Provided By Trulia.com
Adjustable Rate Mortgages, or ARMs, got a bad name in the housing crisis that culminated around 2005. Inherently, an ARM is neither a good nor a bad thing—just a legitimate financial instrument that can be used or abused, like a bottle of wine or a sportsmans rifle.
With an ARM, the interest rate changes periodically, usually in some relation to an index such as COFI, the Cost of Funds Index; or LIBOR, the London Interbank Offered Rate. You can find both of these popular indices published every day in the Wall Street Journal.
Initially, lenders often charge lower interest rates for ARMs than for fixed-rate mortgages. This makes the ARM easier to afford, at first, than a fixed-rate mortgage for the same amount. But upward-adjusting rates were the downfall of many homeowners who didn't understand the loan terms they agreed to. Unexpected rate increases led to a common emotional state known as "payment shock."
There are several types of ARMs, including hybrids, with names like 3/1 and 5/1. The first number (in this case, 3 or 5) tells you how many years until the first interest rate adjustment occurs. The second number (the 1) tells you how often the rate will adjust thereafter. There are interest-only ARMs, which allow you to pay only the interest for a set period, perhaps as long as 10 years, and payment-option ARMs, where you choose among various payment amount options.
At a minimum, you should understand the "moving parts" of any ARM:
The initial rate and payment
The initial rate and payment amount on an ARM will remain in effect for a limited period ranging from just one month to five years or more. Rates in the later years of a loan may vary greatly from earlier years, even if prevailing interest rates are stable.
The adjustment period
The interest rate of an ARM, along with the monthly payment, may change monthly, quarterly, yearly, or after three, four, or five years. The period between rate changes is called the adjustment period. A loan with an adjustment period of one year is called a one-year ARM and its interest rate and payment can change annually. A loan with a three-year adjustment period is called a three-year ARM.
The index
Lenders base ARM rates on a variety of indexes, such as COFI and LIBOR, mentioned earlier. If the index rate moves up, so does your interest rate, and usually, so does your monthly payment. If the index rate goes down, your monthly payment could go down, but not all ARMs adjust downward. The terms are found in the fine print of the loan. Your payments will also be affected by "caps" and perhaps by lower limits affecting how high or low your rate can go.
The margin
To set the interest rate on an ARM, lenders add a few percentage points to the index rate. That addition is called the margin, and in most cases it's constant over the life of the loan. The "fully indexed" rate equals the margin plus the full index. In a period when the loan rate is less than the fully indexed rate, the rate is said to be "discounted." For example, if the lender uses an index that currently is 4.5 percent and adds a 2.5 percent margin, the fully indexed rate is 7 percent.
If the index on this loan rose to 5.5 percent, the fully indexed rate would be 8 percent. (5.5 plus 2.5 percent) A lender may base the amount of the margin in part on your credit history and the better your credit, the lower the margin. In comparing ARMs, look at both the index and margin for each program.
Interest Rate Caps
Interest rate caps place a limit on the amount your interest rate can increase. Interest caps can take two forms:
A periodic adjustment cap limits the amount the interest rate can adjust up or down from one adjustment period to the next after the first adjustment. A typical sort of cap per period is one percent. Suppose your initial rate is 5 percent and your periodic adjustment cap is one percent. Even if the underlying index (such as LIBOR) jumps by several percent, your new rate can only go to 6 percent in that year.
A lifetime cap limits the interest-rate increase over the life of the loan. All ARMs must have a lifetime cap, by law. Suppose your ARM starts out with a 6 percent rate and the loan has a 12 percent lifetime cap. The rate can never exceed 12 percent. Even if the underlying index rate increases 1 percent each year for a decade, your highest possible rate is 12 percent.
Payment caps
In addition to interest rate caps, many ARMs, including so-called payment-option ARMs, limit the amount your monthly payment may increase at the time of each adjustment. If your loan has a payment increase cap of 7 percent, your monthly payment won't increase more than that amount even if interest rates rise more. But any interest you don't pay will be added to the loan balance. A payment cap can limit the increase to your monthly payments but can also add to the amount you owe. (This is called negative amortization.)
For more information about mortgages give us a call at 972.772.7000 or email us at frontdesk552@kw.com.
Friday, November 11, 2011
Wednesday, November 9, 2011
Five Great Things about Homeownership
Provided By Realty Times
If you've been on the fence about homeownership, now is the time to take a leap! Don't let the negative press deter you from one of life's greatest joys.
Take a look at five short and sweet reasons that homeownership is great!
