay in your home for several years, buying discount points can make financial sense. The longer you stay, the more you benefit from the reduced interest rate. For example, if you’re in your home for 10 or more years, the savings from a lower rate can easily outweigh the initial cost of the points.
Upfront Investment
Purchasing mortgage points requires an upfront investment. It’s essential to evaluate whether you have the funds available to cover these costs. If you can comfortably afford the upfront expense, the savings over the life of the loan may be worth it.
Interest Rate Environment
The current interest rate landscape plays a role in determining whether buying points is a good move. In a low-interest-rate market, purchasing points to further lower your rate may offer significant savings. However, if rates are already low, the additional reduction may not provide as much benefit.
Loan Comparison
It’s important to compare offers from different lenders. Some lenders may offer more favorable terms on points, making it easier to achieve the desired interest rate reduction. By analyzing multiple loan offers, you can determine the best combination of points and interest rates for your situation

By understanding the role of mortgage points, you can tailor your financing strategy to suit your financial goals. Whether you’re considering purchasing or refinancing, the decision to buy points should align with your long-term homeownership plans, your ability to invest upfront, and the current interest rate market. By taking these factors into account, you’ll be better equipped to make informed decisions that pave the way to a secure financial future.

15

Oct

By Mike Pfefferman

Mortgage

Where Does the Money for Your Mortgage Loan Really Come From?

If you’re considering a mortgage loan, you might wonder where the money actually comes from. It’s not as simple as walking into your neighborhood bank and getting a loan directly from their vault, like it used to be decades ago. Today, the mortgage lending process is part of a larger, more complex system involving major institutions like Fannie Mae, Freddie Mac, and Ginnie Mae. Let’s take a closer look at how it all works.

The Big Players: Fannie Mae, Freddie Mac, and Ginnie Mae

In today’s mortgage industry, most of the money for home loans originates from three major government-sponsored entities:

Fannie Mae (Federal National Mortgage Association)
Freddie Mac (Federal Home Loan Mortgage Corporation)
Ginnie Mae (Government National Mortgage Association)

How the Mortgage Process Works

When you apply for a mortgage through a lender, they’ll process your application, verify your information, and ultimately provide you with a loan if you qualify. You then make regular mortgage payments, but it’s important to understand that the lender who gave you the loan may not actually own it. In fact, your loan often gets bundled with many other loans into a pool, which is then sold to one of the big players mentioned above.

The company that collects your payments is called a servicer, and they manage the loan on behalf of the actual investor. While you might send payments to them, they usually do not own your loan. Instead, they receive a small monthly fee for managing it, typically about 3/8ths of a percent of your loan balance. These small fees can add up significantly, especially for companies that service billions of dollars in loans.

The Mortgage Loan Cycle

Once your loan is bundled into a pool and sold to Fannie Mae, Freddie Mac, or Ginnie Mae, these entities receive fresh funds, allowing lenders to make more loans to other borrowers. This cycle keeps the mortgage lending system running efficiently, enabling more people to access home loans.

But it doesn’t stop there. These institutions often take the loan pools and divide them into smaller pieces known as mortgage-backed securities (MBS). These securities are sold to investors on Wall Street. If you have a 401(k) or mutual fund, you might even own a portion of these mortgage-backed securities. For example, Ginnie Mae bonds are securities backed by the mortgages on FHA and VA loans.

What Happens When Your Loan Is Sold or Transferred?

It’s common for your loan to be transferred from one servicing company to another. While it might seem like your loan is being sold again, this isn’t the case. It’s simply the transfer of the right to service your loan. The original terms of your loan remain unchanged, and the new servicer will continue to collect your payments.

Understanding Jumbo Loans

There are exceptions to this system. Loans that exceed $726,200 (known as jumbo loans) don’t fit Fannie Mae and Freddie Mac guidelines. These loans are packaged into different pools and sold to other investors, but they are still often securitized and sold as mortgage-backed securities.

The Backbone of the Mortgage Industry is Mortgage Banking

This continuous buying, selling, and securitizing of loans is what we call mortgage banking, and it’s the backbone of the modern mortgage industry. By understanding this process, you can better appreciate how your mortgage fits into a larger system and why your loan might be transferred during its lifetime.

If you have any questions or want to know more about how your mortgage works, feel free to reach out. We’re here to guide you every step of the way.

14

Oct

By Mike Pfefferman

Financial Reports

What’s Ahead For Mortgage Rates This Week – October 14th, 2024

The CPI and PPI reports delivered their data, showing inflation figures slightly below expectations. However, the positive impact of these reports was tempered by hawkish comments from Federal Reserve members during recent meetings. Despite this, the overall outlook remains optimistic, as further rate cuts are anticipated. Lending partners have also responded positively, significantly lowering their lending rates over the past month.

Consumer Credit

Consumer credit increased by $8.9 billion in August, following a revised $26.6 billion surge in July, the Federal Reserve reported on Monday. This represents a 2.1% annual growth rate in August, a slowdown from the 6.3% rise in the previous month. Economists surveyed by The Wall Street Journal had expected a larger increase of $13.2 billion in August.

CPI

U.S. wholesale prices were unchanged in September, pointing to subdued inflation in the economy. This suggests that a bigger-than-expected increase in consumer prices last month is unlikely to last. Economists polled by the Wall Street Journal had forecast a 0.1% increase.

PPI

A key measure of consumer inflation increased slightly more than expected in September, which could complicate the Federal Reserve’s plan to cut U.S. interest rates twice more this year. The ‘core’ consumer price index, which excludes food and energy, rose by 0.3% for the second consecutive month, according to a government report on Thursday. Wall Street analysts had predicted a smaller increase of 0.2% for this core inflation measure.

Primary Mortgage Market Survey Index

15-Yr FRM rates saw an increase of 0.16% with the current rate at 5.41%
30-Yr FRM rates saw an increase of 0.20% with the current rate at 6.32%

MND Rate Index

30-Yr FHA rates saw a 0.08% increase for this week. Current rates at 6.12%
30-Yr VA rates saw a 0.07% increase for this week. Current rates at 6.13%

Jobless Claims

Initial Claims were reported to be 258,000 compared to the expected claims of 230,000. The prior week landed at 225,000.

What’s Ahead

There will be a very light week ahead after the release of the CPI and PPI reports, with only regular jobs data to note.