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U.S. Treasury Bonds |
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Maturity |
Yield |
Last
Week |
Last
Month |
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5 Year |
4.36 |
4.43 |
4.54 |
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10 Year |
4.45 |
4.51 |
4.60 |
|
30 Year |
4.65 |
4.71 |
4.79 |
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Treasury Market Summary:
The treasury market was a slacker today,
sitting lower
throughout the session
in action that was sluggish, like a wet sponge.
There was a late session push toward unchanged
after St.
Louis's Poole made remarks to the effect that
interest rates are "about where they need to
be," but that didn't last as the comment was
book-ended by positive remarks concerning 3.5%
GDP this year & additional booster comments on
productivity. Option
expiration offered some activity & helped to
weigh on prices, although there was little
reaction to the
big miss on durable goods
early. The
economic release
calendar perks-up some next week,
with a batch of data on the back-end, but it
does not include the payrolls report (hits the
following week) but should still offer some
leverage for action. The market will also see
some month-end activity come in. The
curve sat in
inverted territory
but saw a late push from -15.7 back to -14.8 on
the 2-10-yr yield spread, but the dominant trend
remains deeper inversion. The week ahead will
be relatively busy with
housing sales, a Q4 GDP revision, ISM indices,
sentiment numbers & consumer confidence
print among several other mid-low tier series.
The dollar was mixed this week shaving gains
against the yen to close out -1.3% lower at
116.90 after highs of 118.99 while managing to
hold higher against the euro at 1.1874 up 0.6%
after battling back from lows of 1.1975 early
on. Spot gold continued its climb hitting 559.05
(+10.21) while crude oil jumped to 62.91
(+2.37). The Fed calendar is reasonably light
next week with NY's Geithner & Chicago's Moskow
on Tues, Gov Kohn on Wed, Gov Olson on Thurs &
VC Ferguson on Fri. |
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Economic Indicators for this week that could
impact the mortgage or real estate markets
include...
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Major Mortgage Mistakes |
Just as there is no neighborhood that is right for everyone and no single home
that is perfect for every buyer, there is no one mortgage that will be the best
for each and every home buyer. Each buyer's situation will be, to some degree,
unique, and thus their mortgage needs will vary. This does not mean, though,
that the mortgage selection process is an easy one. There are a number of
situations where mistakes and errors can--and frequently do--occur. Mistakes
made in the mortgage process can cause everything from minor annoyances up to,
and including, financial disaster, so the potential for these mistakes should be
taken very seriously.
To avoid mortgage mistakes, the very first thing that any home buyer must do is
to clearly establish the attitude that they--and only they--will be responsible
for the payment of the mortgage. Not the lender, not the Real Estate Agent, not
friends or relatives. Therefore, any and all decisions should be first and
foremost personal ones, and secondly, rooted in common sense.
Are many home buyers currently making major mortgage mistakes? We think the
evidence is fairly clear, that many are, in fact, making mistakes as evidenced
by the fact that last year saw the highest level of home foreclosures in
history. (Higher than in much deeper and longer recessions, higher than in
periods of much higher unemployment). We see this as absolute proof that many
home buyers are making big errors as they examine and choose mortgages.
MISTAKE #1: Choosing the Wrong Mortgage
It is easy to make an error here, if only because there is such a vast selection
of mortgage plans from which to choose. Common sense, though, should prevail
here. For example, choosing a 30-year mortgage when you plan to retire (and
move) in 10 years. Securing a fixed-rate mortgage with high closing costs when
you are going to be transferred in 2 1/2 years is another example. Another
mistake (potentially a budget-busting one) would be to select an adjustable-rate
loan (especially in this historically low interest rate environment) when you
don't expect your income to take a large jump in the future. Or, perhaps, the
biggest "wrong mortgage" of all--getting a large mortgage when you know that 1
of the 2 incomes needed to support it will be going away in the future.
The key to selecting the right mortgage is to find the loan that fits your
personal budget and situation, rather than trying--or worse, hoping--to have
your budget and situation magically conform to the mortgage. The road to
financial ruin is littered with examples of buyers who did not do the research
necessary to ensure that they selected a mortgage that was a good fit. Take your
time, analyze your situation, get several opinions and use your common sense.
MISTAKE # 2: Letting Qualifying Ratios Get Out of Hand
"The old rules don't apply anymore." We've heard these words so often that it is
about to make us crazy. We heard them during the stock market run-up of the
1990s, when stock prices had no connection with reality. We heard the words in
1999 and 2000, when businesses that had no reason for existing drew accolades
and admiration from the business press and the American public. Strange that it
now looks as though the old rules--like proper valuation and smart business
plans--DO apply.
Now we are hearing the same kind of nonsense when people speak about mortgage
qualifying. "Oh, that's the way they USED to do it, but things are a lot
different now. Mortgage lenders are much more flexible on how much you can
afford."
True. But there are many homebuyers in very serious financial trouble now, so
who was right? For years, you qualified for a mortgage based on some fairly well
established ratios. Your total mortgage payment (including principal, interest,
taxes and all insurances) should not total more than around 28% of your monthly
gross income. Your total debt load, including the mortgage payment, as well as
all other debts (car loans, personal loans, credit card payments and any other
loans) should be no more than 36% of your total monthly gross income.
Many mortgage lenders have thrown those old ratios out the window, approving
household debt ratios in excess of 50% of income. Let's be clear here: If over
50% of your income is going to debt service you will be forced to either live a
very shallow life with little or no funds for saving, investment or enjoyment,
or worse are headed for a financial disaster.
Want the financial aspect of your home owning experience to be as stress-free as
possible? Do your best to adhere to the 28% and 36% ratios.
MISTAKE #3: Not Enough Downpayment
Want to really compound mistakes 1 and 2? Get the wrong mortgage (#1), have too
heavy a debt load (#2) AND put little or nothing down. Not too long ago, a 20%
down payment was fairly normal when purchasing a home. In the last decade the
average down payment fell to 10% and recently, to even less. This has been a
boon for home buyers, especially those purchasing their first home, but these
lower (and, at times, nonexistent) down payments carry with them some real
potential downfalls.
As long as real estate values appreciate at the supercharged levels that have in
the last couple of years (and virtually NO one thinks they will) there should be
no problem for those buyers who have little or no down payment should they want
(or need) to sell. Should housing values stagnate, though, or worse, go down;
these buyers will not be able to sell their homes without paying for
commissions, selling expenses and the like out of their own pocket. These
expenses can total upwards of $10,000 on a $150,000 home for example. Still owe
around $150,000? That $10,000 in expenses will need to come out of your pocket.
Summing Up
How do you avoid these potential costly and/or disastrous mistakes? By preparing
yourself as best you can for the mortgage lending process.
1) Carefully research the types of mortgages available in your area.
2) Spend the time necessary to take a clear look at your income, budget and
future plans.
3) Tailor your mortgage decision to these factors, rather than just accepting a
loan that the lender offers, even if it may not suit your situation.
One should consult
with a qualified mortgage professional prior to implementing any mortgage
planning strategies.
If
you are a tax, insurance, financial or real estate planning professional
receiving this newsletter, please call our office and introduce yourself to us.
We are always seeking to grow our referral network and expose more service
professionals to our client base.
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