Mortgage Rates vs. the World Cup

Posted on June 12th, 2014

Happy World Cup opening day everyone. I like soccer (and mortgages) so I tried desperately to come up with a way to combine both subjects.

After a little bit of thought, I decided to track mortgage rates over the years during past World Cups.  Let’s go back in time and take a look at where the 30-year fixed stood during the month of June in a World Cup year.

As it stands today, the average interest rate on a 30-year fixed mortgage is 4.20%, up from 4.14% last week and 3.98% a year ago, according to the latest survey from Freddie Mac.

1974 WC

They’ve been tracking rates on the 30-year fixed since 1971. The earliest World Cup that corresponds with their data took place in West Germany in June 1974.

And West Germany beat the Netherlands in the final to claim the FIFA World Cup Trophy, which was awarded for the first time during that edition of the WC.

Prior to that, the Jules Rimet Trophy was permanently awarded to Brazil for dominating the rest of the world. I guess it made sense just to keep it with them seeing that they won so much.

At that time, the 30-year fixed averaged 9.09%…more than double today’s going rate.

1978 logo

Fast forward to 1978 and once again the host country won the tournament.This time it was Argentina hosting and winning, taking out the Netherlands (again) in the final.

During June 1978, rates on the 30-year fixed were an even higher 9.71%.

1982 logo

In the awesome 80s, Spain hosted the World Cup in 1982, but failed to win or even make the semifinals. Since then they’ve gotten a lot better, but it was Italy who claimed the top prize after beating, you guessed it, West Germany.

In June of ’82, the 30-year averaged a mind-blowing 16.70%. And you thought your mortgage rate was high…

1986 logo

Four years later, Mexico played host, and eventually got knocked out during the quarterfinals by West Germany. Argentina went on to win the whole thing, taking out West Germany in the final 3-2.

Mortgage rates settled down a lot over those four years, falling to an average of 10.69% in June of 1986.

1990 logo

Italy hosted the 1990 FIFA World Cup, but could only muster third place after West Germany outplayed Argentina in the final to win their third title.

Meanwhile, mortgage rates had moved very little, falling to just 10.16% in June of 1990.

1994 logo

In 1994, the good old USA finally got to host the Cup, though they didn’t even make it out of their group.

The final ended in a penalty shootout, with Brazil beating Italy after Roberto Baggio blasted his effort a mile over the goal.

The good news was that mortgage rates settled down a bit, falling to 8.40% in June of 1994.

1998 logo

France hosted and won the World Cup in 1998, dispatching Brazil in the final to claim its first ever title.  Good timing on their part.

Perhaps it had something to do with rates averaging an even 7% that June.

2002 logo

In 2002, we saw our first joint host, with South Korea and Japan welcoming the world. They were also the first Asian nations to host.  South Korea actually claimed a very respectable fourth place, but Japan got knocked out in the round of 16.

Brazil went on to beat Germany (not West Germany) 2-0 in the final to claim their fifth world title.

And mortgage rates averaged a pretty attractive 6.65%.

2006 Logo

Four years later, Germany hosted, but somehow didn’t win the tournament, though they did come in third.

That year, Italy beat France in penalties after Zinedine Zidane exited early for head-butting Marco Materazzi.

Mortgage rates barely budged over four years, averaging 6.68% in June 2006.

2010 logo

In 2010, South Africa became the first African nation to host the prestigious tournament, and Spain won its first world title after an extra-time winner from Andrés Iniesta took out third-time finalists Holland.

The 30-year averaged 4.74% that June, roughly a half point above current levels.

2014 logo

The big question today is who will win the 2014 World Cup, and where will rates be in 2018?

My guess is higher, though you never know. As far as a winner, Brazil is the overwhelming favorite, and I’d be shocked if they didn’t win on their home turf.

(photo: oyosan)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

The Refinance Rule of Thumb

How Much Lower Should Mortgage Rates Be to Refinance?

  • Unfortunately there is no one-size-fits-all answer
  • Because no two loan scenarios are the same
  • You have to factor in existing home loan details
  • And future plans/financial objectives/tenure in home, etc.

If you’re considering refinancing your mortgage, you may have searched for the “refinance rule of thumb” to help you make your decision.

Of course, there isn’t a single refinance rule of thumb. There are numerous ones that exist.

And before we dive into them, it should be noted that rules don’t tend to work universally because there is a laundry list of reasons to refinance a mortgage.

What works for one person might not work for another, and if you’re relying on some sort of shortcut to make a decision, you might wind up shortchanging yourself in the process.

