Two-too-tu-2 areas of mortgage/new home benefits to consider
First, is it time to do away with the discount point for corporate transferees? Or maybe you already have long ago. Here's an article which addresses how the point doesn't make much benefit for the consumer, so if that's the case, then why should companies continue to provide that benefit? You could use that somewhere else in your program with better ROI.
Second article, mortgage rates take a jump.
Hope either or both of these are of interest to you and your program managers.
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There's rarely a point in paying points, experts say
Saturday, January 6, 2007 - 12:00 AM
By Jeff BrownThe Philadelphia Inquirer
Pay points or not?
Anyone who's ever shopped for a mortgage has faced that question. And borrowers who expect to stay in their homes for some time generally have been advised to pay points to get a lower mortgage rate.
But new research turns the conventional wisdom on its head, showing paying points is a bad idea for most people.
For the most part, points benefit the lender, not the borrower.
Each point is an up-front payment equal to 1 percent of the loan. Paying one, two or three points gets you a lower interest rate and smaller monthly payments. With points, borrowers have more choices.
If you have the mortgage long enough, that saving will more than make up for the cost of the points. Once the break-even point is passed, you're ahead.
It's simple arithmetic.
The other day, for example, Wachovia advertised a 30-year, fixed-rate loan for 5.5 percent and 1.75 points. After paying $5,250 in points on a $300,000 loan, monthly payments would be $1,703.
The bank also had a 5.875 percent loan with just 0.125 points. Points on the same loan would be $375 — but monthly payments would be $1,775.
It would take 68 months for the $72 difference in payments to offset the extra $4,875 in points you'd pay to get the lower rate. After that, the decision to pay points would save you $72 a month for as long as you had the mortgage. You'd save $21,024 if you had the mortgage a full 30 years.
Seems simple enough.
But it turns out that most people get it wrong.
The problem, according to the study, is most homeowners don't keep their mortgages as long as they expect to when they get them, so they don't reach the break-even point.
Abdullah Yavas, a business professor at Penn State University, and Yan Chang of Freddie Mac, the mortgage-funding company, looked at 3,785 mortgages granted from 1996 through 2003.
They found the average homeowner paid off his or her mortgage three years before reaching the break-even point. Only 1.4 percent of borrowers kept their loans long enough to make paying points worthwhile.
The study also found that borrowers who declined to pay points almost always made the right decision. Only 1.5 percent of them would have saved money by paying points.
Disturbingly, borrowers who paid points tended to wait too long to refinance after rates dropped, missing chances to reduce their mortgage payments.
Apparently, this was because they mistakenly thought they should keep their loans long enough to "pay off" the points. In fact, the points should not enter into that decision. All that matters is whether the new mortgage would be held long enough for the reduction in monthly payments to offset the refinancing charges.
Points do have their place. After all, it is possible to save by paying them, if you keep the mortgage long enough.
But how do you judge that?
Most people probably focus on how long they expect to keep their home — until they start a family and need more room or until the kids move out or mom and pop retire.
But many of these events are not as predictable as we think.
Then there's another big unknown: Will rates rise or fall after you get your loan?
Even if you stay in your home as long as you'd expected, falling interest rates may make it worthwhile to refinance.
If that happens before the break-even date, much of what you'd paid for points may have been wasted. It becomes profit for the lender.
One last consideration: What else could you do with that money if you didn't pay points?
Taking the example above, imagine if the extra $4,875 spent on points instead was put in a bank account paying 5 percent interest. Imagine that if the higher points were paid, the $72 in monthly mortgage-payment savings could be deposited in the bank to earn 5 percent interest.
This postpones the break-even date by a year, to 80 months instead of 68. Because the bank account would be growing, it would take longer to catch up.
-----------------------------------------------------------------------------------------------
Mortgage rates jump on strong labor market, inflation pressuresPosted 1/11/2007 1:03 PM ET
WASHINGTON (Reuters)
Average interest rates on 30-year mortgages crept upward in the latest week to 6.21% from 6.18%, according to a survey by finance company Freddie Mac on Thursday.
Rates on 15-year mortgage rates also rose, to 5.96% from 5.94%. And one-year adjustable rate mortgages averaged 5.44% compared to 5.42%.
A year ago, 30-year mortgages averaged 6.15%, 15-year mortgages 5.71%, and the one-year ARM 5.15%.
Even with the slight increase, Freddie Mac expects rates on 30-year mortgages to stay below 6.5% throughout 2007, said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
It also expects home buyers to borrow fewer adjustable rate mortgages this year.
"The gain in employment in December exceeded the consensus forecast, and helped ease fears about the state of the economy. But stronger employment and higher wages put upward pressure on inflation, which, in turn, translates into higher interest rates," Nothaft said.
Last week the Labor Department reported the United States added an unexpectedly large 167,000 non-farm jobs in December and average hourly earnings rose by 0.5% that month.
Freddie Mac said lenders charged an average of 0.4% in fees and points on 30- and 15-year mortgages, both unchanged from last week. They charged 0.5% on the one-year ARM, down from last week's 0.6%.
The "5/1" ARM, set at a fixed rate for five years and adjustable each following year, inched upward to 6.03% from 6.02%. Fees and points charged on the hybrid mortgage averaged 0.4%, the same as last week.
Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.
Copyright 2007 Reuters Limited.
