Huge Refis for Über-Luxury Homes; Even Billionaires Cash-Out Too

Huge Refis for Über-Luxruy Homes; Billionaires Cash-Out Too

Bajak and Associates

Data Source: CoreLogic, August 2018

Across America there are approximately 230 homes with very large mortgage balances, anywhere between $10 to $20 million dollars. According to Arthur Jobe at CoreLogic Insights, close to 75 percent of all those mortgages originated back in 2013 and out of those, 180 were refinances. In fact, those refinances were mostly originated in 2013 as well.

It is unlikely that these homes are in your neighborhood (or even ours), unless you live in California, since 55 percent of those super jumbo refinances come from that state, no surprise there. As for the rest, about seventeen percent you originate from Florida, and around 4 - 6 percent in states like Massachusetts, Connecticut, New York and Texas.

Data Source: CoreLogic, August 2018

No doubt, even billionaires love to save money, and this is the reason ARMs (adjustable rate mortgages) are very popular for these types of loans due to their initial lower rates. In fact, around 76 percent of borrowers who refinance these ARM loans choose to go with another ARM, and about 31 percent who refinance their fixed-rate mortgages switch to ARMs. Why? The answer is logical, most of these borrowers won't see their adjustable period take effect until the end of 2024.

Of course, getting a lower rate is all well and good, but it was not the only reason these borrowers decided to refinance, CoreLogic data reveals forty-seven percent got cash out. One other major reason is consolidation, which makes up about 21 percent of the refinances. Keep in mind also that the cash out amounts tend to be... well huge; these refinance loans average were $6.6 million, even bigger than the mortgages they replaced, and now that average leaped to $8.3 million in 2018.

If a borrower chooses a fixed-rate, it turns out they also most likely choose a 15-year term, and the data also shows that just three large banks monopolized around half of all those loans.

As the saying goes, if you have to ask, you can't afford it, but just to satisfy your curiosity, the Principal and Interest payment on a $20 million 15-year mortgage at 3.25 percent is only $140,534.

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Data Source: CoreLogic, August 2018

Mortgage Rates Rise Sharply

Mortgage Rates Rise Sharply to 7-Year Highs

Bajak and Associates

Freddie Mac Projected 30 Year Fixed Rate Back in Feb. 2018

Mortgage rates had a bad week and an especially bad day following a much stronger-than-expected jobs report.  The Employment Situation (the most important piece of labor market data and arguably the most important economic report as far as interest rates are concerned) showed the highest pace of wage growth since before the recession and a surprisingly robust addition of new jobs in October. Strong jobs data is the nemesis of low interest rates and today was no exception.

Mortgage rates were already operating fairly close to long-term highs, but today's move easily took them to new highs.  The average lender is now quoting conventional 30-year fixed rates of 5% for relatively ideal scenarios.  Those without a big down payment or without perfect credit/income can expect to see even higher rates.  Most lenders ended up recalling the morning's initial rate sheets and reissuing higher rates at least once today. 

There's really no silver lining apart from the fact that the higher rates go, and the quicker they get there, the closer we get to the point that the economy slows down as a result.  When that happens, rates will begin to fall before just about anything else.  Unfortunately, the expected time frame for such things is incredibly wide (not the sort of thing you hope for if you need to buy/refi).  And yes... it's also unfortunate that our one source of solace at the moment involves an economic downturn, but if you want low interest rates, that tends to come with the territory.

Loan Originator Perspective

October's NFP jobs report beat market expectations today, and bonds sold off as a result. Treasury yields are near early October's multi-year high, and MBS are following their lead. There's little/no motivation for rates to drop, and plenty for them to rise.  Lock early, ideally as soon as you have the opportunity. -Ted Rood, Senior Originator

Vast majority of clients continue to favor locking in once within 30 days of funding.  I do not believe floaters have enough to gain to justify the risk as higher rates continue to be the trend. -Victor Burek, Churchill Mortgage

Lock/Float Considerations 

Rates continue coping with several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation (which certainly seems to be the case so far in 2018).

While rates were able to recover and stay sideways in the summer months, September and October have seen a surge up to the highest levels in more than 7 years. 


Upward pressure can continue as long as economic growth and inflation continue running near long-term highs.  Stay defensive (i.e. generally more lock-biased).  It will take a big change in economic fundamentals or geopolitical risk for the big picture to change. Such things tend to not happen as quickly as we'd like.

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Source: Matthew Graham, Mortgage News Daily

Mortgage Rates Flat Again, Despite Modest Market Weakness

Mortgage Rates Flat Again, Despite Modest Market Weakness

Bajak and Associates

Mortgage rates were flat again today, further prolonging a trend that's been in place for weeks.  During that time, we've seen modest ups and downs, but no significant changes.  To put the narrowness of the range in context, the "ups and downs" are only seen in the upfront costs associated with any given mortgage rate.  Rates themselves haven't changed for the average loan scenario.

Today's absence of change belies market movement to some extent.  The bonds that underlie mortgage rates weakened enough through the course of the day that mortgage lenders were nearly justified in a mid-day rate sheet adjustment (for the worse).  When this happens (i.e. when bonds weaken, but not quite by enough to prompt mid-day changes), the implication is that tomorrow starts out at a slight disadvantage.  In other words, if bond markets simply hold steady overnight, borrowing costs could edge higher.

Ongoing Lock/Float Considerations

Rates moved higher in a serious way due to several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation.

Despite those headwinds, the upward momentum in rates has cooled off heading into the summer months.  This could merely be the eye of the storm, or it could end up being the moment where markets began to doubt that prevailing trends would continue.

