How do I know if this is a good time to refi?
With the recent drop in interest rates, many consumers are asking, "is this the time to refi?" The decision is more complicated than "did my rate drop?" There are often many fees associated with refinances, and consumers need to calculate when a good time for them is. Mortgage applications rose over 8% last week.. and there is good reason for it.
When the Fed drops rates, most banks drop their rates on certain mortgages too. People that are locked into negative amortization or option ARM loans, where they aren't even covering their interest or had a teaser-rate loan, may be looking now to refinance.
In general, Home Equity Lines of Credit see rate drops the day after the Fed. How do you know if you should refi? Calculate the savings per month with the new rate, and ask your lender what the refi will cost you. Determine what the break-even point is in months - 6 months and you plan to stay a year? You get a net win! 12 months and you plan to move in the Spring? Keep that higher rate.
Option Adjustable Rate Mortgages, known as Pay Option ARMs, are the risky loans that let people pay less than the interest and accumulate mortgage principle. These tend to drop 30 to 90 days after a Fed rate drop. Margins always tend to lag the Fed rate. To figure out if you should refi, get a good faith estimate with all costs from the lender. Do the same analysis as for a HELOC. With the rate change, what is the savings per month? Then, divide the total cost of the refi into the savings, and you will get your break-even point in months. If you are planning to stay in your home longer than this number of months, you will save money.
Long term rates, 30 year fixed loans, generally remain flat and may even increase. I would not consider this a viable option right now.
Short term interest only loans, where the first 3, 5 or 7 years is held constant, will decrease. To figure out if you should refi, get a good faith estimate with all costs from the lender. With the rate change, what is the savings per month? Then, divide the total cost of the refi into the savings, and you will get your break-even point in months. If you are planning to stay in your home longer than this number of months, you will save money.
What are some intangibles to consider?
1. Is your mortgage stressing you out? Is the unknown tough to handle? If so, you might opt for a short term interest only loan or a fixed mortgage, even if the rate is higher.
2. Is your principle amount climbing faster than the appreciation rate? You may want to refinance even if the rate is the same, just to "stop the bleeding".
Thursday, January 24, 2008
Wednesday, January 23, 2008
Best & Worst Places to Buy?
Check out Dani's latest article on Entrepreneur.com!
http://www.entrepreneur.com/money/personalfinance/article189454.html.
What would you add to - or subtract from - this list.. and why?
Dani Babb
http://www.entrepreneur.com/money/personalfinance/article189454.html.
What would you add to - or subtract from - this list.. and why?
Dani Babb
Monday, January 21, 2008
Abandoned Homes cause BIG problems
With the wave of foreclosures hitting lenders, there is a new problem on the rise - houses abandoned by banks AND homeowners, and people left on the block getting hit with substantial value decreases as a result. An intense amount of crime sweeping into these suburban neighborhoods as vandals, thieves, drug dealers, prostitution rings, etc move into abandoned houses.
This is a forgotten, misunderstood component of foreclosure. Fights and legal battles are ensuing all across the nation about just who is responsible for these homes in limbo, being left to vandals and worse.
There are obvious signs that a home has been abandoned. The grass turns brown, eye-level weeds, the garage door becomes boarded up, signs indicating the home is bank owned - no trespassing... in some really bad cities, owners write "no piping" or "no aluminum" or "PVC only" because vandals are ripping the houses apart, bringing in trucks to haul away appliances, copper wiring, take piping out of the walls using sledge hammers, take mouldings, anything metal - you name it, it's being taken. Others are being turned into indoor marijuana farms.
Also, squatters begin to make fires in the homes to stay warm as it gets colder, sometimes burning them to the ground.
Other homes are being left to drug dealers and vandals, criminals running prostitution rings in the home and setting up shop.
Let's walk through it a bit to see how this happens.
1. First, the owner gets a notice of default. The owner often leaves the home - right then. Owners often would rather leave on their own terms than the banks.
If the owners don't leave then, they often wait until they get a notice of foreclosure proceedings.. then leave.
So at this point, the home is abandoned.
2. Foreclosure gives the bank the ability to take the home as collateral for the mortgage. This can take 6 to 12 months. In the meantime, the house sits. It becomes attractive to vandals, homeless, gangs, drug sellers, thieves, etc. This is outlined nicely in Business Week.
3. Ownership becomes an issue. Technically, in most states, the owner still owns the home while the lender decides what it is worth. They include legal costs of taking it through foreclosure (expensive), repairs, back unpaid taxes (a big problem right now), potential repairs if they cannot sell it as is, and the value of the home. They compare all of this to the value of the loan. In many cities, they cannot break even. The lender stops the foreclosure process. The title remains in the borrowers name!
4. The home becomes a problem. It begins to affect property values across the neighborhood. Some of the initial issues that become apparent is the water being shut off and lawns turning brown, pools turning green. Housing inspectors check property records and cite borrowers for violations, which can lead to fines and jail time. But, the borrower says in court he or she thought the bank took the house back.
5. At some point, officials begin to expand the definition of who exactly owns the home. In some states, prosecutors are taking banks that foreclose into court and seeking fines. If the house cannot be sold as it's so badly damaged, it may be demo'd.
