An interesting report was released today by Zillow, which noted that despite recent home price gains, underwater homeowners still collectively owe more than $1.2 trillion more on their mortgages than their homes are worth.
That $1.2 trillion is shared by a staggering 16 million homeowners, which broken down is roughly $75,000 per household, according to the first quarter Zillow® Negative Equity Report.
Of course, the negative equity amount will be much higher in the hard-hit, expensive states, such as California, Arizona, and Florida.
Nearly One Third of Homeowners with Mortgages Underwater
And it has actually gotten worse. About 31.4% of homeowners with mortgages were underwater as of the end of the first quarter, a slight rise from the 31.1% seen a quarter earlier.
However, it is down a bit from the 32.4% seen a year ago. Still, shaving a mere 1% over the course of a year isn’t that impressive.
You also have to wonder if the numbers look even better thanks to underwater homeowners either walking away or being foreclosed on during that time. They’re no longer underwater…they’re just homeless.
But perhaps the scariest figure in the report is that more than a quarter (26.8%) of homeowners with mortgages in the Las Vegas metro area owe double what their homes are currently worth. I guess no one really wins in that city.
Now the Good News About Underwater Borrowers
While that all sounds pretty awful, Zillow Chief Economist Stan Humphries seems to be a little more upbeat.
He noted that despite the large number of underwater borrowers, nine out of 10 are still making their mortgage payments on time.
Additionally, he noted that the negative equity is essentially a “paper loss,” as it hasn’t been realized for most, and maybe never will, assuming they stick around and home prices turnaround.
To veer away from the good news for a moment, the average underwater homeowner in Las Vegas can expect their home equity in 2020 to be a paltry $1,039.
So in about eight years, Sin City residents will be rewarded with a sliver of breathing room. Of course, you still won’t be able to sell without a loss given real estate agent commissions and what not.
In Detroit, it’s even worse. Underwater homeowners there will still be, on average, $7,156 in the red by the next decade.
Okay, back to the good news. The majority of homeowners who are underwater are only just underwater.
That’s right; nearly 40% of underwater borrowers owe anywhere from one to 20 percent more than what their homes are currently worth, which obviously sounds very manageable, assuming they can stick it out.
However, an additional 20% owe between 21-40 percent more than what their homes are worth.
And 2.4 million homeowners still owe double what their homes are worth. It’s hard to imagine many of them getting back on track, even with programs like HARP 2.0 out there.
So as you can see, there’s plenty of good and bad news here, and depending on which way the economy goes, it could get a lot better, or a lot worse, exponentially. It’s also very regional. Some areas of the country will take much longer to recover back to peak home prices than others.
The takeaway from all this is that those buying now have a huge head start versus existing borrowers, most of whom continue to make on-time payments. But with more downside risk ahead, it’s still a little murky. At least you’ll have a low mortgage rate…
Check out the map below to see the underwater carnage from sea to shining sea:
FHFA revises current single-family mortgages backed by Fannie Mae, Freddie Mac (iStock)
The Federal Housing Finance Agency (FHFA) will revise the treatment of active single-family mortgages backed by government-sponsored enterprises Fannie Mae and Freddie Mac for which borrowers elected a COVID-19 forbearance under the Enterprises’ representations and warranties framework, according to its newest media release.
“Under the updated rep and warrant policies, loans for which borrowers elected a COVID-19 forbearance will be treated similarly to loans for which borrowers obtained forbearance due to a natural disaster,” the FHFA said. “As a result, loans with a COVID-19 forbearance will remain eligible for certain rep and warrant relief based on the borrower’s payment history over the first 36 months following origination.”
FHFA Director Sandra L. Thompson argued that homeowners, who needed more time to keep up with housing costs during the pandemic, benefited from a mortgage forbearance plan that would reduce or suspend mortgage payments.
“Forbearance was an invaluable tool for borrowers experiencing financial hardship due to the COVID-19 pandemic,” Thompson said. “Servicers went to great lengths to implement forbearance quickly amid a national emergency, and the loans they service should not be subject to greater repurchase risk simply because a borrower was impacted by the pandemic.”
The Enterprises’ existing rep and warrant policies with respect to natural disasters allow the time the borrower is in forbearance to be included when demonstrating a satisfactory payment history in the first 36 months following origination, the FHFA noted. These policies will now expand to loans for which borrowers elected a COVID-19 forbearance.
Thompson stressed the importance of helping current and prospective homeowners manage present housing conditions at the Mortgage Bankers Association Annual Convention last week. “In a housing market like this one, it is all the more important that both our policies and the industry’s efforts align to support existing and aspiring homeowners,” Thompson said. “That is why I believe a model based on partnership and mutual feedback is necessary for us to achieve our shared goal of promoting affordable and sustainable housing opportunities.”
If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders and choose the one with the best rate for you.
MORTGAGE RATES KEEP CLIMBING, BUT BUYERS CAN FIND THE BEST DEALS BY DOING THESE TWO THINGS: FREDDIE MAC
Mortgage rates affecting affordability, buyers advised to build up down payments
Mortgage rates are continuing their ascent. The average 30-year fixed-rate mortgage rose to 7.63% for the week ending Oct. 19, according to the Freddie Mac’s latest Primary Mortgage Market Survey. This time in 2022, the 30-year fixed-rate was below 7%.