It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly.  Temporary corrections can be explained away, but it will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  While that doesn't necessarily mean rates have to skyrocket, there's a good chance it means rates will struggle to move much lower than early 2018 lows until more convincing motivation shows up.

If you plan to or are actively searching for a new home, this would be a perfect time to get pre-qualified.

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Source: Matthew Graham, Mortgage News Daily, July 18, 2018

Are Lenders Prepared for the Borrower of the Future?

Are Lenders Prepared for the Borrower of the Future?

Bajak and Associates

Uber. Zipcar. Airbnb. New concepts that are now mainstream and indicative of the demographic, financial, technological and cultural forces transforming America and reshaping how people think of themselves, their families and their future. The market is changing and along with it, our home buyers.

To prepare to meet the evolving needs of the next generation of home buyers, we need to understand them. That’s why Freddie Mac is studying the behaviors and attitudes of different demographics and their views of home ownership. They’re also partnering with thought leaders on future trends – such as New York University Professor Arun Sundararajan – to shed light on how emerging trends and socioeconomic shifts, such as digital technologies, affect home ownership.

Their goal is to help lenders better understand the hopes and fears, characteristics and challenges of the Borrower of the Future as they relate to home-ownership and find ways our industry can innovate to address the emerging market realities.

Here are some key trends to consider:

• America is becoming a more diverse nation, and our ideas about family, tradition and independence are becoming more diverse too.
• Optimism about home-ownership is on the rise in minority communities, and as America becomes a “majority-minority” nation, that may change our idea of what “home” means – and who lives there.
• The nature of employment is changing, with more self-employed and contract workers and the digital age allowing work to be done from virtually anywhere.
• In an on-demand world, no one wants to wait. Younger borrowers expect a frictionless, digital-first experience.
• With many coming of age in the Great Recession, the Borrowers of the Future tend to have lower levels of accumulated savings.
• Baby boomers are “aging in place” and millennials are likely to live with their parents.

These are just a few of the trends. For more, including the latest article by Professor Sundararajan's, "How the Sharing Economy Could Transform the US Housing Market," visit www.borrowersofthefuture.com. The article is the first in a series that will examine how the sharing economy and new ways of working are altering the home buying process.

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Source: FreddieMac, July 3, 2018.

A Foolish Take: 2 Ways to Save With 15-Year Mortgages

A Foolish Take: 2 Ways to Save With 15-Year Mortgages

Bajak and Associates

It's not just about getting a lower rate.

Jul 9, 2018

For those looking to buy homes, the most popular way to finance a home purchase is to take out a 30-year mortgage. With mortgage rates having been exceptionally low for years, it's been possible to get extremely attractive monthly payments even on relatively large mortgage loans, and the 30-year term gives homeowners a long time to get their mortgages paid off.

Yet what's somewhat surprising is that relatively few people look at an alternative to the 30-year mortgage. A 15-year mortgage requires larger monthly payments, but their interest rates are almost always significantly lower. For instance, right now, a typical 30-year mortgage has an interest rate that's more than half a percentage point higher than what 15-year mortgages charge.

Half a percentage point doesn't look like a lot. But when you compare the amount of interest you'll pay on a 15-year mortgage at 4% compared to the corresponding amount on a 30-year mortgage at 4.5%, the difference is astounding.

You save twice with a 15-year mortgage. You have a lower rate, but the main reason why you pay so much more interest on a 30-year mortgage is simple: You take twice as long to pay down a 30-year mortgage. For example, on a $200,000 loan, monthly payments on a 30-year mortgage at 4.5% will be around $1,010. A 15-year mortgage at 4% will have monthly payments of about $1,480. The $470-per-month difference pays down the principal balance on the loan that much faster, and over time, that adds up to massive interest savings.


In many real estate markets, prices are too high for many homebuyers to afford a 15-year loan. If you can, however, consider the 15-year option closely. Lower rates and faster payouts will cut the amount of interest that goes to the bank and boost what you keep in your own pocket.

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Source: Dan Caplinger, 7/9/2018, The Motley Fool

Mortgage rates dip for Friday June 2, 2017

Mortgage rates dip for Friday

LenderVolt

Friday, June 2, 2017

Multiple benchmark mortgage rates declined today. The average rates on 30-year fixed and 15-year fixed mortgages both dropped. Meanwhile, the average rate on 5/1 adjustable-rate mortgages also dropped.

Mortgage rates change daily, but they remain low by historical standards. If you're in the market for a mortgage, it could make sense to lock if you see a rate you like. Just make sure you've looked around for the best rate first.

Best Time to Buy is TODAY!

30-year fixed mortgages

The average 30-year fixed-mortgage rate is 3.80 percent, down 2 basis points since the same time last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 3.93 percent.

At the current average rate, you'll pay principal and interest of $465.96 for every $100,000 you borrow. That's down $1.14 from what it would have been last week.

You can use our mortgage calculators (http://bit.ly/2rBlsAS) to get a handle on what your monthly payments would be and see what the effects of making extra payments would be. It will also help you calculate how much interest you'll pay over the life of the loan.

15-year fixed mortgages

The average 15-year fixed-mortgage rate is 3.02 percent, down 3 basis points from a week ago.

Monthly payments on a 15-year fixed mortgage at that rate will cost around $692 per $100,000 borrowed. The bigger payment may be a little harder to find room for in your monthly budget than a 30-year mortgage payment would, but it comes with some big advantages: You'll save thousands of dollars over the life of the loan in total interest paid and build equity much faster.

5/1 ARMs

The average rate on a 5/1 ARM is 3.17 percent, ticking down 2 basis points since the same time last week.

These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.

Monthly payments on a 5/1 ARM at 3.17 percent would cost about $431 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan's terms.

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   Source: Claes Bell, Bankrate.com