“HOW AM I DOING?”
It’s the time of year to take stock of what we’ve done and how we’ve done it. And, to know whether we’ve been naughty or nice. Hopefully, those who judge are okey doke with our performance.
Because of the hectic pace of everything we do, how often do we do what Ed Koch, the past Mayor of New York City, always did? Simply ask his constituency, “how am I doing?” There was a United Airlines commercial a while back that featured a conference room with Sellers milling around waiting for a meeting to start. The Sales Manager enters and announces that we “are going to see our clients right away,” and distributes airline tickets as smiles appear all around. It is essential that we let our best clients know that we are willing to fix what needs fixing in our relationships.
Reach out to the top accounts in your business. Pick a workable number but make certain they are the top 15% of your business. Send a survey via e-mail, fax or snail mail. The questions are few but powerful:
From 0- 10, how satisfied are you with the job being done by us?
What two (2) things are we presently doing that should be continued?
What two (2) things aren’t we doing but should start immediately?
From 0- 10, how satisfied are you with the job being done by your Rep?
Plan on a quick follow-up phone call. Better yet, go see them but not in a selling mode. Management should accompany Sellers for this visit. Let them know how important they are to us. Heck, bring a chocolate cake!
We’ve all heard the saying, “perception is reality.” Without asking our clients what they really think, we may never know if our customer’s perception matches our perception. Don’t leave that to chance!
Getting a mortgage can be a very confusing process. There is a lot of paperwork to sign, documents to read and procedures to be followed. You’d think you were applying to go to Harvard or Yale, except they don’t require that much paperwork for you to be admitted!
Going into a mortgage knowing just a few facts will help you immensely in understanding what type of commitment you are getting into.
The first term you should understand is, amazingly, the word “term”. Term refers to the length of the mortgage you are taking out – or the amount of time you are making payments.
Many mortgages run the gauntlet of between ten and thirty years. The longer the mortgage, typically the lower your monthly payment will be (and the more interest the mortgage company makes). Generally speaking, you should go for the shortest term you can comfortable afford – you’ll save potentially tens of thousands (and in some cases potentially over a hundred thousand) dollars in interest by keeping the length of the mortgage as short as you can.
Next, understand the interest rate on your mortgage and how it is calculated. The interest rate refers to the amount of interest charges you will pay for the money you are borrowing, expressed as a decimal – such as 5.2 for 5.2%. Is it fixed or adjustable? In other words, is it the same through the life of the loan or does it change at specified periods in time? Most home buyers should try and steer clear of adjustable rate mortgages even though they can look better up front. They can often reset to higher interest rates and come back to bite you if you aren’t ready for a jump in your monthly payments!
Finally, understand what closing costs are and how they are going to affect your purchase price. Often times, you are going to be responsible for coming up with these closing costs out of your own pocket. Closing costs consists of things such as appraisals done on the house, attorney fees, notary fee, deed fee – if there is a fee they can think of it usually falls under the term closing costs! Be a smart and savvy consumer, if you see a fee that you don’t understand or doesn’t seem right – speak up! Some mortgage lenders try to sneak in any fee they can think of to make a few extra dollars profit.
Understanding these three terms can help make you a more informed home buyer and help you find the mortgage that is right for you. As with any product, it is important to shop around for a mortgage when you are considering buying a house. Even a small change in the interest rate between two lenders can often to amount to thousands of dollars in savings.
Don’t be afraid to comparison shop – it’s your money after all!
A fixed mortgage is one whose interest rate remains the same over the full term of the mortgage loan. This contrasts with an adjustable rate mortgage, where the interest rate can fluctuate with market conditions after a specified period of time. A fixed interest rate is easier to understand, and many prefer the predictability of repayments, and the way they have more disposable income as their income increases but mortgage repayments do not.
Benefits of a Fixed Mortgage
If you are seeking stability, and the safety of knowing exactly what you will be paying every month, then this is for you. This type of mortgage enables you plan ahead with confidence, without the possibility of facing a sudden hike in your monthly repayments because interest rates suddenly increase.
When you decide on a fixed mortgage, your choice of lender or building society will make little difference to your monthly payments because all offer very similar fixed interest rates. However, where interest rates do vary between lenders, you have the advantage of knowing that when you select the lowest rate, it will not change over the period of the mortgage.
While the rate for a fixed mortgage will be higher than the initial rate for an adjustable rate mortgage, if you take your mortgage on at a period when interest rates in general are low, then you could get a good deal for the entire life of the mortgage.
Disadvantages of Fixed Interest Mortgages
One of the disadvantages of fixed interest loans in general is that you are limited in how much you can borrow. This is particularly true when interest rates are generally high: the amount of your mortgage depends on your ability to repay, and you are liable to be restricted in the size of home you can purchase, even with a 30-year loan.
Also, if interest rates fall back to lower levels, your mortgage rate will not fall with them. You are locked into a fixed interest mortgage, and might face penalty charges if you attempt to repay it early (prepayment penalty). This is a something you should establish prior to signing for the mortgage loan.