Buyers may do well for themselves by browsing for the best home loans and making a considerable down payment. Freddie Mac’s Chief Economist Sam Khater said “in this environment, it’s important that borrowers shop around with multiple lenders for the best mortgage rate.”
Freddie Mac announced last week the launch of DPA One®, a new tool that strives to help mortgage lenders quickly find and match borrowers to down payment assistance programs nationwide.
“DPA One delivers a one-stop shop at no cost that brings lenders and their borrowers greater detail and visibility into these programs, while seamlessly connecting the right assistance program with the lender, housing counselors and borrowers who need this assistance the most,” Sonu Mittal, Freddie Mac’s senior vice president of and head of single-family acquisitions, explained.
“With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance,” Khater said.
If you’re looking to buy a home, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
MANY AMERICANS PREPARING FOR A RECESSION DESPITE SIGNS THAT SAY OTHERWISE: SURVEY
Housing market showing lackluster activity
By end of 2023, there is likely to have been around 4.1 million existing home sales in the U.S., which would mark the weakest year of home sales since the Great Recession of 2008, according to a Redfin report.
Redfin’s Economic Research Lead Chen Zhao said current conditions have led to buyer and seller hesitancy across the board.
“Buyers have been in a bind all year,” Zhao said. “High mortgage rates and still-high prices are making it harder than ever to afford a home, shutting many young people out of homeownership and causing homeowners to reevaluate whether 2023 is the right time to move. Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low.
“The last time home sales were this low was during the Great Recession,” Zhao continued.
Redfin agents suggest that buyers invest in newly built properties which are performing more strongly than existing-home sales. Newly constructed homes saw sales increase 1.5% year-over-year in September as prices dropped about 4%, according to Redfin’s data.
Based on the findings from a National Association of Realtors (NAR) report, the total amount of home sales decreased by 2% from August to September and have dropped 15.4% since September 2022.
Looking to reduce your home buying costs? It may benefit you to compare your options to find the best mortgage rate. Visit Credible to speak with a home loan expert and get your questions answered.
AFFORDABILITY KEEPING YOU FROM OWNING A HOME? HERE’S HOW YOU CAN GET READY
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Average mortgage rates on 30-year fixed home loans continued their march towards 8% this week as the Treasury yield surpassed 5%. Rates have been steadily climbing for seven straight weeks, the longest consecutive increase since Spring 2022, according to Freddie Mac‘s Primary Mortgage Market Survey.
The average 30-year, fixed-rate mortgage rose to 7.79% as of Oct. 26. That’s up 16 basis points from the previous week and up 71 basis points from 7.08% a year ago, the survey showed.
HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.83% on Thursday, compared to 7.78% the previous week.
“Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory.”
Elevated rates are making a dent in the mortgage volume
As mortgage rates keep climbing, mortgage applications sank to their lowest level since 1995.
According to Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), the lack of inventory and the affordability challenges are the main culprits, steering prospective home shoppers to the sidelines.
“We expect mortgage volume to decline nearly 30% this year to $1.64 trillion, before an expected 19% rebound in 2024 as rates finally start to trend downward,” Broeksmit said in a statement.
The housing market remains resilient
However, recent home sales readings stressed the resiliency of the housing market as buyers kept shopping despite the challenging environment.
This week, new-home sales and pending-home sales posted month-over-month gains in September. However, Realtor.com Senior Economic Research Analyst Hannah Jones expects home sales activity to hover at a low level until the end of 2023.
The National Association of Realtors (NAR) also forecasts that existing-home sales will drop by 17.5% in 2023, reaching an annualized rate of 4.15 million units sold.
For mortgage rates to improve, investors will need reassurance that the Fed will pause its contractionary policy at its next meeting next week, Jones said in a statement.
Following in the footsteps of Bank of America and Countrywide, Washington Mutual is pulling the plug on scores of existing home equity lines, according to a report from the San Francisco Business Times.
The Seattle-based thrift and mortgage lender will begin sending out letters to homeowners notifying them that their home equity lines of credit will be reduced or shut off completely, depending upon where they live and perhaps their current loan to value ratio.
WaMu has apparently reduced the amount of home equity able to be tapped from customer’s homes by a whopping $6 billion to mitigate risk in depreciating markets, regardless of credit profile.
But the bank defended its position, claiming that the move will also protect homeowners and prevent them from falling underwater if home prices continue to sink.
Additionally, it said it has a process in place for those looking to appeal the decision, and has pledged to assist those with special circumstances.
The move comes as the mighty savings and loan continues to struggle amid the ongoing mortgage crisis, with many of its loans made in rapidly depreciating areas of California.
Last month, WaMu unveiled plans to exit wholesale lending, cut 3,000 jobs, shut all its freestanding home loan offices, slash its dividend to a penny, and raise $7 billion via a TPG investment after reporting a $1 billion loss.
That’s on top of the 3,000 previous job cuts that took place back in December 2007 when the bank halted subprime lending.
Home equity line losses have rattled a slew of banks in recent quarters, forcing most to withdraw the products altogether.
Shares of WaMu fell 18 cents, or 1.74%, to $10.14 in midday trading on Wall Street.