That being said, let’s look at some of these “refinance rules” to see if there are any takeaways we can use to our advantage.

Only Refinance If the New Mortgage Rate is 2% Lower

refinance rule of thumb

  • Some say to only refinance if you can get a rate 2%+ lower
  • This is definitely not a rule to live by and ultimately very conservative
  • It’s possible to save lots of money with a rate that is less than 1% lower
  • There are also other reasons to refinance that aren’t always interest rate-dependent

One popular one is that you should only refinance if your new interest rate will be two percentage points lower than your current mortgage interest rate.

For example, if your current mortgage rate is 6%, this rule would tell you to refinance only if you could obtain a rate of 4% or lower.

But clearly this rule is much too broad, just like any other rule out there. When it comes down to it, a refinance decision will be unique to you and your situation, not anyone else’s.

This old rule assumes most mortgage loan amounts are pretty small, unlike the jumbo loans we see nowadays.

Is It Worth Refinancing for a 1% Lower Rate?

Let’s take a look at some math to illustrate why the 2% refinance rule falls short, and how even a rate just 1% lower (or less) can be quite beneficial:

Loan amount: $500,000
Loan type: 30-year fixed-rate mortgage
Current mortgage rate: 4%
Refinance mortgage rate: 3%
Cost to refinance: $4,000

In this scenario, the existing mortgage payment is $2,387.08. If refinanced to 3%, the monthly mortgage payment falls to $2,108.02.

That’s a difference of nearly $300 a month, which will certainly make it easier to meet your mortgage obligation.

However, it will take just over 14 months to recoup the cost of the refinance ($4000/$279). It’s actually even less once you factor in increased equity accumulation.

That said, the refinance “breakeven period” (time to recoup your upfront closing costs) is very short here. So we don’t need to follow that “2% lower rate” refinance rule.

In fact, even a drop in rate of just 0.50% (from 3.5% to 3%) would result in monthly savings of about $140 and take less than two years to recoup.

[See all the top refinance questions in one place.]

Pay Attention to Fees, Especially with Small Loan Amounts

But what if the loan amount were only $100,000? The game changes in a hurry. Your mortgage payment would drop from $477.42 to $421.60.

That’s roughly $56 in monthly savings, not very significant, especially if it still costs you thousands to refinance.

Assuming the cost of the mortgage was still somewhere around $3,000, it would take about 40 months, or roughly three and a half years, to recoup the costs associated with the refinance.

So if you were thinking about selling your home in the short term, it probably wouldn’t make sense to throw money toward a refinance.

That is likely why this old refinance rule exists. But home prices (and loan amounts) are much higher these days, so it’s not a good rule to follow for everyone.

The same goes for any other mortgage rate rule that says your rate should be 1% lower, or 0.5% lower.

Whether it’s favorable or not really depends on a number of factors, such as the loan amount, closing costs, and expected tenure in the home.

If we don’t know the answer to all those questions, we can’t just throw out some blanket rule for everyone to follow. Again, don’t cut corners or you could find yourself in worse financial shape.

[Check out these mortgage payment tables to quickly eyeball differences in rate, or use my refinance calculator to run your own simulation.]

Tip: Pay close attention to the closing costs associated with the loan. Simply looking at the rate and payment isn’t good enough.

Only Refinance If You’ll Save “X” Dollars Each Month

  • This blanket refinance rule fails to consider the interest savings
  • It might have nothing to do with your monthly payment
  • The faster accrual of home equity and things like a shorter loan term
  • Can make a refinance totally worth your while, regardless of payment

Another common refinance rule of thumb says only to do it if you’ll save “X” dollars each month, or only if you plan to live in your home for “X” amount of years.

Again, as seen in our example above, you can’t just rely on a blanket rule to determine if refinancing is a good idea or not.

Some borrowers may need to stay in their home for five years to save money, while others may only need to stick around for just over a year.

But plans change, and you may find yourself living in your home much longer (or shorter) than anticipated.

And if you look at the refinance savings in dollar amounts, it will really depend on the cost of the refinance and how long you make the new payment.

If it’s a no cost refinance, which is a popular option these days, you won’t even have to worry about the break-even period.

There are also homeowners who simply want payment relief, even if it means paying more interest long-term.

So it’d be foolish to get caught up on this rule unless you have a bulletproof plan in place. Let’s face it, nobody does.

[Does refinancing hurt your credit score?]

