Interest Rates Tag

One of the greatest injustices of the mortgage industry is the high commission some loan officers receive for originating a home loan. In many cases, it equates to 1.5% (or more) of the total amount of the mortgage. That’s a $4,500 paycheck for closing a $300,000 loan! And where does the money for those high commissions come from? Through an increase in your interest rate. This is wrong and unjustified, in my opinion.

My personal mission for City Creek Mortgage is to eliminate the over-compensated loan officer by educating consumers about why most companies charge such high interest rates. A loan officer on salary or a lower commission rate can save the consumer money—in most cases, a lot of money.

I’m NOT saying loan officers shouldn’t have the opportunity to make a great income. I believe that the ethical model is to earn a little off a lot of loan closings vs. a lot off a few. A higher-volume team with salary-based loan officers can provide a great living for employees as well as lower interest rates for borrowers.

If you’re shopping for a home mortgage, don’t be afraid to ask your loan officer about their personal commission rate. If they stumble over their answer, be careful. Look for a salaried loan officer and I bet you’ll find a better deal.

With the Tax Reform bill now signed into law, many homeowners will find that this important piece of legislation restricts
some of the benefits they have enjoyed from owning a home. Although the impact will mainly hit the higher end of the
housing market, there are some potential tax deductions that could impact the way they structure their mortgages.
Let’s look at what the changes could mean for current and future homeowners:
Lower Mortgage Interest Deduction
In the past, homeowners have been able to deduct interest on up to $1,000,000 of mortgage obligation.
For homes purchased now and in the future, this limit will be reduced to $750,000. For those who already
owned their homes at the time of the Tax Reform bill passing, they will be grandfathered into the prior
amount allowed.
Impact: Since this portion of the bill only impacts high valued homes, we anticipate this will have little impact on the
overall housing market. People looking at mortgage balances of over $750,000 will likely still purchase homes,
even if they lose the deduction on up to $250,000 of the mortgage balance.
Loss of Tax Benefit for Home Equity Loans
With property values moving higher, there has been a rush of people taking out home equity loans to make
use of their increased available equity. Under old tax rules, a homeowner was able to deduct interest on
up to $100,000 of the balance of an equity loan. This tax loophole has been eliminated.
Impact: We all remember back in 2008 and earlier when homeowners were taking out home equity loans to
purchase boats, make improvements, take vacations or just spoil themselves at the mall. This created major
improvements to the amount of money flowing through the U.S. economy. With values reaching new highs, this
trend has started once again.With the tax advantage no longer available, it will likely deter some people from
taking out home equity loans. Therefore, we could see a negative economic impact. People with home equity
loans will likely consider rolling them into a primary mortgage, which may create more tax advantage and
interest rate stability long term.
Limit on Property Tax Deduction
One reason that has prevented some homeowners from protesting their property taxes is that they have
received 100% of the property tax payments as a write-off from their taxable income. Under the new
law, the property tax and state income tax write-offs have been limited to a combined $10,000 reduction
from taxable income.
Impact: In Utah, the state income tax rate is 5%. This is a flat tax, so there are no itemizing deductions on
a Utah state tax return. If a homeowner has property tax of $2,500, they would be allowed to have $150,000
in gross income and still receive the full tax savings of owning a home. Therefore, the impact will mainly be
for higher income earners.
Given that the average Utah state income tax collection is less than $1,000 per year, most residents will not
be impacted.

With home prices moving a great deal higher in recent years, some are worried that we are now on the verge of another housing bubble. Although this could be true, it certainly doesn’t appear likely in the near term. In fact, housing prices are projected to continue to grow over the coming years. However, many millennials are using this fear as rationale to continue to live with their parents or rent.

Real estate used as a primary residence has proven over time to be a wise investment, regardless of the timing of the purchase. Although some built up significant equity by purchasing when prices were at their lows during the recent housing crisis, even those who bought at the peak of the market in 2007 should once again be in a strong position of equity.

