Time to Re-Finance or Buy a Home?
Time to Re-Finance or Buy a Home?
The Fed stated last week that it would buy $500 billion to $1.25 Trillion in Mortgage Backed Securities, and the Treasury laid out a plan yesterday where they would provide financing to investors in order to purchase these assets off the books of the banks.
Why are they doing this? First of all, nobody wants these assets. They are at the core of the problem in financial markets. These are the “toxic assets” that sit on the balance sheets of the banks with no buyers. No one will buy them in fear that these underlying loans will never be paid. These fears are confirmed with, high default rates and people walking away from their homes.
In addition, it helps the banks free up more capital in order for them to loan out more. It helps “unthaw’ the credit freeze, and get money in the economy circulating again. There is still a lot of credit worthy people having trouble getting credit.
Finally, it helps people re-finance and makes home purchasing more affordable. Millions of people are having trouble making their mortgage payments.
Stabilizing the real estate market is the key to stabilizing the economy and the banks. This is why keeping rates low in order to make homes affordable will help a lot. Re-financing will help make the banks profitable, keep people in their homes and give people more money to spend. These are all wins for the economy!
The Fed and Treasury are basically becoming the new Fannie Mae (FNM) and Freddie Mac (FRE) of the economy. They are becoming big players in the Mortgage Backed Securities market. And just like any market when you get a big player, a “big buyer” they will bid up the prices and therefore this will reduce the rates on the underlying product which in this case is mortgages, since they are in greater demand.
How does all this affect you? This is going to decrease mortgage rates even further and make re-financing a sensible thing to do for a lot of people. It will also make purchasing a home much more affordable as well.
Should you re-finance? With the Fed’s move last week, the 30 year mortgage is teetering right around 5% and once these purchases take place we could very easily sees rates around 4.5% and perhaps even 4% in a year’s time.
Unfortunately, re-financing is not free so the old rule of thumb that most people are familiar with still applies. If you can lower you rate by1%, re-financing will probably be worth it. If not, then the fees that you will have to pay will generally not make it worth your while.
Should you buy a home? One thing is for certain, don’t feel pressure to buy, because of these lower rates. There are a lot of people that will tell you (mainly real estate agents) to buy when rates are low, because you will have to pay more when they go up. There can be truth to this in certain real estate markets, but not this one.
There are about 5 million more houses out there then there are people that can afford these houses at these prices. The good news that sales were up yesterday was primarily from all the short sales and foreclosures.
When real estate prices are this unaffordable, (which they are right now in most parts of the country) then real estate tends to act like a bond and has inverse relationship to interest rate when they go up. Rates have come down, yet real estate prices have still come down as well. This is an “impulse buying tool” used to get people to buy.
In other words, if interest rates went up the prices for real estate would decrease in order to keep them near or close to the affordability rates.
Sincerely,
Bob O’Brien
Sr. Instructor
Time to ReFinance or Buy a Home - To learn more about this author, visit Bob O'Brien's Website.
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With the Fed’s bold moves last week, and the Treasury new plan made public yesterday in order to rid the bank of all their “toxic assets”. Is it time for you to re-finance your mortgage? Buy a Home? The Government certainly wants you to, and you should definitely be getting ready to evaluate these moves.
The Fed stated last week that it would buy $500 billion to $1.25 Trillion in Mortgage Backed Securities, and the Treasury laid out a plan yesterday where they would provide financing to investors in order to purchase these assets off the books of the banks.
Why are they doing this? First of all, nobody wants these assets. They are at the core of the problem in financial markets. These are the “toxic assets” that sit on the balance sheets of the banks with no buyers. No one will buy them in fear that these underlying loans will never be paid. These fears are confirmed with, high default rates and people walking away from their homes.
In addition, it helps the banks free up more capital in order for them to loan out more. It helps “unthaw’ the credit freeze, and get money in the economy circulating again. There is still a lot of credit worthy people having trouble getting credit.
Finally, it helps people re-finance and makes home purchasing more affordable. Millions of people are having trouble making their mortgage payments.
Stabilizing the real estate market is the key to stabilizing the economy and the banks. This is why keeping rates low in order to make homes affordable will help a lot. Re-financing will help make the banks profitable, keep people in their homes and give people more money to spend. These are all wins for the economy!
The Fed and Treasury are basically becoming the new Fannie Mae (FNM) and Freddie Mac (FRE) of the economy. They are becoming big players in the Mortgage Backed Securities market. And just like any market when you get a big player, a “big buyer” they will bid up the prices and therefore this will reduce the rates on the underlying product which in this case is mortgages, since they are in greater demand.
How does all this affect you? This is going to decrease mortgage rates even further and make re-financing a sensible thing to do for a lot of people. It will also make purchasing a home much more affordable as well.
Should you re-finance? With the Fed’s move last week, the 30 year mortgage is teetering right around 5% and once these purchases take place we could very easily sees rates around 4.5% and perhaps even 4% in a year’s time.
Unfortunately, re-financing is not free so the old rule of thumb that most people are familiar with still applies. If you can lower you rate by1%, re-financing will probably be worth it. If not, then the fees that you will have to pay will generally not make it worth your while.
Should you buy a home? One thing is for certain, don’t feel pressure to buy, because of these lower rates. There are a lot of people that will tell you (mainly real estate agents) to buy when rates are low, because you will have to pay more when they go up. There can be truth to this in certain real estate markets, but not this one.
There are about 5 million more houses out there then there are people that can afford these houses at these prices. The good news that sales were up yesterday was primarily from all the short sales and foreclosures.
When real estate prices are this unaffordable, (which they are right now in most parts of the country) then real estate tends to act like a bond and has inverse relationship to interest rate when they go up. Rates have come down, yet real estate prices have still come down as well. This is an “impulse buying tool” used to get people to buy.
In other words, if interest rates went up the prices for real estate would decrease in order to keep them near or close to the affordability rates.
Sincerely,
Bob O’Brien
Sr. Instructor
Time to ReFinance or Buy a Home - To learn more about this author, visit Bob O'Brien's Website.
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Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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