Some ask, if the bank won't take care of the home and won't get any money from the home, why not let the owner continue to live in the house and at least take care of it until it can be sold on short sale? Good question. It seems a case of banks going through a process rather than using their heads. They affect property value throughout the entire neighborhood; just being within 150 to 200 yards of an abandoned house severely affects your own property value.
Dani
This is a forgotten, misunderstood component of foreclosure. Fights and legal battles are ensuing all across the nation about just who is responsible for these homes in limbo, being left to vandals and worse.
There are obvious signs that a home has been abandoned. The grass turns brown, eye-level weeds, the garage door becomes boarded up, signs indicating the home is bank owned - no trespassing... in some really bad cities, owners write "no piping" or "no aluminum" or "PVC only" because vandals are ripping the houses apart, bringing in trucks to haul away appliances, copper wiring, take piping out of the walls using sledge hammers, take mouldings, anything metal - you name it, it's being taken. Others are being turned into indoor marijuana farms.
Also, squatters begin to make fires in the homes to stay warm as it gets colder, sometimes burning them to the ground.
Other homes are being left to drug dealers and vandals, criminals running prostitution rings in the home and setting up shop.
Let's walk through it a bit to see how this happens.
1. First, the owner gets a notice of default. The owner often leaves the home - right then. Owners often would rather leave on their own terms than the banks.
If the owners don't leave then, they often wait until they get a notice of foreclosure proceedings.. then leave.
So at this point, the home is abandoned.
2. Foreclosure gives the bank the ability to take the home as collateral for the mortgage. This can take 6 to 12 months. In the meantime, the house sits. It becomes attractive to vandals, homeless, gangs, drug sellers, thieves, etc. This is outlined nicely in Business Week.
3. Ownership becomes an issue. Technically, in most states, the owner still owns the home while the lender decides what it is worth. They include legal costs of taking it through foreclosure (expensive), repairs, back unpaid taxes (a big problem right now), potential repairs if they cannot sell it as is, and the value of the home. They compare all of this to the value of the loan. In many cities, they cannot break even. The lender stops the foreclosure process. The title remains in the borrowers name!
4. The home becomes a problem. It begins to affect property values across the neighborhood. Some of the initial issues that become apparent is the water being shut off and lawns turning brown, pools turning green. Housing inspectors check property records and cite borrowers for violations, which can lead to fines and jail time. But, the borrower says in court he or she thought the bank took the house back.
5. At some point, officials begin to expand the definition of who exactly owns the home. In some states, prosecutors are taking banks that foreclose into court and seeking fines. If the house cannot be sold as it's so badly damaged, it may be demo'd.
Some ask, if the bank won't take care of the home and won't get any money from the home, why not let the owner continue to live in the house and at least take care of it until it can be sold on short sale? Good question. It seems a case of banks going through a process rather than using their heads. They affect property value throughout the entire neighborhood; just being within 150 to 200 yards of an abandoned house severely affects your own property value.
Dani
Monday, January 14, 2008
Property Tax Decline
In doing a story for local news tonight, I found out that the County of Orange has collected 48% less tax than they expected in property taxes. This is a big deal nationally now, too.
Throughout the country, counties are seeing lower than expected property tax revenues. This is due to several reasons:
1. Individuals prioritizing their higher mortgage payments over taxes
2. If a home is being foreclosed upon, owners are letting the bank worry about the taxes
3. As income is prioritized in terms of expenses, taxes are lower on the priority list
4. Lots of counties have not reassessed properties to their real values after the real estate drop in prices.
What is happening? Well some states are projecting revenue growth slowing from 12% in 2007/2008 to 3% in 2009/2010. This, coupled with lower sales tax revenue because people are spending less, could lead to significant state and county budget deficits.
What do homeowners need to know?
Tax liens take precedence in courts even over mortgage liens or trust deeds! Counties sell off tax liens to private investors, that often make between 16 and 23% profit. These investors can take title - essentially take back the home from the homeowner, if these taxes go unpaid.
Homeowners who aren't losing their homes must prioritize their tax payments to avoid steep penalties and the potential for tax liens being placed on their property. If the home isn't valued appropriately, homeowners should call their assessors office and find out how to document a claim for lower property valuation.
Dani
Throughout the country, counties are seeing lower than expected property tax revenues. This is due to several reasons:
1. Individuals prioritizing their higher mortgage payments over taxes
2. If a home is being foreclosed upon, owners are letting the bank worry about the taxes
3. As income is prioritized in terms of expenses, taxes are lower on the priority list
4. Lots of counties have not reassessed properties to their real values after the real estate drop in prices.
What is happening? Well some states are projecting revenue growth slowing from 12% in 2007/2008 to 3% in 2009/2010. This, coupled with lower sales tax revenue because people are spending less, could lead to significant state and county budget deficits.
What do homeowners need to know?
Tax liens take precedence in courts even over mortgage liens or trust deeds! Counties sell off tax liens to private investors, that often make between 16 and 23% profit. These investors can take title - essentially take back the home from the homeowner, if these taxes go unpaid.
Homeowners who aren't losing their homes must prioritize their tax payments to avoid steep penalties and the potential for tax liens being placed on their property. If the home isn't valued appropriately, homeowners should call their assessors office and find out how to document a claim for lower property valuation.
Dani
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