Northwestern Mutual Increases its Impact Investing Fund to $175 Million to Support Racial Equity Initiatives Additional investment provides access to capital and sustainable neighborhoods across the country Company is encouraging actionable plans and measurable change by hosting hundreds of business leaders, academics and industry experts at first-ever Gather Against the Gap event MILWAUKEE, Oct. 26, … [Read more…]
Chances are, your mortgage interest probably makes up a large proportion of your monthly expenses.
So, how can you secure the best mortgage rate possible? The potential savings you unlock can have a substantial and lasting impact on your lifestyle and disposable income for many years to come.
Read on as we delve into the world of mortgage interest rates, where we’ll explore their implications, and reveal the keys to securing the most favorable terms.
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In this article (Skip to…)
What is interest?
Merriam-Webster defines interest as “a charge for borrowed money, generally a percentage of the amount borrowed.” You can think of it as the rent you pay to lenders for giving you access to their money.
That makes it different from the money you access. The money you borrow is called the “principal,” and the interest you pay is almost always a percentage of that.
Verify your home buying eligibility. Start here
You pay the interest monthly, but it’s calculated annually. So, if you borrow $100,000 at a 5% interest rate, you’ll pay $5,000 a year in interest, which is $600 a month.
With an installment loan, such as a mortgage, you have to pay the principal back over the life of the loan plus the interest that accumulates.
Nearly all mortgages are “fully amortized.” That means, for a fixed-rate loan, all the monthly payments are the same. But your mortgage lender works them out so you zero your balance (including interest and the principal sum borrowed) when you make the final monthly payment at the end of your home loan’s term, often 30 years.
Amortization and mortgage interest
When you make your first monthly payment on a new mortgage, you owe a huge amount of money. So, almost all that payment goes on interest and your principal debt reduces only a little.
Gradually, over the years, your principal decreases and the interest you owe each month does, too. As each payment is made, the percentage allocated to interest shrinks while the portion allocated to reducing the debt grows larger and larger.
By the time you make your last payment, only a tiny bit is interest and nearly all of it reduces your principal — to zero.
This stuff isn’t easy. So, to discover more, read How mortgage amortization works, and why it matters.
How costly is mortgage interest?
When this was written, in October 2023, mortgage rates had just reached a 20-year high. So, it may feel as if mortgage interest is expensive.
But, of course, mortgages are actually one of the least costly ways of borrowing. The problem isn’t the mortgage interest itself but the large sums home buyers borrow over long periods.
Even a low interest rate can result in high monthly mortgage payments when you’re borrowing big. And your mortgage is likely to be by far your largest loan, at least at the start.
Verify your home buying eligibility. Start here
What’s that in dollars?
So, how much might your mortgage interest cost on a conventional 30-year, fixed-rate mortgage? Let’s try an example. We’re basing it on the average rate for such a loan on the day this was written (7.522%) and on a property at the current median home price ($416,100 in the second quarter of 2023). We’ll assume a 20% down payment.
We fed those numbers into our mortgage calculator. And you can do the same with your own figures. Here’s what we got:
So, that’s $2,333 each month for the mortgage, plus property taxes and homeowners insurance. Did you spot the View Full Report button at the bottom? That provides the real low down:
So, as the Totals section reveals, “By the end of the 30-year mortgage loan term, you would pay $839,722 in total amount ($332,880 would be for the original loan amount and $506,845 in interest).”
Yes, that sounds a lot. But you’re borrowing a considerable loan amount over a long period of time.
It’s actually good value, especially when you think that, at the end, you’re likely to own outright a hugely valuable asset. And you won’t have had to pay rent for the next 30 years to live somewhere else.
By the way, the graph top-right on that page shows amortization in action.
What factors determine the mortgage interest you pay?
There are two main groups of factors that affect the mortgage rates you’ll be quoted: Things you can change and things you can’t.
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The economy and markets
Let’s start with what’s outside your control. That’s mostly the economy and its effect on the bond market for mortgage-backed securities. It’s that market that largely determines current mortgage rates.
Generally, mortgage rates fall when the economy’s in trouble and rise when it’s thriving. Inflation also plays a role, with above-average price rises tending to drive higher interest rates.
Your financial circumstances
Now, for some things you can control. Lending is all about risk. Lenders know that some of their home loans will turn bad. But which?
So, they analyze your personal finances to discover how much of a risk you pose. And the bigger that perceived risk, the higher the interest rate they’ll quote you. Of course, if they think there’s a serious danger of your mortgage loan turning bad, they’ll simply decline your application.
So, what specifically do they look for? It’s mainly:
A consistent and adequate source of income — That’s often easy to prove if you’re an employee. But it can be harder for the self-employed and those in the gig economy
A history of managing debt well — That’s your credit score and credit report
A manageable level of existing debts — How easily will you afford the new monthly mortgage payments once you’ve met all your other inescapable financial commitments each month? This is called your debt-to-income ratio or DTI
The down payment amount — The bigger your down payment, the more skin you have in the game. And that means you’re less of a risk. So a high down payment helps get you a lower interest rate. However, most borrowers can easily get a mortgage with just 3% or 3.5% (zero for some) down. This is your loan-to-value ratio (LTV)
Each of those normally affects a lender’s calculations when deciding what mortgage interest rate to quote you. And, of course, you have a great deal of control over them.
