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Category: Mortgage
GET REAL – Loan Assumptions
Let’s Get Real about Loan Assumptions. With current mortgage rates holding steady at their highest levels in decades, some believe a way to afford their next home purchase is to assume a seller’s existing loan at a much lower interest rate. Sounds like a great life hack, right??!! Why take out a new mortgage at 7% or more when you can assume an old one at 3% or less? While it is true that some loans are assumable, the odds of one being available on a home that you actually like and end up buying are next to zero.
I helped a recent client locate a home in Fair Oaks that was perfect for them. The seller was a veteran; my buyer was a veteran. VA loans are one of the few types of loans out there that are assumable; seemed like a match made in heaven!
But here’s the unfortunate reality…the loan assumption application process is cumbersome and takes time; often 1-2 months. This particular seller wanted a clean, fast sale, so even though the listing promoted the assumable nature of the mortgage, the seller ultimately selected a buyer who could purchase the home without assuming the existing VA loan.
Very few listings will have an assumable loan. And those that do will likely be very popular, and the seller may not be inclined to go through the assumable application process. Sure, I can help you filter home searches based on assumable loans (there’s 14 for sale in all of Sacramento County at the moment & 21 sales in all of 2024), but I wouldn’t recommend hanging all of your homeownership hopes on an assumable loan.
Don’t Listen To People
Listen to Numbers Instead
A few short weeks ago, nearly everyone (including me!) was anticipating mortgage rates to move lower. The media hyped up the forecasts. The Fed fanned the flames of these forecasts. I provided analysis to support the forecasts. But the financial markets often have a way of humbling bold predictors.
In early September, 30-yr fixed mortgage rates were hovering just over 6% and flirting to drop into the 5s. Since then, however, rates have aggressively climbed and are now threatening to return to the 7%+ range. DOH!!! It turns out we all were dead wrong.
I have several clients who would have benefitted from a refinance in September. Those lower rates could have saved them hundreds every month, and the closing costs were reasonably low. But many took the gamble of waiting to see if rates would fall further. Their decision to not take “the bird in the hand” has left them wondering how long it may take for rates to settle back down.
That’s why we shouldn’t rely on crystal ball forecasts from anyone (including me!!!) to make decisions. My recent post titled “When Should You Refinance” reminded that we should let numbers decide for us. While I often provide analysis and predictions about the mortgage and real estate markets, I share with clients that timing the market can be a fool’s errand. Do any long-time followers remember this 2016 video post that spoke to market timing?
A refinance transaction is when I see the most clients attempt to time the market, and it’s the transaction that is hardest to pull it off successfully. I advise clients all of the time that timing a refi is just like gambling. There is more emotion than logic at play, and our feelings of wanting/needing a lower interest rate cloud our judgment.
In short, don’t listen to people or their interest rate forecasts. If you have a higher mortgage rate and would like to refinance, follow these three initial steps:
- Determine how much lower you’d like your monthly payment to be. Most folks like to see at least $100/month in savings.
- Multiply your desired monthly savings amount by 12. In most cases, this total should be your maximum amount you should pay for refinance closing costs.
- Work with me to set a target rate that achieves both your monthly savings amount and closing costs limit AND STICK TO THE TARGET! I will monitor & track mortgage rates constantly and advise you when/if we hit your target.
Mortgage rates should eventually settle back down. Take this opportunity to get a plan prepared to act decisively when the next refinance opportunity presents itself.
Double Honors
#1 Real Estate Team and #3 Mortgage Broker!
We’re overjoyed to announce that Style Magazine recently recognized us as the #1 Real Estate Team and #3 Mortgage Broker in the Folsom/El Dorado Hills area! This dual distinction is a testament to our team’s dedication to delivering exceptional service and expertise in both real estate and financing.
A quick Zillow search shows over 4,000 real estate agents serving the Folsom area. Moreover, hardly any of these agents also offer financing, so earning awards in both categories is truly humbling. We’re grateful for the trust our clients have placed in us, and we’re thrilled that our unique, one-stop-shop approach resonates with our community.
We extend our heartfelt thanks to Style Magazine for this recognition and to our valued clients for their votes. Your support means the world to us!
Discover how our comprehensive real estate and mortgage services can elevate your next transaction. Explore my blog & website to learn more about our team and our award-winning approach to real estate.
When Should You Refinance?
Here are the factors to consider if you have a rate over 6%
Clients often ask me about “timing the market.” In other words, is there a way to get the best price or lowest rate based on WHEN you buy/sell/refinance? Last year I researched historical data of the past decade and posted about the best times of year to buy and sell homes in Sacramento. It revealed seasonal trends that show Winter (not Summer!) is the best season for sellers and Fall (right now!) is best season for buyers. Even Realtor.com supports my research in their own recent report that claims THIS WEEK (September 29-October 5) will be the best week this year to buy a home!
But how about timing a refinance? Is there a way to perfectly time the financial markets to assure you get the lowest possible mortgage rate on a refi? Let’s dive in and discuss!
As you may know, mortgage rates move every day. Much like stock prices, their daily gyrations are unpredictable even though many market experts spend their lives studying and predicting them. But surely there must be a way to know if mortgage rates will go up or down in the near future, right???