Homeownership is one of the greatest determining factors that contribute to wealth accumulation. In 2015, the average net worth of a homeowner was $195,400, compared to just $5,400 for a renter. Not only is a homeowner able to better weather a financial storm by borrowing against accumulated equity, homeowners are also able to reach a point where they no longer must make a mortgage payment once the home is paid off. Further, with rents rising as rapidly as they have in recent years, a homeowner who purchased their home years ago is likely paying far less than a renter who is leasing a similar priced home. In addition, the homeowner will receive a tax break that isn’t available to those who rent.

Although inching higher, the current home-ownership rate is well below where it should be. We need to see a bigger push for millennial home buyers to help ensure a strong economy in the decades to come. If they fail to buy at a reasonable age, they could be missing out on a significant opportunity.

The Hidden Truth about Interest Rates

I recently made the decision to care less about being liked by people in the mortgage industry and more about transparency surrounding what I believe. For the sake of this article, I’ll focus on how much a mortgage loan truly costs an average consumer at most mortgage companies vs. what it costs at City Creek Mortgage. Further, I’ll dive into where I see the future of this industry as well as the people who work within it.

First, I want to make clear this is not a dig at my competitors. I believe most mortgage lenders are wonderful people who work for great companies. Just because I have fundamental differences in beliefs about how much companies and people in my industry should earn, doesn’t make my competitors wrong.

The $ Behind a Mortgage

Few consumers realize how much money is made in the process of a mortgage. For many well-known local mortgage companies, a $300,000 mortgage loan generates $12,000 of revenue. What consumers should understand is that this “standard” cost of originating a loan is substantially higher than the actual cost of doing so. The result is needlessly higher interest rates and closing costs for the consumer. Although “it’s just the way things are done,” I believe once people understand what is happening, this practice will come to an end.

In total transparency, a $300,000 mortgage loan closed at City Creek Mortgage will generate up to $6,000 in revenue on average. Although still a healthy income, it is significantly below what most companies make on the same loan. By choosing to make less money on each loan, we save our borrowers in both interest rate and closing costs compared to many of our competitors. Plain and simple, that’s the truth.

As I consider the future of the mortgage industry, I see what many in the industry don’t want to face. Some may disagree with my assessment. I see a time in the coming years where a computer will be able to replace most of the work done by mortgage loan originators. I will explain my thoughts below.

The Impact of Technology

Technology is making the mortgage process significantly easier, faster & more affordable. We are already at the stage where technology can automatically retrieve taxes, bank statements or pay stubs. Since this is most of the supporting documentation required for a loan, the effort required by the consumer and loan originator is decreasing. Further, many loans no longer require a physical appraisal. Once again, expediting the loan process. When combined with digital signing and instant loan approval, it’s not difficult for one to perceive a day when a mortgage loan originator is only needed on more complicated loans. It could even be that a human is needed on only 25% of all loans closed.

A Mortgage Loan Originator’s Income

In truth, the individual mortgage loan originator is usually able to set their own compensation levels. I know many that get paid 2% of each loan they close. This is in addition to what their respective company makes on each loan. For this to work, mortgage companies roll that super high commission into the interest rate they charge borrowers.

So for a $300,000 loan, not only does the company make money, but the loan officer gets $6,000 in commission. For that same $300,000 loan at City Creek Mortgage, $6,000 is the total revenue. No additional charges, or rolling commission into the interest rate like other companies. We use $6,000 to pay 30 staff members, and all our overhead. That’s why (in other companies) you can often get a lower rate by walking through an office and asking individual mortgage loan originators what their level of compensation is. Once you find the lowest plan, you can choose that mortgage loan originator and be offered lower rates and fees. Or you could do it…

The Right Way

You may be wondering how it is possible for City Creek Mortgage to make half of what our competition make on each loan. It is simple. We have a volume-based model. We have to do more loans, because we make less on each loan. We provide our loan officers with the stability of a salary and since they don’t do any marketing themselves, they can do substantially more loans per month than the typical loan originator.