1. Equity. When you pay rent, you never see that money again. It is lining the landlord's pocket. Yes, buying a home may come with some hefty initial costs (downpayment, closing costs, inspections), but you will make that money back over time in equity built in the home. Historically, homes appreciate by about 4 to 6 percent a year. Some areas are still experiencing normal appreciation rates. For the areas that have seen harder times since the recession, experts feel that the housing market will recover. Homeownership is about building long-term wealth. A home bought for $10,000 in 1960 is most likely worth 10 times that in today's market.
2. Relationships: Renters tend to see their neighbors come and go quickly. Some people sign year leases while others are in the community for much shorter terms. Apartment complexes also tend to have less common shared space for people to meet, greet, and socialize. Homeowners, however, have yards, walking trails, or community pools and clubhouses where they can get to know each other. Neighbors stay put much longer (at least three to five years if they hope to recoup their closing costs). This means more time to develop relationships. Research has shown that people with healthy relationships have more happiness and less stress.
3. Predictability: Well, as long as you have a fixed-rate term on your mortgage it's predictable. Most people buying homes today know that a fixed-rate is the way to go. This means your payment amount is fixed for the life of the term. If your mortgage payment is $500 today, then it will still be $500 a month in 10 years. This allows for people to budget and make solid financial plans. The sub-prime crisis meant many homeowners with adjustable rate mortgages saw their monthly payments rise and then rise some more. Homeownership, though, generally comes with a predictable table of expenditures. Even the big purchases are predictable. You know most roofs last just 15 years (or so). You know that each year you'll need to pay for the gutters to be cleaned, and so on.
4. Ownership: Okay, this is a given. Homeownership means you "own" your home. That comes with some incredible perks, though! You can renovate, update, paint, and decorate to your heart's desire. You can plant trees, install a pool, expand the patio, or do holiday decorating that would rival the Kranks (if the HOA allows!). The bottom line is this is your home and you can personalize it to your taste. Most renters are stuck with the same beige walls and beige carpet that has been standard apartment decor for 20 years. Now is your chance to let your home speak!
5. Great Deals: It's a great time to buy. Interest rates are at historic lows. We're talking 4.0 percent instead of 6.0 or higher. This means big savings for today's buyers. Home prices have also taken a dip since the recession, which means homes are more affordable than ever. If you have steady income and cash for a downpayment, then be sure to talk to your local real estate agent about what homes in your area could be a fit for you.
Homeownership can be a real joy. It's time to get off the fence and into a home that is right for you!
If you've been on the fence about homeownership, now is the time to take a leap! Don't let the negative press deter you from one of life's greatest joys.
Take a look at five short and sweet reasons that homeownership is great!
1. Equity. When you pay rent, you never see that money again. It is lining the landlord's pocket. Yes, buying a home may come with some hefty initial costs (downpayment, closing costs, inspections), but you will make that money back over time in equity built in the home. Historically, homes appreciate by about 4 to 6 percent a year. Some areas are still experiencing normal appreciation rates. For the areas that have seen harder times since the recession, experts feel that the housing market will recover. Homeownership is about building long-term wealth. A home bought for $10,000 in 1960 is most likely worth 10 times that in today's market.
2. Relationships: Renters tend to see their neighbors come and go quickly. Some people sign year leases while others are in the community for much shorter terms. Apartment complexes also tend to have less common shared space for people to meet, greet, and socialize. Homeowners, however, have yards, walking trails, or community pools and clubhouses where they can get to know each other. Neighbors stay put much longer (at least three to five years if they hope to recoup their closing costs). This means more time to develop relationships. Research has shown that people with healthy relationships have more happiness and less stress.
3. Predictability: Well, as long as you have a fixed-rate term on your mortgage it's predictable. Most people buying homes today know that a fixed-rate is the way to go. This means your payment amount is fixed for the life of the term. If your mortgage payment is $500 today, then it will still be $500 a month in 10 years. This allows for people to budget and make solid financial plans. The sub-prime crisis meant many homeowners with adjustable rate mortgages saw their monthly payments rise and then rise some more. Homeownership, though, generally comes with a predictable table of expenditures. Even the big purchases are predictable. You know most roofs last just 15 years (or so). You know that each year you'll need to pay for the gutters to be cleaned, and so on.