WRONG!!! We only need to look back a couple of weeks for clear proof of the erratic nature of mortgage rates. On September 18th, The Federal Reserve officially lowered the Federal Funds Rate by ½%. Many expected mortgage rates to follow suit, but surprisingly mortgage rates actually increased slightly upon The Fed’s actions.
Mortgage rate changes do not have seasonal trends the same way as the real estate market. To prove this, I studied data of 30-yr mortgage rates from the past 40 years, and found that mortgage rates don’t drop more frequently in one time of year over another. I recorded all of the months where mortgage rates fell, and noticed these tallies were evenly spread out throughout the year:
| Season | # of Months w/ rate drops (since 1984) |
| Spring | 73 |
| Summer | 52 |
| Fall | 76 |
| Winter | 77 |
As you can see, there is no season that significantly stands out above another. In fact, Spring, Fall and Winter had nearly the identical number of months that experienced rate decreases.
As an easy visual comparison between the real estate and mortgage markets, look at the rhythmic, predictable nature of the chart on the left showing home sales over the past 10 years (generally peaks in 2nd quarter; bottoms in 4th quarter) to the chart on the right showing 30-yr mortgage rates over the same time period (no pattern whatsoever).
If seasons are not an indicator, then perhaps significant events could be a tell-tale sign for mortgage rate movements…presidential elections, perhaps? Many people believe major elections create uncertainty in the financial markets, and generally mortgage rates fall in times of uncertainty. As a result, I’ve had some clients who could benefit from a refinance today gamble their guaranteed savings of today by holding off on a refinance decision until after this year’s upcoming election. Risky move, especially given the history of what mortgage rates do (or don’t do!!!) in election years.
I looked back at mortgage rates since 1980 and tracked the direction of rates in the months leading up to November. I found that in these 11 presidential cycles, 5 of them experienced rate increases while 6 saw decreases; a mixed bag with no clear trend. Most of these periods saw modest changes, with the average rate change being less than .5% over the 10-month pre-election intervals.
If the sun and moon and stars and elections can’t help us predict interest rates, then what should we look to instead??? Here’s my honest advice…ignore all of the “signs!”
Put away the tarot cards and pick up a calculator! When deciding when or if to refinance, stick to these simple factors:
- What will today’s interest rate save me?
- What will today’s interest rate cost me?
- How long do I plan to have this loan?
Generally speaking, most of my current clients are choosing to refinance if they can recoup the closing costs within 12 months of their monthly savings amount. For example, if a proposed refinance costs $3,000, then it would make sense in most cases to do so if you can save $250/month or more. Doing so is allowing them to save money now, but keep the opportunity to refinance again if rates continue to fall in the future.
While these are straightforward calculations, the pros & cons of a refinance can be nuanced and best talked through with a trusted professional. As mortgage rates have fallen in recent months, aggressive marketing campaigns aimed at pressuring homeowners to refinance have increased dramatically. Don’t let an inexperienced sales call center guide you through an important financial decision; reach out to me to discuss your options.
Lower Rates Are Indeed Coming
Why? Because we are NOT inverted!
Many believe mortgage rates are set to drop this week because of a highly anticipated Federal Reserve Board meeting that begins tomorrow. THIS IS WRONG! Mortgage rates are indeed poised to fall, but not because of The Fed meeting. Let me explain…
Last summer I wrote a similarly titled post about a rare phenomenon in the financial markets known as a yield-curve inversion. You can go back and read it (especially if you’re a Top Gun fan), or here are the brief Cliffs Notes…
A yield curve inversion occurs when rates on short-term bonds are higher than long-term bonds. An inversion has only occurred 4 times in the last 40 years, and an economic recession has shortly followed each and every time.
Well, I’m here to update you on the yield curve and clarify the timing of the recessions that typically follow.
This month marks the first time in over two years where the yield curve is no longer inverted. It’s the longest continuous inversion period in modern economic times (sections colored in red on chart), and many feel it’s return to positive territory is long over-due.
But, this does not mean we are out of the recession woods. In fact, it’s typically a sign that economic troubles are just about to begin. A yield curve reversion to normalcy has preceded every recession of the past 40 years by just a few short months (2-6 months). If history repeats itself, then its only a matter of when we’ll be in a recession…possibly as early as later this year!
Some argue that we are already in one. Influential & entertaining economist Elliot Eisenberg finds that 9 of the 20 most reliable recession indicators have already been triggered. Historically, when at least 6 of these indicators are flashing red, a recession was already occurring or was about to.
This is not meant to be a doom & gloom post. In fact, quite the opposite!!! The real estate and mortgage markets have been in a funk for the past 2 years, largely due to higher interest rates. The silver lining to an economic recession is it will likely lead to significantly lower mortgage rates. Lower rates will help struggling homeowners consolidate debt more affordably, aspiring home buyers to break into the market, and hesitant home sellers feel less locked-in to their current low-rate mortgage.