Forget the Rules, Consider the Loan Term

  • The mortgage term can be a big part of the decision
  • Consider your remaining loan term and what type of mortgage you’ll be refinancing into
  • Along with how long you plan to keep the new loan
  • And your future plans (moving, staying put, or keeping the property to rent out?)

Finally, consider the mortgage term when refinancing, and the total amount of interest you can avoid paying over the life of the loan.

If you’re currently five years into a 30-year fixed mortgage, and refinance into a 15-year fixed mortgage, you’ll shave 10 years off your aggregate mortgage term.

Assuming mortgage rates are low enough at the time of refinance, you could even wind up with a lower monthly payment despite the shorter term.

You will also build equity faster and greatly reduce total interest paid, which will shorten your break-even period and maximize your savings.

[30-year mortgage vs. 15-year mortgage]

If you simply refinance into another 30-year loan, you must consider the five years in which you already paid interest when calculating the benefits of the refinance.

Those who have had their mortgage for a decade or longer certainly won’t want to restart the clock at 360 months, even if mortgage rates look too good to pass up.

Also factor in your current loan type versus what you plan to refinance into.

If you currently hold an adjustable-rate mortgage that will reset higher soon, the decision to refinance may be even more compelling.

At the end of the day, you shouldn’t use any general rule to determine whether or not you should refinance.

Doing so is lazy, especially when it’s not that difficult to run a few numbers to see what will make sense for your particular situation.

If you feel overwhelmed by all the math, ask a loan officer or mortgage broker to run some scenarios for you to illustrate the potential savings and break-even periods.

Just be sure they’re giving you an accurate and complete picture and aren’t simply motivated by a paycheck.

And take your time – you’re not shopping for a big screen TV, you’re making one of the biggest financial decisions of your life.

Tip: When to refinance a home mortgage.

(photo: angermann)

Source: thetruthaboutmortgage.com

Why Every Mortgage Lender Will Disappoint You

People constantly ask me if a particular lender is good, bad, or should be avoided at all costs.

They also ask who the best mortgage lender is, often citing some customer satisfaction survey or what not. Or whether they should use a mortgage broker or a bank.

And my answer is pretty much always the same – it depends on how your particular loan goes.

You might end up hating the company or loving them, all based on how things go when it’s your turn.

So yes, two individuals can wind up with completely different opinions, even when working with the same company, and perhaps even the same exact employees.

The problem with the mortgage industry is that it’s very regulated, dynamic, and complex, and as such, it’s very difficult to please everyone all of the time, even with the best of intentions.

In other industries, such as the credit card industry for example, customer service reps can “make things right” if something goes wrong, usually just by pushing a button.

You didn’t like our service? Okay, how about a $25 statement credit?

The same goes for your cable company, who you have to call each month to ask for a billing adjustment after they attempt to gouge you.

With home loans, it’s a little different.

Aligning Expectations with Reality in the Mortgage Biz

  • Thanks to the widespread “the customer is always right” policy
  • Consumers are almost guaranteed to be dissatisfied with the home loan experience
  • Because it doesn’t work the same way in the mortgage industry
  • Things rarely go according to plan and loans can’t always be approved regardless of how much you complain

Unfortunately, it is these very companies mentioned above that create lofty expectations for all other businesses, whether they can live up to them or not.

So when a consumer applies for a mortgage, they often go into it thinking they can complain if anything goes wrong and automatically get it fixed.

Or simply argue until fees are lowered or waived, and the interest rate reduced.

Sadly, it’s not so simple when it comes to mortgage lending. There are so many hands involved in a single loan, and so many guidelines that must be met. Many are black and white, and often not up to your lender.

For example, the loan might need to meet the guidelines of Fannie Mae, Freddie Mac, or the FHA, and whining about it won’t change that fact.

There are also many technical aspects, and mortgage pricing is very involved.

Sure, some junk fees might be waived without too much of a fight, but adjusting your mortgage rate lower will be a lot trickier.

If you’re not a great borrower, even the best lender won’t be able to get you the low advertised rate you saw on TV or the Internet.

You know the old adage, “the customer is always right.” In mortgage, this doesn’t necessarily hold true, as you and your lender will be at the mercy of external forces.

Enter frustration here.

Complications May Come Off as Lies

  • While there are certainly unscrupulous players in the mortgage industry like any other line of business
  • Even those who tell the truth might be questioned due to the complexities involved with obtaining a mortgage
  • But if you inform yourself early on you can spot the difference
  • And better understand when you’re being strung along and when you might need to act

Let’s take a common scenario, where you are quoted a certain mortgage rate at the beginning of the home loan process.