For example, spending time before you apply, building your credit score and reducing your debt (especially card balances) can earn you an appreciably lower interest rate.
Verify your home buying eligibility. Start here
Rate shopping
How would you like to save more than $1,000 a year for many years to come for just a few hours’ work?
It’s easy. And yet, a surprising number of mortgage borrowers pass on the opportunity.
In May 2023, federal regulator the Consumer Financial Protection Bureau (CFPB) released a report under the headline:
Mortgage data shows that borrowers could save $100 a month (or more) by choosing cheaper lenders
The CFPB found the spread among different lenders’ mortgage interest rates is “often around 50 basis points of the annual percentage rate.” Fifty basis points is 0.5%. So, it could be the difference between paying a rate of 7% or 6.5%. Try running those figures through our mortgage calculator!
The report also says that such differences apply in “virtually every segment of the mortgage housing market, including loans backed by Fannie Mae and Freddie Mac, Federal Housing Administration loans, U.S. Department of Veterans Affairs (Veterans Affairs) loans, as well as jumbo loans.”
And all you have to do to unlock such potential savings is request quotes from multiple lenders. Of course, your preferred lender may come up with the best deal. But suppose it doesn’t.
Fixed vs. adjustable-rate mortgage
Most Americans, especially first-time home buyers, opt for a fixed-rate mortgage (FRM). They’re prepared to pay a little more for the security of knowing that every monthly payment they make on their loan will be the same as the last one.
A fully amortized FRM is as predictable as anything gets. You pay the same $x each month until you finish paying down the loan — or sell the home or refinance the mortgage.
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Adjustable-rate mortgages (ARMs) are very different. Or they can be after a few years.
An ARM almost always starts with a lower interest rate than an FRM. And that rate is fixed for an initial period, after which it can float in line with general interest rates, usually once each year.
So, a 5/1 ARM has a fixed rate for the first five years, a 7/1 ARM’s rate is fixed for seven years, and so on. The second numeral tells you how often the rate can be adjusted after the initial fixed-rate period expires. That numeral is most often a 1, meaning the rate can then float up or down annually (once a year).
That’s fine as long as mortgage rates remain low. But it can cause real pain when those interest rates shoot up, as they have done in recent years.
Luckily, that pain is usually moderated because most ARMs come with caps that limit how much their interest rates can rise. But even moderated pain is still pain.
Some home buyers can still be better off with ARMs. If you know you’ll be moving home within seven years and choose a loan type such as the 7/1 ARM, your mortgage interest rate will be fixed for as long as needed.
The bottom line on mortgage interest
At worst, mortgage interest is often seen as a practical necessity. The other option is to spend a lifetime paying rent, ultimately without the prospect of building valuable assets.
When mortgage rates are high, the weight of interest payments can become a substantial concern. But, if mortgage rates fall one day, refinancing is always an option, provided you remain creditworthy.
And there are things you can do to pay as low a mortgage interest rate as possible. Comparison shopping among several lenders could save you $100+ a month. Meanwhile, improving your credit score and reducing your existing debts can make another big difference.
Homeownership remains as much a part of the American dream as it always has. If you’re ready to fulfill your dream, don’t delay.
Time to make a move? Let us find the right mortgage for you
While existing homebuyers have been battling high mortgage rates for months — which are now at 8% — the builders are wooing buyers with lower rates and incentives. Today, the new home sales data beat expectations and surprised people. However, sales have been rising slowly for some time.
Using a low bar of sales from last year, the builder’s incentives have created more sales growth and their significant advantage is that they’re offering lower rates to move homes. Imagine what the existing home sales market would look like if mortgage rates were below 6%. We certainly wouldn’t be trending below 4 million existing home sale today if that was the case.
From Census: New Home Sales: Sales of new single‐family houses in September 2023 were at a seasonally adjusted annual rate of 759,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.3 percent (±16.6 percent)* above the revised August rate of 676,000 and 33.9 percent (±22.9 percent) above the September 2022 estimate of 567,000..
As you can see in the chart below, new home sales are slowly growing, There’s nothing gangbusters here, but new home sales have been slowly moving higher for some time. This is very different from the housing bubble years, where sales were booming like crazy and got close to 1.4 million. Currently, the seasonal adjusted annual rate of sales is just 759,000.
From Census: For Sale Inventory and Months’ Supply The seasonally adjusted estimate of new houses for sale at the end of September was 435,000. This represents a supply of 6.9 months at the current sales rate.
Here’s my model for understanding the builders.
When supply is 4.3 months and below, this is an excellent market for builders.
When supply is 4.4-6.4 months, this is just an OK market for builders. They will build as long as new home sales are growing.
When supply is over 6.5 months, the builders will pause construction.
We have been able to build more single-family housing, and single-family permits have been slowly rising, which offsets the multifamily weakness that should be here for some time now, as we can see in the chart below. The monthly supply of new homes is falling from the recent peak but needs more work to return to pre-COVID-19 levels.
One of the things I like to do is break down the monthly supply data into subcategories. We have a lot of homes in the pipeline that still need to get built; this is why the builders are making deals. As we see in the monthly supply data, they had a spike last year and are forced to create incentives to move homes. Here’s how the supply breaks down:
1.4 months of the supply are homes completed and ready for sale — about 75,000 homes.