I believe most mortgage loan originators who work for companies eventually will be paid a salary. An individual loan originator will no longer be able to make hundreds of thousands of dollars a year at the expense of the consumer for closing a handful of loans each month. The current system, where borrowers are paying a luxury tax each month for 30 years for overcompensated loan officers is flawed. Further, the real estate agents who claim to want the best for their clients are often the ones feeding the business to these highly compensated mortgage loan originators. It’s just wrong. Consumers shouldn’t be footing the bill for extravagant lifestyles of over-compensated mortgage loan originators. Trust me, it will change.

And that, my friends, is my explanation as to why our rates at City Creek Mortgage are so much lower than our competitors.

2016 was a great year for the Utah Housing Market. According to CoreLogic, a well-respected source for housing market statistics, the average home in the State of Utah grew at an 8% annual pace over the last year. Further, it states that home values have nearly recovered all of their losses since the Housing Crisis of 2008. This strong report makes Utah one of the top appreciating Housing Markets in the country, which is great news for those who currently own a home.

With interest rates moving higher over the past few months, some are worried that this will have an adverse impact to the future value of homes. Although there is validity in the concern, the longer-term impact of rising rates has often proven to coincide with high levels of home value appreciation. Let’s take a look back on history to help form a conclusion.

The graph below shows four points in time when mortgage rates experienced rapid rates of increase and compare those times with their annualized rates of home value appreciation over the same period. As you can see, not only did home values remain in growth mode, they often experienced attractive improvements to home values. TRUST E D · R E S P E C T E D · LOVED

Traditional economics support the theory that as the cost of a mortgage increases with higher rates, the value of homes will fall to bring the relative cost back into balance. However, when values are rising because of growing incomes and a stronger job market, home values have room to move higher even as rates increase. Given the current strength of the housing market, the current level of wage growth is more than enough to sustain a reasonable rate of home value appreciation. Utah’s Unemployment Rate is currently at 3.2%, which is considered “full employment.” Further, the outlook on the job market is expected to remain strong for years to come; making Utah one of the greatest places to live.

Utah Home Values 2017

Although mortgage rates aren’t anticipated to experience a significant increase in 2017 (see next month’s 2017 Market Forecast), some experts and media pundits are calling for a drop in home values this year. Although we anticipate a slower pace of growth in 2017, we still see at least a growth rate of 4.5%. This is a healthy rate of appreciation and a level that is sustainable for the foreseeable future.

Of course, there is no way to say for sure what will happen, but it doesn’t appear likely that higher rates will have a significant negative impact to home values here in Utah.

High rates of home appreciation provide a tremendous opportunity to increase net worth. If you plan to move-up in the near future, you may want to make the move sooner rather than later. An extra $100,000 in home value, increasing at a rate of 4.5% could add an additional $14,000 to your net worth over the next three years. This could also be achieved by purchasing an investment property or a second home. Also, if you have millennial children, encourage them to become homeowners early in their adult life. Home ownership is a determining factor of long term financial health and security. Starting early is the key.

homeValues

One of the primary items you’ll be looking at when you come to a mortgage company like City Creek Mortgage is your interest rate. Also called a mortgage rate, this is perhaps the largest individual financial factor involved with most mortgages.

Do you have any control over getting the best mortgage rate possible? Absolutely. Let’s look at a few of the main factors that influence interest rates, and how you can use them to get the best deal possible.

Market Factors

Maybe the largest factor for many people is the market as a whole, which can fluctuate based on several complex economic factors. These factors are outside any individual control – the best you can typically do here is keep a keen eye on the market and look for opportune moments to get the best rates. At City Creek Mortgage, our brokers can give you some great industry tips on factors that might cause future markets to raise or dip.