It is at this very moment the lender gets you in the door. After all, without the promise of a low mortgage rate, why would you choose them? They must be somewhat competitive to move forward.

You have a great conversation with the loan officer and feel really good about everything.

The fees are explained in detail, and the interest rate you’re set to receive is going to shave hundreds off your monthly mortgage payment!

Then, out of nowhere, you’re told your mortgage rate will be .50% higher than originally quoted.

Turns out something came up on your credit report that wasn’t originally disclosed, pushing your credit score into a lower tier, and thus raising your rate.

This is but one example of how rates can change in a flash, and it has nothing to do with the lender originating your loan. It’s not a bait and switch.

And that’s completely ignoring the fact that mortgage rates can change daily among all lenders.

Another common scenario is an appraised value coming in low. It pushes your loan-to-value ratio higher, and your low mortgage rate isn’t so low anymore.

Once again, this has nothing to do with the lender. It has to do with your property value, which the lender doesn’t dictate.

Love Them or Hate Them…

  • As noted, your home loan experience may vary considerably from another borrower who uses the same exact lender
  • Simply due to luck (or a lack thereof) when it comes to your particular loan scenario
  • And often it may be completely outside your lender’s control
  • The difference might be how your lender communicates when things do come up

Here’s another one. Let’s assume you decide to float your rate, only to see rates rise.

You may blame the lender for not locking your rate early on. But the exact opposite could also happen, making you a very happy borrower.

Again, your lender is not the culprit here, but rather timing is. So luck is involved as well, which as we all know, can go both ways.

You may also find out that your loan is declined after weeks of back and forth with your lender.

Again, things come up, and the more documentation you provide to your lender, the more things can change, for better or worse.

Your mortgage doesn’t operate in a vacuum. If you send in a document that happens to raise a red flag with the underwriter, everything may change in a heartbeat.

They only know as much as you tell them, and if you hold something back or aren’t forthright, it can turn your application on its head.

Again, it’s not your lender in many cases, it’s just reality in the mortgage world.

Lenders are held accountable for mistakes made during the loan process, and so yes, they may ask for a document more than once. Or a blank page that seems entirely insignificant.

And they may ask for a letter of explanation. And they might ask for an explanation to your previous explanation.

But it’s all done for a reason. Lenders aren’t in business to play games with you.

They want to fund loans just as much as you want yours funded, so cooperation often works better than endless arguing.

If they ask for a document twice, sometimes it’s better just to oblige (but document the process while you’re at it).

Also try to put yourself in the shoes of the loan officer, processor, or underwriter? The mortgage business is very stressful and riddled with timelines and red tape.

The only caveat here might be how the lender communicates this with you.

Are they transparent about all that happens? Do they pick up the phone when you call? Are they friendly and happy to explain what’s going on? Are they proactive or reactive?

These characteristics can certainly separate the good lenders from the bad.

There Are Always Exceptions

  • If you educate yourself on mortgages you’ll have a better idea of who’s full of it
  • Or attempting to take you for a ride and give you the old bait and switch
  • Comparison shop before you commit and vet each lender carefully before you proceed
  • Also feel out the loan officer you speak with and check out their reviews so you feel good about working with them beforehand

While I just did my best to defend mortgage lenders, there are shady and unscrupulous banks, lenders, mortgage brokers, and loan officers out there.

Just like any industry, there are bad apples among the good, and you do need to navigate extremely carefully to avoid such individuals.

This is especially important when obtaining a mortgage, as a bad deal can cost you a lot more than a bad deal elsewhere. Would you rather overpay for a car or your mortgage?

You certainly don’t want to be stuck with an inflated mortgage rate for years, or a loan type that doesn’t make sense for you (hello option arm).

Nor do you want to miss out on a home purchase because the lender failed to deliver what they promised.

So ask a lot of questions, and make sure your loan rep takes the time to explain anything that might be causing confusion or concern. Or what may arise and how they’ll deal with it.

It is their job, and they should be more than willing to help you out, especially if you’re a first-time buyer.

Just remember that it is indeed a job, and they need to get paid for assisting you. How much money they make will depend on how well you shop and negotiate.

In other words, YOU affect the outcome of your mortgage as well.

Prepare, do your homework, address any red flags before you apply, be cooperative, and put in the time to ensure you don’t walk away disappointed.