4.0 months of the supply are homes that are still under construction — about 255,000 homes
1.7 months of the supply are homes that haven’t been started yet — about 105,000 homes
75,000 new homes ready for sale
One of the data lines that very few people know about, but is critical to the inventory story in the U.S., is how many new homes are built and ready for sale! It’s not a lot now, nor has it ever been a lot. Even during the housing bubble crash years, we never got above 200,000. Most active listings’ inventory growth comes from the existing home sales market.
Keep things simple with today’s new home sales report: the builders confidence has been falling for months as rates have risen; many builders can’t pay down rates, and the ones that do are taking a hit on their profit margins.
However, the builders’ profit margins are still higher today than in the previous decade. This is the first time this century that we have seen a noticeable gap between purchase application data and new homes because, as we all know, the builders are singing: Baby, it’s cold outside…come inside for lower rates.
A brewing crisis is emerging around homeowners insurance and thus far the finance and insurance community has not offered any viable solutions.
The annual number of weather/climate-related disasters exceeding $1 billion per event has more than doubled over the last five years from historical averages. Homeowners in affected markets have experienced increases in premiums that threaten their financial soundness or are finding cancellation notices in their mailboxes.
Major credit investors such as Fannie Mae and Freddie Mac, which require such policies, are acutely concerned about the long-term prognosis of traditional insurance in light of extreme weather trends.
An overhaul of the homeowners insurance market is in order to prevent an impending catastrophe in the mortgage market.
Premiums on homeowners insurance policies soared more than 20% from last year, reflecting increased rebuilding costs from more natural disasters. In areas hardest hit by recurring disasters such asFlorida,premiums have risen 35% with many homeowners experiencing much higher rates. And that’s where policies are available.
Several major insurers grabbed headlines this year by announcing their withdrawal from some markets, such as State Farm deciding not to offer new policies on homes in California due to major disasters like destructive wildfires that have plagued the state in recent years.
Insurers are squeezed between state insurance commissions, reluctant to allow rate increases reflecting the recent trends in claims, and reinsurance companies raising premiums on insurers looking to offload significant risk exposure from natural disasters.
State-run insurance programs including Florida’s Citizens Property Insurance Corp. have been reeling from the exodus of private insurers in their state. The dependence of a functioning insurance market on the decisions of 50 different state insurance commissions, poorly operating state-run programs and the volatility of reinsurance premiums imperils this market and has spillover effects onto the mortgage market.
To ensure the vitality of both homeowners insurance and mortgage markets, a combined private-public insurance solution at a national level is required to distribute natural disaster risk more efficiently, thereby lowering the costs and access to insurance and helping reduce pressures from a housing affordability crisis already in full bloom.
This could be attained by creating a new government-sponsored enterprise (GSE) under the regulatory purview of the Federal Housing Finance Agency (FHFA) thatalreadyregulates Fannie Mae and Freddie Mac. The existing National Flood Insurance Program (NFIP) would be restructured into this new hazard insurance GSE.
Importantly, this new GSE would be run by property and casualty (P&C)insurance, finance and weather/climate experts. The GSE structure would provide a nationwide platform providing hazard insurance to every homeowner against major natural disasters beyond flood risk. Providing fairly priced hazard insurance to homeowners given the trajectory of natural hazard events is in the national interest and funding this business in part with low-cost debt is critical to keeping costs down and access to insurance available to all.
By providing coverage only for natural hazards via this federal hazard insurance GSE, private insurers would be able strip out costly provisions of existing homeowners policies, turning them into basic policies covering other non-hazard related risks such as damage from a water line break.
This would reduce the overall costs of these standard policies. The federal hazard policy could be quasi risk-based, into several risk-based tiers to spread costs across a broad base of homeowners and make the policies affordable but also provide pricing disincentives to homeowners attracted to risky areas.
On the back end, the hazard insurance GSE would issue climate risk transfer (ClRT) securities much like Fannie and Freddie’s credit risk transfer (CRT) securities for mortgage credit risk.
Tranches of hazard risk would be sold off to private investors, most of which in this case would be insurers and reinsurers that could take positions in hazard risk based on their risk preferences. This would more efficiently distribute hazard risk and with sufficient interest, build liquidity in such a market which over time would help lower premiums while also reducing systemic risk to the taxpayer.
Some might say that the federal government’s track record with national flood insurance has not been good, so why would a federally chartered hazard insurance GSE present a viable solution? Actually, the housing GSEs have been incredibly effective at lowering the cost of homeownership since their inception and even following the Global Financial Crisis of 2008, have generated a profit for the US Treasury.
Establishing a hazard insurance GSE would bypass the insurance rate-setting problem that exists across 50 state insurance commissions that can limit insurance availability, and combined with a new ClRT security, would create an efficient market for broad distribution of hazard risk to the private market. The close linkage between homeowners insurance and mortgages would also be preserved by having the FHFA oversee GSEs engaged in these activities.
A vibrant housing finance system is dependent on a functional homeowners insurance market. As the pace of natural disasters rises, the provision of homeowners insurance needs to adapt to a rapidly changing environment. A federally sponsored corporation is best suited to address inherent frailties of today’s homeowners insurance markets.