All in all, a mild recession and lower mortgage rates could be healthy for our sputtering real estate market. Time will tell if and when lower rates are coming, but if you’ve been holding off on making a big real estate decision due to high interest rates, then you should begin reconsidering your options now. Give me a call to discuss where rates are at, where they may be heading, and what they need to get to in order to help you make a confident decision in your real estate affairs.
Brokers Are Better!
A recent research study concluded that consumers get the best loan terms when working with a mortgage broker! In short, the average interest rate AND origination points paid through a mortgage broker were both lower than when working with a retail lender (think big banks). The savings were even larger on government loans!
Don’t just take my word for it; check out the research findings here and be reminded of why it’s important for you and your loved ones to work with mortgage brokers like The Blue Waters Group!
Future’s So Bright, I Gotta Wear Shades
But are the shades for protection???
Timbuk 3, a 1-hit wonder from the 80s, wrote “Future’s So Bright, I Gotta Wear Shades” and is often interpreted to mean there are exciting events ahead. For example, I couldn’t help but hum the song this past weekend as we helped move our daughter into her freshman dorm at college. She has her whole life in front of her; full of potential and promise. Her future indeed looks bright and we are so proud of her!
But, the band actually ironically intended the song lyrics to be a grim outlook of nuclear fallout fears during the height of the Cold War. The shades referenced were not a cool fashion statement, but rather to protect your eyes from a bright nuclear blast!
I study nuclear science
I love my classes,
I got a crazy teacher
He wears dark glasses.
*image from Universal’s Oppenheimer film
Where am I going with this??!! Well, the current economy is at a crossroads and up for varying interpretations as well. After three years of rampant inflation, interest rates have begun falling. We are currently helping several folks refinance who purchased homes in 2023 at higher rates, and we expect to do much more of that in the coming months. You can say the future looks bright for those looking to refinance and save on their mortgage payment!
On the other hand, interest rates are settling down largely due to growing signs of a slowing economy. Unemployment rates are rising, global stock markets are very volatile, and statistical patterns suggest a recession is right around the corner (see below). While the future looks bright for mortgage rates, a larger economic doom could also be on the horizon.
If you have been waiting for a lower mortgage rate to either refinance or purchase a home, the future does indeed look bright for you. You should call us now to set a “target rate” that makes sense for you to pursue a refinance or home purchase. Let us help you look at the market through the right “shades” and keep an eye on factors that may push rates lower so you can best prepare for a refinance opportunity.
Do As I Say, Not As I Do
That was The Fed’s message to markets this week
On Wednesday, The Federal Reserve Board left their Federal Funds Rate unchanged. This was widely expected amongst financial markets, yet stock markets rallied and mortgage rates fell at once. What gives?
Simply put, markets change when the expectations of future events change. They don’t wait for the actual event to take place. To illustrate, here is a chart showing how The Federal Funds Rate (in red), has not changed in 12 months and yet mortgage rates (in blue) have been bouncing all over the place as market expectations have evolved over a myriad of variables (inflation, elections, economy, etc.).
This week was no exception; markets followed the words and largely dismissed the actions of The Fed. While the Federal Funds Rate was left alone, The Fed strongly suggested they see economic conditions that merit lowering the rate in future meetings later this year. Markets cheered these words, as mortgage rates had one of the best weeks in some time!
It can be hypocritical for parents to insist that their children “do as I say, not as I do.” In this case with the markets being the “kids” and The Fed being the “parents,” the market is dutifully following the words of The Fed by pushing mortgage rates down despite The Fed holding their rate steady. In fact, mortgage rates dropped to their lowest levels since April 2023, and will fall further if The Fed keeps true to their word in their next meeting. But, if The Fed reverses course like a hypocritical parent, then the markets (& mortgage rates specifically) will throw a fit and rise rapidly.
All in all, it has been a great week for mortgage rates. Let’s hope this rally continues!
That’s What I’m Talking About!
A key inflation metric turns negative for the first time since the initial Covid-19 outbreaks
For the past few years, interest rates have remained at elevated levels due to high inflation. The words to describe the inflation have evolved over time; initially it was called transitory, and then persistent, stubborn, and sticky. Now inflation can be called negative.
This week’s Consumer Price Index dropped to -.06% since last month, the first time it’s been negative since the darkest economic months shortly after the initial Covid-19 outbreaks and subsequent economic shutdowns. Moreover, it’s the first time since this battle with inflation began that the month-over-month reading has decreased for 3 consecutive months.
This news is significant for anyone who borrows money (or is planning to borrow money). To combat inflation, governments around the world have increased borrowing costs. The US Federal Reserve Board has consistently reminded markets that they will not lower rates until they are confident that they are on a path to return inflation to their annual target of 2%.
After Thursday’s inflation report, markets are optimistic that the battle against inflation is finally being won. As a result, mortgage rates are falling. For the past 3 months, 30-yr fixed mortgage rates have bounced between 7.0-7.5%. As of yesterday, they are decidedly below 7% for the first time since Easter.
I remain cautiously optimistic that lower inflation readings like this week’s CPI report will become commonplace in the coming months. If that becomes the case, then mortgage rates should continue to fall.
Matt Sundermier's Memos on Real Estate & on Life 