15 Year Fixed Rate Loan...Is it Right for Me?

A 15-Year Fixed Rate loan works well for borrowers who are nearing retirement and want to be debt-free when they get there. Because payments in a 15-year scenario are amortized over half the length of a 30-Year Fixed Rate loan, the monthly payments will be significantly higher in comparison. This is an important factor to consider before committing to a 15-year loan. However, the interest rate on a 15-Year Fixed Rate loan will be lower for the same reason - financing for 15 years costs much less than financing for 30 years.

If a borrower is 50 years old and would like to be debt-free when retiring at age 65, then a 15-Year Fixed Rate loan will allow the borrower to meet that goal as far as their mortgage is concerned. However, if there is any question as to whether the borrower will be able to commit to the higher monthly payment, the alternative is to take a 30-Year Fixed Rate mortgage and make pre-payments with some consistency. If the borrower has the discipline to make those extra payments whenever possible, he or she can still attempt to meet the same goal.

I prefer to educate my borrowers so they can compare the benefits of each program and have the opportunity to review loan options with their financial advisors.

Rates have been so LOW... Hours have been so LONG... I needed a weekend of R&R!!

My Brother's Steve and Mike and the "Catch of the Day!"



A Remora, these crazy little creatures can grow up to 3 feet long!




My Mahi-Mahi! I still have my phone in my hand for those important calls!
A Loan Officer should always be available to their clients!!!




We are home and we have dinner!!



Loan Points - Are Loan Points a Tax Deduction?

Planning to buy a new home around year’s end? Try to wrap things up by Dec. 31. The reward for meeting that deadline is a deduction for this year if you have to finance the purchase with a mortgage loan on which you pay "points."
 
How Do Points Work?
 

What are points? They are additional, up-front fees, instead of higher interest rates. When money is scarce, lenders routinely charge points, also known by such designations as "loan origination fees," “premium fees,” or "loan discount;” one point equals one percent of the amount borrowed.

How Do Points Qualify as a Tax Deduction?
 
The key to points being 100 percent deductible in the year of payment, along with your other home-mortgage interest, is that you pay the points to obtain a specific type of loan. It must be a loan to buy, build or improve (as when you add or remodel a room) your main home, that is, your year-round home, as opposed to, say, a second home that you use as a vacation retreat or property for which you charge rent.
 
What Does the IRS Say About Loan Points?
 
Here is how the IRS reads the law when you refinance an existing mortgage. Generally, refinancing points are not deductible in full in the year you pay them unless they are paid in connection with the purchase or improvement of a home. This is true even if the new mortgage is secured by your main home. Translation: Refinancers must write points off in dribs and drabs over the life of the loan — divide the points paid by the number of monthly payments to be made over the life of the loan.
To illustrate, you pay $4,000 in points and will make 360 monthly payments on a 30-year mortgage. Your allowable deduction is $11.11 per payment, or a total of $133.33 for 12 payments.
This IRS allocation requirement has been backed up by a 1988 Tax Court decision, though the Eighth Circuit Court of Appeals rejected the allocation rule when points are paid on a long-term mortgage that replaces a short-term loan with a balloon payment.
When refinancing a second time, or if the loan is paid off early, take a deduction in the payoff year for all remaining points not yet deducted.
The law makes it easier for the IRS to check on whether a homeowner properly deducts points. The lender has to report to the IRS the amount of points, other than refinancing points, paid directly by a borrower. The amount must be listed on Form 1098. Like 1099 forms from banks and brokerage firms that report dividend and interest information, 1098 forms are sent to the IRS for use by its computers, which compare 1098 figures with amounts listed as deductions for points on Schedule A of Form 1040.
 
How About Seller Paid Points?
 
Other complications kick in when you are the seller and pay points to induce the lender to arrange financing for the buyer. You cannot count the points as interest. But as a selling expense, they reduce the amount of any gain you realize from the sale and are deductible by the buyer, who then must do some paperwork. He or she has to subtract the amount paid from the purchase price in computing the home’s basis — the figure used to determine gain or loss on the sale of an asset.
 
Are Prepayment Penalties Tax Deductible?
 
Be mindful of another wrinkle if you prepay the mortgage on a principal residence and are hit with a hefty penalty (a percentage of the unpaid balance) for the privilege of paying it ahead of time. No matter what the lender calls it, that extra charge is fully deductible home mortgage interest.
 