Clifford Rossi is Professor-of-the Practice and Executive-in-Residence at the Robert H. Smith School of Business at the University of Maryland. He has 23 years of industry experience having held several C-level executive risk management roles at some of the largest financial institutions.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story: Clifford Rossi at [email protected]
To contact the editor responsible for this story: Sarah Wheeler at [email protected]
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Debt consolidation allows you to take multiple debts and combine them into one, and you can do this with your credit card debt. Doing this makes managing the debt a little easier, and you may be able to get a lower interest rate.
Keeping track of multiple credit card bills can be difficult and potentially cause you to fall behind on payments or forget them altogether. Since payment history is the most important factor that influences your creditworthiness, not making payments on time can damage your credit score.
If you’re struggling to juggle multiple bills, you may want to consider credit card consolidation. Read on to discover eight ways to consolidate your credit card and evaluate the pros and cons of each method to find the best option for you.
Types of credit card consolidation include credit card consolidation loans, balance transfer credit cards, home equity loans, HELOCs, retirement loans, cash-out auto refinance, family loans, and debt management plans.
The advantages of credit card consolidation include lower payments, faster debt payoff, and fewer bills to keep track of.
Consider your financial situation when weighing the pros and cons of each credit card consolidation method.
Table of Contents:
What Is Credit Card Consolidation?
How to Consolidate Credit Card Debt
Credit Card Consolidation FAQ
What Is Credit Card Consolidation?
Credit card consolidation is a debt management strategy that combines different credit card balances into one.
How Does Credit Card Consolidation Work?
You can go about consolidating credit card debt in a few different ways. Generally speaking, you will take out a loan or credit card with a lower interest rate and pay off all current balances with money from the new account. Once the debt is consolidated into one loan or credit card, you can begin paying off this account.
How to Consolidate Credit Card Debt
The best way to consolidate credit card debt depends on your individual financial situation, as each option has its own advantages and disadvantages. Below are eight ways to consolidate credit card debt that you may want to consider.
Credit Card Consolidation Loans
A credit consolidation loan is a type of unsecured personal loan that comes with a set repayment period and fixed monthly payments. You’ll receive an amount of money that you’ll use to pay off your current debt.
For a credit card consolidation loan to make sense, the interest rate needs to be lower than the interest rate for your credit cards. Most personal loans are fixed rate, so you don’t have to worry about the interest rate increasing. Keep in mind that some lenders charge an up-front, one-time origination fee ranging from 1% to 10% of the total loan amount.
To get a credit card consolidation loan, take the following steps:
Step 1: Research lenders, such as credit unions, banks, or online lenders. Since credit unions are not-for-profit institutions, they typically offer the best rates, especially for individuals with poor credit, although you need to become a member to apply. Banks, on the other hand, generally require a good credit score to qualify. Make sure to consider loan terms, rates and fees.
Step 2: Get prequalified with a couple of lenders. Some lenders can prequalify your application to see what rates you qualify for so you don’t get hit with a hard inquiry that could potentially affect your credit score.
Step 3: Decide on a lender and apply. You’ll likely need to submit personal information like proof of your identity and income. After you apply for the loan, the lender will decide on final approval.
Step 4: Receive the loan and pay off your credit card debt. Once you receive the funds, you’ll use the money to pay off your credit card debt. On the other hand, some lenders will directly pay creditors, which removes the hassle on your end.
Pros
You can get low interest rates if you have good credit.
A fixed interest rate keeps your monthly payments constant.
The lender may pay your creditors directly.
It can help significantly lower your credit utilization.
Cons
You must have a good credit score to qualify for lower interest rates.
You’ll need to pay origination fees.
0% APR Balance Transfer Credit Card
This debt consolidation option involves transferring your debt to a credit card that offers a 0% APR introductory period, typically lasting between 12 and 21 months. During this time frame, you won’t be accruing credit card interest on your debt, allowing you to pay down your balance quicker and save money. With balance transfer credit cards, the goal is to pay down your entire balance within the introductory period.
While many balance transfer credit cards don’t charge an annual fee, there is typically a one-time balance transfer fee that ranges from 3% to 5% of the total amount you transfer. For example, if the company charges a 3% balance transfer fee and you transfer $600, you’ll be charged $18 in fees. To ensure this option makes sense for you, calculate how much interest you’ll save over time to verify it cancels out the cost of the fees.
It’s also important to consider the card’s interest rate following the introductory period in case you don’t pay your balance off within the 0% APR time frame.
Pros
It provides you the opportunity to pay off debt without accruing interest.
It gives you a year or more to pay down your balance.
Cons
It requires good credit for eligibility.
You’ll need to pay balance transfer fees.
The APR increases after the introductory period.
Home Equity Loans
If you’re a homeowner, you can take out a home equity loan, which involves borrowing money against the equity in your house. With this method, you’re essentially taking out a secured loan and using your home as collateral.
The main benefit of a home equity loan is that it typically offers lower interest rates than personal loans. However, since the loan is secured with your home, your property could get foreclosed on if you fall behind on payments. Additionally, you may have to pay closing costs when taking out a home equity loan, typically 2% to 5% of the loan amount.
Pros
They come with lower interest rates than other loan types.
They offer a long repayment period.
Cons
You must be a homeowner to qualify.