4. Ownership: Okay, this is a given. Homeownership means you "own" your home. That comes with some incredible perks, though! You can renovate, update, paint, and decorate to your heart's desire. You can plant trees, install a pool, expand the patio, or do holiday decorating that would rival the Kranks (if the HOA allows!). The bottom line is this is your home and you can personalize it to your taste. Most renters are stuck with the same beige walls and beige carpet that has been standard apartment decor for 20 years. Now is your chance to let your home speak!
5. Great Deals: It's a great time to buy. Interest rates are at historic lows. We're talking 4.0 percent instead of 6.0 or higher. This means big savings for today's buyers. Home prices have also taken a dip since the recession, which means homes are more affordable than ever. If you have steady income and cash for a downpayment, then be sure to talk to your local real estate agent about what homes in your area could be a fit for you.
Homeownership can be a real joy. It's time to get off the fence and into a home that is right for you!
Monday, November 7, 2011
Sharing our Table
Dear Rockwall Community,
We are now accepting non perishable food donations for families in need in.
Help us stuff the Rockwall Food Pantry...because no one should go hungry!
*Chili
*Soups
*Canned Goods
*Boxed Items (containing meats)
*Cereals
*Packaged Fruits
Drop off box is located inside the entrance of Keller Williams Realty. For more information please contact us at 972.772.7000 or email us at frontdesk552@kw.com.
"Thanksgiving, after all, is a word of action."
-W.J. Cameron
We are now accepting non perishable food donations for families in need in.
Help us stuff the Rockwall Food Pantry...because no one should go hungry!
*Chili
*Soups
*Canned Goods
*Boxed Items (containing meats)
*Cereals
*Packaged Fruits
Drop off box is located inside the entrance of Keller Williams Realty. For more information please contact us at 972.772.7000 or email us at frontdesk552@kw.com.
"Thanksgiving, after all, is a word of action."
-W.J. Cameron
Friday, November 4, 2011
You Can't Keep A Good Homebuyer Down
Provided By Realty Times
An estimated 2 million home buyers are poised to take the plunge just as soon as the economy returns from the deep.
That's because Americans still place a high value on homeownership, but qualifying for a mortgage and raising a down payment in an economy that won't produce jobs, keeps many of them sitting on the fence.
Eighty-nine percent of owners and 59 percent of renters feel that homeownership is important to the American family while 87 percent of owners and 73 percent of renters feel homeownership is an economic cornerstone, according to Hanley Wood's Housing 360 Survey.
Indeed, housing, including shelter itself, household operations, insurance, fuels and utilities, water, sewage and trash services and furnishings, among other expenditures, account for about 40 percent of the Consumer Price Index, an index of consumer expenditures, according to the U.S. Bureau of Labor Statistics.
Approximately one in three renters and about one in five existing homeowners think it's a good time to buy a home and plan to make a move to buy in the next two years, according to the survey.
The survey was electronically delivered to homeowners and renters from a national sample of adults 20 years of age and older in June to early July 2011 resulting in 3,005 results, including 1,954 homeowners and 1,051 renters.
"We thought people would be soured after watching home values fall but instead we found the typical American still places high value on homeownership," said Frank Anton, CEO of Hanley Wood a media company and data research outfit serving the housing and construction industries.
"We found this holds across all demographic groups and across the country, even in hard-hit places like Nevada and Arizona where there have been 50 percent or more declines in value. The increase in the rise of rental rates in many markets is one factor driving people to consider buying," Anton added.
Survey findings indicate as many as two million potential home buying consumers are waiting to jump into the market when the time is right.
Home buyers and renters said there is no great urgency to buy, due to soft economic conditions. Many of them are satisfied with perching on the fence, for now.
They are perched trying to determine how to overcome the challenges of stiff underwriting and, even though some home prices are half what they were a half decade ago, it's also tough coming up with enough cash for a down payment and enough left over to show lenders they are viable home loan holders.
"There are obstacles in the way of home buying. The over-correction in the mortgage market is a drag on the process. We've gone from one extreme to the other and it's stalling the housing market and therefore the economy," said Kent W. Colton, president of The Colton Housing Group and senior fellow at Harvard University Joint Center for Housing Studies.
The survey covered 70 questions relating to the decision-making process and attitudes on homeownership, renting, remodeling, financing, home buying, gasoline prices, household relationships, and retirement planning. Sixty two percent of respondents were first-time homeowners.
The survey also found:
• Seventy-two percent of owners and 59 percent of renters think now is a good or very good time to buy.
• Twenty-nine percent of owners and 12 percent of renters would prefer to buy a new home; 34 percent of owners and 41 percent of renters would prefer to buy an existing home. People prefer new homes because they are new and there is less maintenance. They prefer existing homes because they are more affordable and they want to live in an existing community.