Find this article at: http://www.usatoday.com/money/perfi/housing/2007-01-11-mortgage-rates_x.htm
Second article, mortgage rates take a jump.
Hope either or both of these are of interest to you and your program managers.
--------------------------------------------------------------------------------------
There's rarely a point in paying points, experts say
Saturday, January 6, 2007 - 12:00 AM
By Jeff BrownThe Philadelphia Inquirer
Pay points or not?
Anyone who's ever shopped for a mortgage has faced that question. And borrowers who expect to stay in their homes for some time generally have been advised to pay points to get a lower mortgage rate.
But new research turns the conventional wisdom on its head, showing paying points is a bad idea for most people.
For the most part, points benefit the lender, not the borrower.
Each point is an up-front payment equal to 1 percent of the loan. Paying one, two or three points gets you a lower interest rate and smaller monthly payments. With points, borrowers have more choices.
If you have the mortgage long enough, that saving will more than make up for the cost of the points. Once the break-even point is passed, you're ahead.
It's simple arithmetic.
The other day, for example, Wachovia advertised a 30-year, fixed-rate loan for 5.5 percent and 1.75 points. After paying $5,250 in points on a $300,000 loan, monthly payments would be $1,703.
The bank also had a 5.875 percent loan with just 0.125 points. Points on the same loan would be $375 — but monthly payments would be $1,775.
It would take 68 months for the $72 difference in payments to offset the extra $4,875 in points you'd pay to get the lower rate. After that, the decision to pay points would save you $72 a month for as long as you had the mortgage. You'd save $21,024 if you had the mortgage a full 30 years.
Seems simple enough.
But it turns out that most people get it wrong.
The problem, according to the study, is most homeowners don't keep their mortgages as long as they expect to when they get them, so they don't reach the break-even point.
Abdullah Yavas, a business professor at Penn State University, and Yan Chang of Freddie Mac, the mortgage-funding company, looked at 3,785 mortgages granted from 1996 through 2003.
They found the average homeowner paid off his or her mortgage three years before reaching the break-even point. Only 1.4 percent of borrowers kept their loans long enough to make paying points worthwhile.
The study also found that borrowers who declined to pay points almost always made the right decision. Only 1.5 percent of them would have saved money by paying points.
Disturbingly, borrowers who paid points tended to wait too long to refinance after rates dropped, missing chances to reduce their mortgage payments.
Apparently, this was because they mistakenly thought they should keep their loans long enough to "pay off" the points. In fact, the points should not enter into that decision. All that matters is whether the new mortgage would be held long enough for the reduction in monthly payments to offset the refinancing charges.
Points do have their place. After all, it is possible to save by paying them, if you keep the mortgage long enough.
But how do you judge that?
Most people probably focus on how long they expect to keep their home — until they start a family and need more room or until the kids move out or mom and pop retire.
But many of these events are not as predictable as we think.
Then there's another big unknown: Will rates rise or fall after you get your loan?
Even if you stay in your home as long as you'd expected, falling interest rates may make it worthwhile to refinance.
If that happens before the break-even date, much of what you'd paid for points may have been wasted. It becomes profit for the lender.
One last consideration: What else could you do with that money if you didn't pay points?
Taking the example above, imagine if the extra $4,875 spent on points instead was put in a bank account paying 5 percent interest. Imagine that if the higher points were paid, the $72 in monthly mortgage-payment savings could be deposited in the bank to earn 5 percent interest.
This postpones the break-even date by a year, to 80 months instead of 68. Because the bank account would be growing, it would take longer to catch up.
-----------------------------------------------------------------------------------------------
Mortgage rates jump on strong labor market, inflation pressuresPosted 1/11/2007 1:03 PM ET
WASHINGTON (Reuters)
Average interest rates on 30-year mortgages crept upward in the latest week to 6.21% from 6.18%, according to a survey by finance company Freddie Mac on Thursday.
Rates on 15-year mortgage rates also rose, to 5.96% from 5.94%. And one-year adjustable rate mortgages averaged 5.44% compared to 5.42%.
A year ago, 30-year mortgages averaged 6.15%, 15-year mortgages 5.71%, and the one-year ARM 5.15%.
Even with the slight increase, Freddie Mac expects rates on 30-year mortgages to stay below 6.5% throughout 2007, said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
It also expects home buyers to borrow fewer adjustable rate mortgages this year.
"The gain in employment in December exceeded the consensus forecast, and helped ease fears about the state of the economy. But stronger employment and higher wages put upward pressure on inflation, which, in turn, translates into higher interest rates," Nothaft said.
Last week the Labor Department reported the United States added an unexpectedly large 167,000 non-farm jobs in December and average hourly earnings rose by 0.5% that month.
Freddie Mac said lenders charged an average of 0.4% in fees and points on 30- and 15-year mortgages, both unchanged from last week. They charged 0.5% on the one-year ARM, down from last week's 0.6%.
The "5/1" ARM, set at a fixed rate for five years and adjustable each following year, inched upward to 6.03% from 6.02%. Fees and points charged on the hybrid mortgage averaged 0.4%, the same as last week.
Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.
Copyright 2007 Reuters Limited.
Find this article at: http://www.usatoday.com/money/perfi/housing/2007-01-11-mortgage-rates_x.htm
posted by George at 1:59 PM
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