 
Julian Block is an attorney, syndicated columnist and former IRS special agent (criminal investigator). This article was excerpted with permission from the pamphlet: "The Home Seller's Guide to Tax Savings: Simple Ways For Any Seller to Lower Taxes To The Legal Minimum," which can be ordered by sending $19.95 for a postpaid copy to J. Block, 3 Washington Sq., #1-G, Larchmont, NY 10538.

What a rate cut means to homeowners

How to keep ahead of rates and lower them when your card issuer hikes them up.

By Gerri Willis, CNN

December 10 2007: 4:09 PM EST

NEW YORK (CNNMoney.com) -- Most analysts see the Fed cutting rates for the third consecutive time tomorrow. What investors don't know is just how deep the Fed will cut. What will this mean for your mortgage? Here's what you need to know.

 

1. Long-term mortgages won't move much

 

Right now investors are split on whether the Fed will lower the funds rate by another quarter point to 4.25% or cut it by a half-point, to 4%. But the fact is, there's not much doubt that the Fed will cut rates. And because of that, the market has already priced that in, says Mike Larson with moneyandmarkets.com. 30-year fixed rates have been falling for some time.
In July, the average rate on a 30-year fixed mortgage was 6.66%. Last week, it was 5.82%. So, a rate cut won't really do very much to lower long-term rates. They're already low. So if you want to refinance, it's a good time to start shopping.

 

2. ARM resets not as severe

 

The Fed move tomorrow may be more significant to borrowers with adjustable-rate mortgages than what the government is doing in freezing subprime interest rates. That's according to Greg McBride at bankrate.com. Most resets on adjustable rate mortgages will reset in the middle of next year. And the fact that the Fed is cutting rates, will make these resets more manageable for prime borrowers, which aren't covered by the foreclosure-prevention plan announced last week.
So, if you had an adjustable rate mortgage that started at 4.5% and your rate was going to reset at 7.5%, you may only face a rate reset of 5.7%.

 

3. HELOCS will be cheaper

 

Home equity lines of credit will be cheaper if the Fed does cut rates. It may take up to three billing cycles to see the actual decrease in your bill. If you need to consolidate debts or you need money for medical bills or college expenses, you may consider shopping around for a HELOC since lenders are likely to price in the Fed's cut immediately.

 

4. Keep it in perspective

 

The take away here is that the Fed is on your side. This rate cut won't be the silver bullet that fixes the housing market. But it's apparent that Fed is in a rate cutting mode, and the cumulative effect on that will help consumers. There are a number of things the Federal Reserve can't control, like the impact of the credit crunch.

You need to look at inflation, job growth and the overall health of the economy as indicators of when this housing crisis may subside. When we get down to it, there are two issues here, according to McBride. That's inventory of houses on the market and the affordability of houses. Interest rate cuts won't do much to make that go away. Sometimes, it's just a matter of time. 

 

New FHA Changes

It's official: FHA was just given authority to change the amount charged to borrowers for both the Up Front and the Annual Mortgage Insurance premiums...and change them they did.

This will impact how you write up your FHA purchase agreements, as well as any monthly payments you might estimate for clients – so I wanted to get word on the new guidelines to you right away.

The new premium amounts will be effective on all FHA case numbers assigned on or after October 4, 2010 – so your clients that already have an FHA transaction in process won't be impacted, but new FHA clients who come into process on or after October 4th will be subject to the new guidelines.

Here's what you need to know:

• The Up Front Mortgage Insurance premium is now 1.0 % for all standard FHA programs, including on purchase money mortgages. This is a significant change from the 2.25% Up Front Mortgage Insurance typically in place on FHA 30 year Fixed Rate transactions.
• ...but don't break out the party hats just yet – the Annual Mortgage Insurance premium is now .90% for LTV's greater than 95% on 30 year loans...and this is also a significant change from the .55% we've been accustomed to using when we calculate the monthly payment.
• There are different annual premium amounts for lower loan to values and for 15 year terms, so call me for more details if needed. And by the way, FHA now has the authority to raise the Annual Mortgage Insurance premium “at will”...up to 1.55%...so I'll be keeping closely tuned to any changes and will be sure to keep you informed.

And if you have any other questions about how these changes will impact your clients, call or email me anytime. I'm always happy to review your clients' situations, and help them secure the home of their dreams.