• Doubling up/multi-generational trends have increased with 30 percent of respondents saying they've "doubled up" and live with adult children or parents.
• It's a good time to remodel. Forty-two percent of owners say now is a good time to remodel. Top remodeling priorities are maintenance and energy efficiency. Most homeowners will pay for remodeling from personal savings.
• Retiring in place remains popular with 60 percent of homeowners planning to stay in their current home for their entire retirement.
Being a homebuyer can be stressful, let us work for you and eliminate the stress! Give us a call at 972-772-7000 or email us at frontdesk552@kw.com.
An estimated 2 million home buyers are poised to take the plunge just as soon as the economy returns from the deep.
That's because Americans still place a high value on homeownership, but qualifying for a mortgage and raising a down payment in an economy that won't produce jobs, keeps many of them sitting on the fence.
Eighty-nine percent of owners and 59 percent of renters feel that homeownership is important to the American family while 87 percent of owners and 73 percent of renters feel homeownership is an economic cornerstone, according to Hanley Wood's Housing 360 Survey.
Indeed, housing, including shelter itself, household operations, insurance, fuels and utilities, water, sewage and trash services and furnishings, among other expenditures, account for about 40 percent of the Consumer Price Index, an index of consumer expenditures, according to the U.S. Bureau of Labor Statistics.
Approximately one in three renters and about one in five existing homeowners think it's a good time to buy a home and plan to make a move to buy in the next two years, according to the survey.
The survey was electronically delivered to homeowners and renters from a national sample of adults 20 years of age and older in June to early July 2011 resulting in 3,005 results, including 1,954 homeowners and 1,051 renters.
"We thought people would be soured after watching home values fall but instead we found the typical American still places high value on homeownership," said Frank Anton, CEO of Hanley Wood a media company and data research outfit serving the housing and construction industries.
"We found this holds across all demographic groups and across the country, even in hard-hit places like Nevada and Arizona where there have been 50 percent or more declines in value. The increase in the rise of rental rates in many markets is one factor driving people to consider buying," Anton added.
Survey findings indicate as many as two million potential home buying consumers are waiting to jump into the market when the time is right.
Home buyers and renters said there is no great urgency to buy, due to soft economic conditions. Many of them are satisfied with perching on the fence, for now.
They are perched trying to determine how to overcome the challenges of stiff underwriting and, even though some home prices are half what they were a half decade ago, it's also tough coming up with enough cash for a down payment and enough left over to show lenders they are viable home loan holders.
"There are obstacles in the way of home buying. The over-correction in the mortgage market is a drag on the process. We've gone from one extreme to the other and it's stalling the housing market and therefore the economy," said Kent W. Colton, president of The Colton Housing Group and senior fellow at Harvard University Joint Center for Housing Studies.
The survey covered 70 questions relating to the decision-making process and attitudes on homeownership, renting, remodeling, financing, home buying, gasoline prices, household relationships, and retirement planning. Sixty two percent of respondents were first-time homeowners.
The survey also found:
• Seventy-two percent of owners and 59 percent of renters think now is a good or very good time to buy.
• Twenty-nine percent of owners and 12 percent of renters would prefer to buy a new home; 34 percent of owners and 41 percent of renters would prefer to buy an existing home. People prefer new homes because they are new and there is less maintenance. They prefer existing homes because they are more affordable and they want to live in an existing community.
• Doubling up/multi-generational trends have increased with 30 percent of respondents saying they've "doubled up" and live with adult children or parents.
• It's a good time to remodel. Forty-two percent of owners say now is a good time to remodel. Top remodeling priorities are maintenance and energy efficiency. Most homeowners will pay for remodeling from personal savings.
• Retiring in place remains popular with 60 percent of homeowners planning to stay in their current home for their entire retirement.
Being a homebuyer can be stressful, let us work for you and eliminate the stress! Give us a call at 972-772-7000 or email us at frontdesk552@kw.com.
Wednesday, November 2, 2011
Is a Smaller Home for You?
Provided By Realty Times
Studies over the past few years have shown a solid trend regarding home sizes. Buyers today want smaller homes with smaller price tags. During the boom era in the mid-2000's, homeownership was about McMansions and spacious sprawls. The recent recession and continued ailing recovery have made many families rethink their budgets and lifestyles. A 9.1 percent unemployment rate hasn't "helped."
So, this question is posed. How much space does your family really need? This isn't a simple cut and dry question. Every family has different needs and dynamics.