Size of the Loan

For the most part, a larger loan amount will equal a higher interest rate. The lender is taking a higher amount of risk by loaning you a larger amount, and the higher mortgage rate reflects that.

Loan Type and Length

The two primary loan types for most people are adjustable-rate mortgages and fixed-rate mortgages. Adjustable-rate mortgages tend to have lower starting rates, but note that these can raise during the period of your loan if the market dictates it. Fixed-rate loans generally have higher starting interest rates, but you get the security of knowing they’ll never go up.

The length of your loan is also important. 10- or 15-year terms generally come with lower rates than 30-year terms – again, it’s just about risk for the lender.

Down Payment

The more money you can put down up front to minimize the lender’s risk, the better rate they’ll give you. Some lenders will require a 20 percent down payment for certain types of loans, though this isn’t always a hard and fast rule.

Credit Score

The factor you have the most individual control over is your credit score, which can get higher or lower depending on your success paying down various forms of debt. There are certain types of loans you can’t even be approved for without a certain threshold credit score, and for many others, credit score will be a huge crux point for your final interest rate.

Want to learn more? Contact the expert brokers at City Creek Mortgage for more information on any of our mortgage solutions.

While the prospect of buying a home is always exciting, your enthusiasm can often be offset by the stress that comes from securing a mortgage. Typically, the reason why so many become anxious when shopping for a mortgage is simply due to unfamiliarity. This is especially true if you are a first-time homebuyer. As is the case with any financial transaction, you want to get the best deal possible, yet at the same time, don’t want be unrealistic in your expectations.

Understanding Interest Rates

When people refer to the “cost” of a mortgage, they’re specifically talking about the interest rate. Interest is essentially the price you pay for taking out a loan, and for many first-time buyers, is incredibly misunderstood. Many only focus on the amount they are asking to borrow, then later find out that they could end up paying almost twice that much in interest by the end of the loan repayment period. Thus, when searching for a mortgage, the interest rate should be one of the primary factors you consider.

Securing the Best Rate

While a difference of a few percentage points may not seem like much to you right now, you’d be amazed at how much a slightly higher rate adds up to over 15-30 years. Therefore, you should do all that you can to find the lowest rate possible. Here are some tips to help accomplish that goal:

  • Pay attention to your credit score: Your personal credit rating goes a long way to not only determining your eligibility for a loan, but also what rate you’ll pay. The better your score, the better interest rate you’ll earn.
  • Contact multiple lenders: If you have multiple interest rate offers, you may able to negotiate a better rate by asking your preferred lender to match that of a competitor.
  • Understand your mortgage options: If it’s predicted that interest rates may drop in the future, getting an adjustable rate mortgage might be your best option. However, with a fixed-rate mortgage, you don’t risk paying more of rates rise instead of fall.

Ultimately, what’s most important to remember is that you do have options (after all, it’s called “shopping” for a mortgage for a reason). Familiarizing yourself with those options will not only help to remove much of the stress that can come with buying a home, but also may end up saving you tens of thousands of dollars over the life of your home loan.

You may have read the news that at its June 2016 meeting the Federal Open Market Committee (FOMC), a subgroup at the U.S. Federal Reserve (often called “the Fed” for short), decided to leave interest rates unchanged. Some members of the group signaled that they may still raise rates once or twice before the end of the year, though, so if you are thinking about purchasing a home, being able to understand why interest rates go up and down can help you decide if now is the right time to buy, or if it might be better to wait a little while and hope that rates go down.

Crash Course in Interest Rate Economics

The main driver for any interest rate changes is the economy, and generally speaking, the FOMC makes its decision on whether to raise, lower, or keep interest rates that same based on economic data and forecasts for things such as hiring in the labor market, total economic growth, oil prices, and consumer spending power. Since some of these things are very difficult to predict far in advance, the FOMC meets about every six weeks to assess the economy and discuss policy options.

