Points, Schmoints

This is from another interesting NYTimes article about how paying points for a mortgaeg is losing favor.

With interest rates at or near record lows, many borrowers are seeing little reason to pay points when buying or refinancing a home. Some are even opting for what’s known as “negative points,” agreeing to a slightly higher rate to help pay closing costs.

The trend away from points, which buy down the interest rate in exchange for an upfront fee, partly reflects borrower sentiment that rates are already low enough.

In New York and other areas with a mobile population, many people avoid mortgages with points, because they know they won’t be staying put long enough to break even on the costs, which typically takes five to seven years.

Nationwide, 32 percent of loans for purchases had paid points in December, down from 47 percent in December 2008, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

A point equals 1 percent of the loan amount, so paying one point on a $250,000 refinancing costs an extra $2,500 at closing, atop other mortgage fees, taxes and escrow amounts. Paying a point usually reduces the interest rate by 0.25 points over its term, so for instance instead of 4 percent, the rate is 3.75 percent.

The chief advantage to paying points is you lower your rate and your monthly payment based on a one-time charge. Your mortgage professional should take time to find out what works for your circumstances, then structure the loan and fees and commission accordingly, he said.

So how do you know if paying points is worthwhile? There are two key considerations: how long you plan to live in a home, and how much you can afford in closing costs.

Many mortgage professionals suggest a rule of thumb on living in a home for at least five years to reap the savings. Others suggest doing an analysis of your financial goals, along with a direct comparison of no-point and point mortgages.

Some borrowers, meanwhile, go for negative points, which is also called a lender rebate or points in reverse. In exchange for accepting a higher rate, the lender agrees to give the borrower a credit, which is usually used for closing costs.

Why a Mortgage Broker?

Shepherd: a person who protects, guides, or watches over a person or group of people.

Why should you use a mortgage broker? One of the positive outcomes of mortgage crisis is that the rate offered to borrowers does not vary much from bank to bank. Many people decided that they may as well go to the local bank where they bank and get their loan there. Why not?

Easy. For the most part bank branches don't process loans themselves. In fact, they often do not have a mortgage specialist in house. Many times, the mortgage loans are processed in remote offices in different states.

A mortgage broker "shepherds" the loan from beginning to end. Documents don't get lost, sent to several different people and delayed for unexplained reasons.

It is stressful enough borrowing large sums of money. You want the same person answering your questions from the beginning and being responsible for your loan throughout the process.

To Rent or to Buy - the Age Old Question

An interesting article from the NY Times about the current New York rental and purchase markets.

When the real estate market was booming in 2007, renters showed up at apartments with checkbook in hand, ready to do battle with anyone else who might want the same place. That changed, of course, when the financial crisis hit in 2008. And the heady days that followed, when renters ruled in a down market, are now a fading memory.

In 2011 landlords once again got the upper hand as prices rose and vacancies dwindled. Multiple applications even made a comeback late last summer. All signs say landlords are likely to keep that advantage for a long time. In certain neighborhoods, rents are setting new records, exceeding the heights of 2007. Some landlords say that in extreme cases, eager renters have even bid up rents.

The demand in some buildings has become so intense that there are waiting lists bearing the names of dozens of potential tenants. This was unheard of during the downturn.

With fewer new buildings scheduled to open this year, inventory for luxury rentals will remain tight, helping to keep prices up at the high end. This pressure will inevitably trickle down to the lower end of the market.

Rental brokers said that rental prices had been buoyed in part by tighter mortgage lending, which has discouraged many potential first-time buyers from entering the sales market.

Rents in traditionally coveted neighborhoods like the West Village and Chelsea have hit new heights. But records are also being set in areas that are not as well traveled, including the financial district and Midtown West, where new rental towers have helped pull up average prices.

According to Citi Habitats data, the city’s priciest studios can be found in Chelsea, where the average rent is $2,332 a month; and the West Village claims the most expensive one-bedrooms, $3,278 a month.

But the financial district is not far behind, getting record rents for its one-bedrooms, at an average of $3,255 a month, and its two-bedrooms, at $4,575 a month.

Fewer new apartments are coming to market this year than in years past, largely because construction financing has been tight and the number of building permits issued by the city fell drastically after 2008. Citi Habitats Marketing Group estimates that there are only about 2,200 new rentals in Manhattan this year, down from more than 3,600 in 2011.

Many projects, including some rentals initially designed to be condos, will finally be finished in 2013 or 2014.

The purchase market is getting tighter as well. It seems that a lot of pent up demand from the financial crisis is driving both the rental and purchase markets.

Central Park on a Beautiful February Morning

A little different than the snow covered park.

Bernanke's comments

"Uncertain job prospects, along with tight mortgage credit conditions, continue to hold back the demand for housing. Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. A persistent excess supply of vacant homes, largely stemming from foreclosures, is keeping downward pressure on prices and limiting the demand for new construction..."

That is the market in a nutshell. So the question is, what should you do?

Certainly, if you are in the market for a purchase, I think you should pursue it. Also, Obama is working on making refinaning easier for those who currently can't. Ultimately, the job and housing markets are so intertwined that as one goes, so goes the other. Look for an all out effort to improve the housing market.