Let's put things into perspective, though. Having a large, show-stopper home doesn't equate with family happiness. Many families in centuries past lived happily in one room cabins and small-scale homes.
There are social benefits to sharing tighter quarters. Some families feel that smaller homes forces more together time, which means more time for bonding and strengthening relationships.
Smaller homes mean reduced costs across the board. Let's examine these for a moment. Property taxes are based on the value of your land and home. While more prestigious neighborhoods and homes within city limits typically pay higher taxes, remember that a smaller home in that same prestigious neighborhood will pay a smaller dollar amount in taxes each year. Maintenance costs are also lower. It costs much less to replace a roof on a 1,000 square foot house than it does on a 6,000 square foot one!
The same goes for home insurance and, let's not forget, the actual purchase price of the home. Reduced size means reduced costs.
Perhaps the most important item is reduced energy costs. Smaller homes take less energy (and money) to heat and cool. Plus, there are fewer rooms and that means fewer lights to be left on!
Today's standard home, according to recent statistics from the Census Bureau’s Survey of Construction, is 2,150 square feet. This is down considerably from the boom era seen just 5 or 6 short years ago.
These standard houses have 2.5 baths and 3 bedrooms. Can your children share a bedroom? You bet. It can teach responsibility, sharing, and how to get along with others. These are all great lessons to learn as a child.
These standard houses also feature a garage, central air, a fireplace, separate dining room, and three miscellaneous rooms. This doesn't sound like a one room shack! It's simply an adjustment from the McMansions that boasted media rooms, exercise rooms, 5+ bedrooms, and a bathroom for every member of the family.
Just 60 years ago, when many people's grandparents or parents were first entering the housing market, the average home was just 1,000 square feet. Quaint and charming, these houses made warm and loving homes.
If you're thinking of entering the housing market and are feeling trapped by shrinking budgets, just remember that smaller houses can be just as charming, functional, and full of love!
If you are looking at home options give us a call at 972-772-7000 or email us at frontdesk552@kw.com.
Studies over the past few years have shown a solid trend regarding home sizes. Buyers today want smaller homes with smaller price tags. During the boom era in the mid-2000's, homeownership was about McMansions and spacious sprawls. The recent recession and continued ailing recovery have made many families rethink their budgets and lifestyles. A 9.1 percent unemployment rate hasn't "helped."
So, this question is posed. How much space does your family really need? This isn't a simple cut and dry question. Every family has different needs and dynamics.
Let's put things into perspective, though. Having a large, show-stopper home doesn't equate with family happiness. Many families in centuries past lived happily in one room cabins and small-scale homes.
There are social benefits to sharing tighter quarters. Some families feel that smaller homes forces more together time, which means more time for bonding and strengthening relationships.
Smaller homes mean reduced costs across the board. Let's examine these for a moment. Property taxes are based on the value of your land and home. While more prestigious neighborhoods and homes within city limits typically pay higher taxes, remember that a smaller home in that same prestigious neighborhood will pay a smaller dollar amount in taxes each year. Maintenance costs are also lower. It costs much less to replace a roof on a 1,000 square foot house than it does on a 6,000 square foot one!
The same goes for home insurance and, let's not forget, the actual purchase price of the home. Reduced size means reduced costs.
Perhaps the most important item is reduced energy costs. Smaller homes take less energy (and money) to heat and cool. Plus, there are fewer rooms and that means fewer lights to be left on!
Today's standard home, according to recent statistics from the Census Bureau’s Survey of Construction, is 2,150 square feet. This is down considerably from the boom era seen just 5 or 6 short years ago.
These standard houses have 2.5 baths and 3 bedrooms. Can your children share a bedroom? You bet. It can teach responsibility, sharing, and how to get along with others. These are all great lessons to learn as a child.
These standard houses also feature a garage, central air, a fireplace, separate dining room, and three miscellaneous rooms. This doesn't sound like a one room shack! It's simply an adjustment from the McMansions that boasted media rooms, exercise rooms, 5+ bedrooms, and a bathroom for every member of the family.
Just 60 years ago, when many people's grandparents or parents were first entering the housing market, the average home was just 1,000 square feet. Quaint and charming, these houses made warm and loving homes.
If you're thinking of entering the housing market and are feeling trapped by shrinking budgets, just remember that smaller houses can be just as charming, functional, and full of love!
If you are looking at home options give us a call at 972-772-7000 or email us at frontdesk552@kw.com.
Subscribe to:
Posts (Atom)