Your home could be foreclosed on if you fail to repay the loan.
You’ll need to pay a second mortgage that will likely have a higher interest rate.
You’ll need to pay closing costs.
Home Equity Lines of Credit (HELOCs)
Similarly to a home equity loan, a HELOC uses your home as collateral to secure a loan. While home equity loans provide a lump sum, HELOCs work like a revolving line of credit with variable interest rates. This means that the payment amount could vary from month to month. With a HELOC, you have continuous access to money for a period of time, and you can take out as little or as much as you need.
Pros
They have lower interest rates than other types of loans.
You have the ability to choose how much of your credit line to use.
Cons
Variable interest rates may make budgeting more difficult.
There is a possibility of home foreclosure if you fall behind on payments.
Cash-Out Auto Refinance
A cash-out auto refinance works similarly to a regular auto loan while allowing you to borrow additional money. For debt consolidation purposes, you can use this money to pay off your credit cards. Keep in mind that you could lose your vehicle if you fail to repay the loan.
Pros
You have the opportunity to receive a lower interest rate on your car loan.
Cons
You may lose your vehicle if you don’t make payments.
You’ll need to pay title, lender, and closing fees.
Retirement Account Loans
If you’ve been contributing to an employee-sponsored retirement plan such as a 401(k), 403(b), or 457(b), you can borrow against your savings and use the money to pay off your credit card debt. Since retirement account loans typically have lower rates than credit cards, this route could significantly lower the amount of interest you pay to creditors.
Before taking out a retirement loan, it’s important to understand how it will impact your savings. Even though you’ll pay the money back within five years, you’ll lose out on tax-free earnings.
If you leave your current job, you’ll likely have to pay back the loan immediately or within a short period.
Pros
They have lower interest rates than credit cards.
There is no credit score requirement.
The interest you pay goes into your retirement account.
Cons
The loan is tied to your current job.
It can set back your retirement savings.
You’ll pay taxes and penalties if you don’t repay the loan within five years.
Family Loans
Family loans can provide a more affordable way to pay off credit card debt. However, if you go this route, it’s important to create a written agreement that outlines the amount you’re borrowing, repayment terms, and the interest rate.
Pros
You’ll likely receive a lower interest rate than what banks, credit unions, and online lenders offer.
It doesn’t require a formal application process or credit score requirement for approval.
Cons
You could strain your relationship with your family member if you fall behind on payments.
There may be tax implications for your family member if they loan you over $17,000.
Debt Management Plans
A debt management plan is a program that nonprofit credit counseling agencies offer to help you pay off credit card debt. It involves grouping credit card balances into one payment and lowering your interest rate so you can pay off the debt within three to five years. Once enrolled in the program, a credit counselor will work with you to create a budget and a repayment plan tailored to your financial needs.
Pros
It allows you to pay off credit card debt within three to five years.
It may help you improve your credit.
Cons
It limits your access to credit cards.
It prohibits you from taking out new loans.
Credit Card Consolidation FAQ
Below are a few common questions about credit card consolidation.
What Is the Difference Between Credit Card Refinancing and Debt Consolidation?
Credit card refinancing refers to negotiating a better rate for an existing debt, while debt consolidation involves combining multiple debts.
What Are the Advantages of Consolidation?
Advantages of credit card consolidation include lower payments, quicker debt payoff, fewer bills, and the potential to improve your credit.
What Are the Disadvantages of Consolidation?
Disadvantages of credit consolidation include fees and the possibility that you won’t qualify for favorable terms.
How Does Consolidating Your Credit Cards Affect Your Credit?
While consolidating your credit cards can initially hurt your credit, the drop is only temporary. Over time, your credit score should increase as long as you make payments on time.
Is It Smart to Consolidate Credit Card Debt?
It’s smart to consolidate credit card debt if you qualify for lower interest rates and better terms than your current credit cards. Credit consolidation can help you reach your goal of paying off debt. To qualify for the best terms and rates, start by taking steps to improve your credit. Check your free credit score today to see where you stand.
One of the nation’s largest home builders, PulteGroup, also operates its own financing division called “Pulte Mortgage.”
This is a common setup employed by large builders that look to control the process from start to completion.
It allows them to streamline operations and move their homes in a timely fashion, without relying on third parties that might cause delays.
Their “one-stop shopping” experience allows them to work hand-in-hand with the builder to coordinate the processing of your loan with the construction of your new home.
Read on to learn more about their lending process, rates and fees, loan programs, and customer reviews.
Pulte Mortgage Fast Facts
Captive mortgage lender for the PulteGroup
Offers home purchase loans for its new home buyer clients
Founded in 1972, headquartered in Englewood, Colorado
Parent company is third largest home builder in the country
Publicly traded company (NYSE:PHM)
Funded over $7 billion in home loans last year
Licensed to do business in 28 states
Most active in Arizona, California, Florida, North Carolina, and Texas
Also operates a title insurance and homeowners insurance agency
Company hours are Monday – Friday: 7:00 am – 6:00 pm MT
Pulte Mortgage is the home lending division of its parent company PulteGroup, a top-3 home builder in the United States. Only Lennar and D.R. Horton are bigger than them.
The home builder’s roots stretch back to 1950 when then 18-year-old William “Bill” Pulte built a five-room bungalow near Detroit, Michigan. The company later went public two decades later.