The term of the loan could make a difference, and here are the pros and cons of 15-year and 30-year mortgages with fixed interest rates
15 Year Fixed Rate Mortgages
- Because the amortization is over a shorter period, you can increase equity over a shorter period of time. This enables you to purchase upwards at a faster rate than if you were paying a 30 year mortgage, or to repay your mortgage sooner.
- The interest rate will be lower than that for a corresponding 30 year fixed rate mortgage.
- The total amount you pay the lender in interest will be lower and so more of your cash will be going to repay the capital.
- The monthly payments will be significantly greater for a 15-year fixed rate mortgage than if you repaid the loan over 30 years. That is because you are repaying more of the capital sum, which has to be paid up in half the time.
- Because your monthly repayments are higher, you might not be able to afford as large a house as you could purchase with a 30-year fixed interest mortgage.
30 Year Fixed Mortgage
- You can take a mortgage over the longer term, knowing that your repayments will remain the same over 30 years, irrespective of the financial situation.
- Interest is amortized over double the time period than a 15 year loan, so the monthly repayments will be smaller.
- You will be paying more in interest overall with a 30-year fixed rate mortgage, so can claim more on your federal income tax returns.
- The fixed interest rate will be set at a higher level than that for a 15 year mortgage.
- Equity will build up very slowly in comparison to that of a 15 year fixed rate mortgage.
- You will end up paying more in interest to the lender.
Even if they can easily afford a 15 year mortgage, many people choose to pay over 30 years, and invest what they save in monthly payments. This can give them a yield greater than the difference in the monthly payments. This will be particularly true for those that take the mortgage at a fixed rate when rates are generally low.
If it is necessary to take a mortgage at a time when rates are particularly high, many will choose the 15-year fixed mortgage or choose an adjustable rate mortgage instead. If you had arranged an adjustable rate mortgage when rates were high, you may consider trading it for a fixed-rate loan when mortgage interest rates have dropped. You will then benefit from the lower rate for the remainder of the mortgage term.
In general, then, a fixed mortgage offers the advantage of knowing exactly what your payments will be, irrespective of interest rate fluctuations. The major disadvantages are being unable to take advantage of interest rate drops, and a limitation in the mortgage amount, particularly when rates are high. If you have questions about fixed rate loans, I can help, simply contact me directly or request a rate request using the FREE rate request form above!
Consumer Sentiment Jumps to Four Year High:
While historically low mortgage rates and attractive home prices are important to make the housing market attractive, it is actually how a consumers feels about the economy and their own situation that drives demand.
U.S. consumer sentiment rose to its highest level in more than four years in May as Americans stayed optimistic about the job market, while higher income households expected to see bigger wage increases, a survey released on Friday showed. The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment rose to 79.3 from 76.4 in April, topping forecasts for 77.8 and an initial May reading of the same.
It was the highest level since October 2007.
Half of all consumers said the economy had improved during the past year, while buying plans for vehicles and household durables also improved. The gauge of buying plans rose to 132 from 126.
It looks like a strong season for housing now that we have strong consumer sentiment and historically low rates and excellent home prices.
What Happened to Rates Last Week?
Mortgage backed securities (MBS) lost -18 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to increase slightly.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.
Another year has passed, and while the last 5 of them have been rough for the housing market, we’ve now seen two consecutive quarters with most states showing incremental appreciation. Cause for celebration? Perhaps not, yet this is beginning to look like stabilization and that of course is the first step towards recovery.
What’s working in favor of prospective home buyers?
In a word – Affordability – Since 1963, it has cost an average of approximately 43% of “per capita” income to finance the cost of a median priced home (20% down payment and prevailing 30 year fixed rate mortgage). Right now it’s less than half that cost, and in many areas the monthly housing payments are less than an equivalent rental.
You can lock in your mortgage cost for life – Imagine if you could have locked in the price of gas back in 2001 when it was only about $1.50 per gallon or less? Think about that the next time you’re standing at the pump filling your tank with $4 gas. How smart would you feel if you knew your cost was forever lower? When it comes to a place to live, that same kind of opportunity is staring us in the face right now. Record low prices and record low rates are here now and plentiful. The beauty of a 30 year fixed rate loan is that it’s a 30 year fixed rate loan. If you lock it in now, it will never go up.
There is still uncertainty – yet there is also clarity that comes from knowing where things stand at present such as rates & prices. Above all else, the state of the market doesn’t change the fact that we need a place to live. Choosing to purchase is one of two options. The other one is to rent or to continue living with family if that’s where you are now.
The trouble is – renting amounts to little more than paying your landlord’s mortgage and in the end, there is nothing to show for that. Living at home gets old at the same rate as we do. The day comes when it’s time to leave and there’s never been a less expensive opportunity to do that than now. At some point, rates will rise and so too will prices. Being ahead of or behind that curve is all dependent on the action you choose to take today.