Mortgage Bankers Celebrate Victory
You would think this year’s Mortgage Bankers Association annual meeting would be a rather solemn affair — given the criticism the industry has endured in recent months. But our ANP reporter attending the meeting found the bankers in a celebratory mood. The reason? A massive lobbying campaign against bankruptcy reform legislation known as “cram-down” appeared to be working.
Read MoreMortgage Security not That Costly
Mortgage Security not That Costly
Forget everything you thought you knew about the benefits of taking a variable-rate mortgage instead of locking in for the long term.
A new study suggests the security of a five-year mortgage costs little or nothing beyond a riskier variable-rate mortgage, providing you get a jumbo-sized rate discount.
“Interest costs on discounted closed five-year mortgages have been close to, and often lower than, those of variable-rate mortgages since late 1996,” senior Canada Mortgage and Housing Corp. economist Ali Manouchehri writes in the study.
Homeowners have made variable-rate mortgages hugely popular in the past few years in the belief that you can save on interest costs by pegging your mortgage rate to your lender’s prime lending rate. As the prime rises, or as has generally happened in the past few years, fallen, so goes your mortgage rate.
The prime rate at the major banks is now 4.5 per cent, while the posted five-year rate at the big banks is 6.15 per cent. In just one year, the variable-rate choice would save you about ,700 on monthly payments toward a 0,000 mortgage amortized over 25 years (assuming a level prime rate).
Historically, you would also have saved a lot. The CMHC study shows that five-year mortgages taken out from 1993 through 1998 would have cost anywhere from ,000 to ,000 in additional interest paid over the term of the loan (the example is based on a 0,000 mortgage amortized over 25 years).
The flaw with this analysis is that it doesn’t reflect real-world mortgage pricing. These days, very few people take out a mortgage without a sizable discount off the posted rates at major banks.
For that reason, the CMHC’s Mr. Manouchehri decided to compare discounted five-year mortgages with discounted variable-rate mortgages. Incidentally, five years is the most popular term by far for fixed-rate mortgages at about 59 per cent of the total.
The size of the discounts Mr. Manouchehri applied was based on the difference between posted major bank rates and the best deals available from other lenders. For five-year mortgages, he used a discount of 1.25 of a percentage point; for variable-rate mortgages, it was 0.4 of a point off prime.
For five-year mortgages taken out between 1993 and mid-1996, the five-year mortgage was costlier in terms of interest costs. Since then, however, variable-rate mortgages have generally been a little bit more expensive.
Obviously, there’s nothing in this study that decides the fixed-rate versus variable-rate debate once and for all.
In fact, the CMHC study may just confuse anyone who recalls some research done for Manulife Financial back in 2000 by York University finance professor Moshe Milevsky. His research found that the extra interest charged on a five-year mortgage would have cost ,000 on average between 1950 and 2000 for a 0,000 mortgage amortized over 15 years.
To make some sense of the variable-rate versus five-year question, let’s go back to the CMHC study.
It shows that five-year mortgages, discounted or otherwise, were especially bad choices for a three-year period starting in mid-1993. Rates were high for a while back then, but they subsequently fell.
You were a spectator to these rate declines if you were stuck in a five-year mortgage, while people in variable-rate mortgages would have benefited almost immediately.
It’s a different world now, though. Five-year mortgage rates are close to a 50-year low, which suggests they’re far more likely to rise over their term than fall.
So what’s the best choice here, variable-rate or five-year fixed rate? People who want to pay rock-bottom mortgage rates for as long as possible will probably still want a variable-rate mortgage. Remember, you can lock this sort of mortgage into a fixed term without penalty in most cases.
The case for the five-year term looks almost as strong, though. First, the CMHC study tells us there may not be a significant cost to locking your mortgage in for five years, and you might even save a little over a variable-rate mortgage.
Second, the likelihood of higher rates in the years to come would suggest that this is a good time to lock in.
If you had a variable-rate mortgage discounted to 4 per cent, the prime would have to go up by 0.85 of a percentage point to equal the current five-year rate. That’s not a lot of ground to cover in the span of 12 to 18 months when the economy is doing well.
Arguably, the variable-rate versus fixed-rate debate is all about risks and rewards. Right now, the five-year option offers much less risk, and almost as much reward.
Read MoreFifth Third Bank financial mortgages shirt
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Mortgage Industry Embraces CMPS Institute Certification
Ann Arbor, MI (Vocus) February 5, 2008
A core group of mortgage industry professionals are making a positive impact on American homeowners and buyers in the wake of turmoil in mortgage and real estate markets.
Over 4,500 mortgage lenders and brokers across the country have voluntarily embraced the certification, continuing education and ethical standards espoused by the CMPS Institute. The Institute administers the Certified Mortgage Planning Specialist (CMPS®) designation. The CMPS Institute was formed as a joint effort by leaders in the mortgage and financial planning industries to raise professional standards among mortgage professionals and integrate sound financial planning advice into the mortgage process.
“The mortgage industry is in dire need of higher ethical and professional standards,” said Gibran Nicholas, founder and Chairman of the CMPS Institute. “If we have learned anything from recent industry events, it is that mortgage brokers and lenders need to be held accountable for the mortgage recommendations they make for clients.”
CMPS® certification includes extensive training in the five key areas essential to integrating a client’s mortgage, debt and home equity strategy into their overall financial plan:
Financial Market and Interest Rate Analysis
Cash Flow & Debt Analysis
Real Estate Equity Management
Real Estate Investment Planning
Mortgage & Real Estate Taxation Concepts
In late 2007, both the House and Senate passed their own versions of mortgage reform. As part of the legislation passed by the House, states would be required to enforce individual licensing and continuing education requirements for all mortgage bankers and brokers. The House version of mortgage reform would also establish a nationwide database of all loan originators so that background checks and ethics violations would be easier to track.
“Although the Senate version of mortgage reform does not require a national database or the continuing education standards contained in the House bill, the writing is on the wall, and it is only a matter of time before bankers and brokers are required to adhere to higher standards,” says Nicholas.
“The beauty of CMPS is that many of the top mortgage lenders and brokers in America have voluntarily committed themselves to certification and standardizing the mortgage planning process,” Nicholas continued.
CMPS professionals are trained to help clients identify which mortgage strategies are most suitable based on the clients’ income, net worth, liquidity and financial objectives. “CMPS is not about mortgages 101″, said Nicholas. “It is about how a specific mortgage strategy helps Americans send their kids to college, care for elderly parents, retire comfortably, become debt free, buy their dream home and protect it from foreclosure.”
Case studies of how CMPS professionals are helping home owners and buyers weather the real estate downturn and achieve the American dream are available upon request.
Read MoreMortgage Secrets Exposed – Real Estate.
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Florida Mortgages – Countryside International
www.countrysideinternational.com Allen Jackson of Florida Countryside conducts an interview with Sean de Pesquale who owns Florida Mortgage Partners. Sean is an independent mortgage broker specialising in US loans to overseas clients, especially British and other foreign national buyers. Should you get a US dollar loan or a sterling mortgage? Who handles the deed conveyance and what is the role of a title agency? Sean clarifies several aspects about US mortgages thereby providing a comprehensive guideline for any prospective Florida property purchaser. For more info, visit http or call 08456 444 747 (UK)
Video Rating: 5 / 5