Some of the company’s home building brands include American West, Centex, Del Webb, DiVosta Homes, John Wieland Homes, Neighborhoods, and of course Pulte Homes.
Pulte Mortgage has been in operation since 1972 and is headquartered in Englewood, Colorado. It has apparently helped more than 700,000 customers since opening its doors.
They offer home purchase financing to buyers of new homes throughout the country where they are licensed, 28 states at last glance.
Last year, the company funded about $7 billion in home loans, and were most active in Florida and Texas, with each state accounting for roughly 20% of overall volume.
Like other major home builders, they also have their own title insurance company, PGP Title, and insurance company, Pulte Insurance Agency.
How to Get Started
First you must register for an account on the Pulte Mortgage website. Then you can access the electronic loan application.
They say they offer a high-touch digital mortgage experience, meaning a mix of the latest technology combined with a human lending team
Once you complete the digital mortgage app, you will be assigned a loan number and provided with access to your own personalized Loan Dashboard.
Any required documentation can be uploaded via smartphone/computer or securely linked to your application.
At this point, a designated loan team will be assigned, including a loan officer, loan processor, mortgage underwriter, and closer.
Pulte Mortgage prides itself on knowing its parent company’s processes and timelines better than anyone.
This means you should be in good hands when it comes to closing on time and avoiding any costly delays.
If and when you have questions, you can reach out to your loan team. You can also check loan status 24/7 to see where you’re at in the process.
They appear to make it easy to complete most tasks electronically/remotely, and their affiliated title and insurance agency may help streamline the process.
Just be sure to shop around for those services as well as the price and service can vary.
Loan Programs Offered by Pulte
Home purchase loans
Conforming loans backed by Fannie Mae or Freddie Mac
FHA loans
VA loans
USDA loans
Fixed-rate and adjustable-rate options available
Pulte Mortgage says they have more than 200 different loan options. I’m not sure what those are, but they appear to offer all the basics you would expect from a full-service mortgage lender.
This includes conforming loans, jumbo loans, and government-backed loans, including FHA, USDA, and VA loans.
Both fixed-rate loans and adjustable-rate mortgages are available, including the 5/1 ARM, 7/1 ARM, and the 30-year fixed.
What they might offer that the other guys can’t is big mortgage rate buydowns if you use them and their parent company to buy/build a home.
Lately, builder’s financing divisions have been advertising mortgage rates that are 2% or more below prevailing market rates.
They only appear to offer home purchase loans (no mortgage refinances), which makes sense because they are a home builder.
With regard to property type, they provide financing on single-family homes, condos, townhomes, and anything else they develop.
All occupancy types should be permitted, assuming you’re buying a second home or investment property.
Pulte Mortgage Rates and Lender Fees
Unfortunately, they do not provide any information regarding their mortgage rates or lender fees on their website.
This isn’t uncommon, but I do give lenders transparency points when they provide these details online.
As mentioned, the only thing they do advertise is big mortgage rate buydowns on their website if you use them to buy a PulteGroup home.
It’s unclear what lender fees, if any, they charge. But be sure to look at the big picture, the mortgage APR, which incorporates the interest rate and fees.
And take the time to compare their offer to other unaffiliated lenders. It’s perfectly acceptable to buy a newly built home using a third-party bank, lender, or even mortgage broker.
Even if you plan on using them, it might not hurt to get additional quotes to increase your bargaining power.
Pulte Mortgage Reviews
On Zillow, Pulte Mortgage has an excellent 4.74/5-star rating from over 350 customer reviews.
But there are some mixed reviews if you take the time to read them, with some calling them pushy, incompetent, etc.
Perhaps more concerning is they have a 1.13/5 rating on the Better Business Bureau (BBB) from nearly 200 customer reviews. And more than 200 complaints over the past 12 months.
They also have an ‘NR’ rating, which could indicate there is an ongoing review/update of the business’s file on the BBB website.
Their headquarters also has a 2.4/5 Yelp rating from about 165 reviews, though they’ve got a 4.9/5 on Facebook from 1,100+ “votes.”
So a bit of a mixed bag here, which might require some reading of reviews to see what some of the issues have been.
Remember, at the end of the day you DO NOT need to use the home builder’s mortgage lender to purchase a newly-built home.
It’s always wise to shop around and get multiple quotes, including ones from the builder and unrelated banks/lenders.
That way you can compare offers, and if need be, negotiate with the builder’s lender with increased leverage.
You don’t want any one lender to think you don’t have options, so gathering multiple quotes might give you a leg up.
It may also open your eyes to better options/offers you weren’t previously aware of. This is the case whether buying a new home or an existing home.
Long story short, put in the time or you may face disappointment when it’s too late in the process to switch lenders.
Pulte Mortgage Pros and Cons
The Good Stuff
Can apply for a home loan online via digital application
Paperless options like document upload and bank account verification
They offer big mortgage rate buydowns to their home buyer customers
Offer a streamlined process with their own title/insurance companies
Plenty of loan options to satisfy most home buyer’s needs
Free mortgage calculator, glossary, and home buyer guides online
The Maybe Not
Not licensed in all states
Only offer home purchase loans
Mixed customer reviews and high number of complaints