(photo: attercop311)

Source: thetruthaboutmortgage.com

Stock Market Today: Stocks Regress After Monday’s Romp

Perhaps Monday got a little too out of hand.

One of the best market sessions in months was followed by a much more sluggish round of trading Tuesday, though the selling followed the “rotation to value” theme we’ve discussed in recent weeks.

The tech-heavy Nasdaq Composite (-1.7% to 13,358) and Russell 2000 (-1.9% to 2,231) suffered the steepest drops, while the Dow Jones Industrial Average managed to slip away with a mere 0.5% decline to 31,391.

Those losses came on a slow news day, though there was another positive development in the global fight against COVID. Days after Johnson & Johnson’s (JNJ, -0.2%) single-shot coronavirus vaccine received emergency-use clearance in the U.S., the Washington Post reported that President Joe Biden would soon announce a rare deal that would see competitor Merck (MRK, +0.7%) boost supply by manufacturing more of JNJ’s vaccine.

The 10-year Treasury yield also pulled back to 1.41% – another seemingly bullish driver amid a market that had balked at rising rates – but nothing appeared to draw the bulls’ interest Tuesday.

Other action in the stock market today:

  • The S&P 500 declined 0.8% to 3,870.
  • Target (TGT, -6.8%) sharply dropped despite better-than-expected quarterly sales and profits; the company announced that it would reinvest $4 billion annually for years to upgrade technology, refurnish its stores and make other improvements.
  • Twitter (TWTR, -5.1%) retreated in response to a $1.25 billion convertible-debt offering.
  • U.S. crude oil futures improved by 0.4% to $60.92 per barrel.
  • Gold futures gained 0.6%, settling at $1,733.60 per ounce.
  • Bitcoin prices dropped 1.5% to $47,563. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

stock chart for 030221stock chart for 030221

Yes, Growth Is on the Outs, But …

While there’s a steady drumbeat of news pointing to boom times for value, don’t give up on growth entirely.

Regardless of what broad investment trends are currently in favor, certain technological, societal and other developments simply can’t be ignored — and buying into the companies addressing them could be a potent long-term recipe for success, especially when those firms are a bit out of favor.

These 11 growth stocks, for instance, are worth monitoring for dips, as are these 13 growth ETFs, which have the added benefit of diluting risk across dozens of stocks.

Picks ripe for this kind of short-term pain, long-term gain include stocks tethered to the expansion of 5G communications technology. This trend is hardly any secret, and many stocks in the space are actually cooling off after months, even years, of anticipatory gains. But that’s good news for new buyers, as many of the benefits from a nationwide 5G rollout will take years to fully realize.

One way to put yourself ahead of the curve is to identify stocks that not only can soar on 5G’s updraft, but have other bullish arguments to be made at the moment … such as these seven picks.

Kyle Woodley was long Bitcoin as of this writing.

Source: kiplinger.com

Budgeting Tools: Which Ones You Need in Your Toolbox

At Mint, we’re interested in helping you create a budget that actually works. We want you to stay on track for the long haul, well after the initial excitement of creating a budget has worn off. Here are some of our recommended budgeting tools to help you achieve your financial goals.

Financial Tracking Software

The first step to making a budget is to figure out what you’re earning and what you’re spending. Financial tracking software like Mint.com helps you do that by organizing and categorizing your spending, then helping you set up your financial goals.

A Spending System

Develop a system so that whenever you spend money, you can record the amount going out, and the budget category. Websites like Mint let you easily enter each transaction, allowing you to see where your money is going, what’s in your accounts, and what you owe.
Payment Reminders

Whether you use a service like Mint (which offers e-mail and text reminders), or your own calendar system, develop a way to remind yourself when bills are due, so you can avoid late fees and unnecessary interest payments.

Mobile Access

If you own a smartphone or tablet, it helps to have access to your budget from your device, so you can keep your accounts up to date, no matter where you are. Not only does this help you stay on top of your budget, it also prevents a collection of receipts from building up in your wallet.

A Time to Review

A budget is not a “set it and forget it” exercise. You need to review your budget frequently, comparing it to what you’ve actually spent. You can set up a calendar reminder to review at the same time each month, or you can use a tool like Mint to keep you constantly in sync.

No matter whether your household is filled with financial gurus or first-time budgeters, the tools outlined here will help. If you can measure it, you can manage it — and the tools listed above will help you do both.

Mint.com comes with a full suite of budgeting tools that you can use to create your budget and achieve your financial goals. Click here to sign up!

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Source: mint.intuit.com