Examining Market Factors

Oil prices dipped in 2015 and while they have increased slightly since the absolute low from last year, there are reports that this year we will see the lowest summer gas prices in more than a decade, averaging just $2.27 a gallon. For the average driver, this signals good news for your wallet, but lower prices also mean a slowdown for the job growth in the energy sector, which was a major job driver for the past few years. As with any significant reduction in hiring and job growth, this can impact interest rate changes.

Inflation is another factor that the FOMC usually looks at the determine whether to raise interest rates. Inflation causes money devaluation—meaning that $100 will buy you less tomorrow that it does today if inflation goes up. When inflation is low, investors can make a better net return from their overall returns than when inflation is high. With inflation only rising at about 1.6 percent a year, well below the Fed’s target of 2 percent, it seems likely that interest rates will remain low.

Supply and demand also plays a factor, since interest rates can be boiled down to the cost to borrow money. If there is high demand and many people who want to borrow money (as there would be in a strong economy), the price to borrow will go up. When there is low demand (as there is in a recession or during slow economic growth), the price to borrow money will go down or remain low.

Determining when interest rates will change is difficult, even for the most seasoned policy and lending experts. For that reasons, most mortgage loan advisors would recommend that you take advantage of the current low rates right now rather than waiting and hoping that they will go even lower. Talk to the experts at City Creek Mortgage today about whether a no-cost refinance loan is a good option, or whether it’s time to take the leap and buy a home instead of renting.

City Creek Mortgage has access to the lowest interest rates available in the country. However, this is a privilege that is only available to those considered as top tier borrowers. Furthermore, the loan process to obtain the lowest rate is often more difficult and time consuming to the borrower. Based on our review of your file, you fit within the criteria to obtain the lowest rate. However, we want to make sure you are willing to help us through the process of the extra verification and scrutiny that will be required.

What is Required from the Borrower to Achieve the Lowest Rate?

First of all, we don’t want to make this sound more difficult that it truly is. Generally speaking, most loans flow through this process without much extra effort. However, in some cases, we have found more required in the following areas:

  • A full two years of taxes are required
  • Unknown deposits on a bank statement must be explained and documented
  • Appraisals take longer to complete
  • Extra explanation may be required for income or job history
  • We are subject to the underwriter’s time-lines – no rushes allowed
  • Appraisal reviews and extra property scrutiny

Assuming you are willing to put in the extra effort to achieve the lowest rate, know that we will use our years of experience and expertise to help make this process as smooth as possible. We are your partners in this process and will work diligently and quickly to get your loan closed with as minimal effort as possible. When we call to ask for something that seems absurd, just remember this explanation and know that the reward will be the lowest interest rate available in the market.

Are there Alternatives?

We recognize that some would rather pay a slightly higher interest rate and have the smoothest mortgage process possible. If this fits your situation, please let us know. Our goal is to ensure that your needs are met and your final goals and objectives are obtained.

If you have any additional questions, please let us know. We are always here for you.

Unless your interest rate is locked, the interest rate that is stated on your application does not necessarily reflect the current market interest rates.  Because interest rates fluctuate from one day to the next (sometimes from one hour to the next), it is not possible for us to predict where interest rates will be at the moment that we lock in your rate. Therefore, we typically use a rate that is slightly higher than the rates that are currently available. This is only so that we do not have to re-underwrite your mortgage in the event rates increase before your rate is locked. (One source to track national average interest rates and trends is www.freddiemac.com).

As Professional Mortgage Planners, our goal is to ensure that you have the lowest cost of your money over the anticipated life of the loan.  As part of that, we will analyze the difference between rate and fees, and determine at what level of closing costs we suggest you pay in order to minimize the overall cost of the loan. Remember, the lowest rate on the wrong program can cost you thousands of dollars more than a higher rate on the right program.  As professionals, we will always advise you based upon our extensive understanding of mortgage trends and interest rate vs. fee options.  We seek to earn your trust and understanding that we will always make recommendations that are appropriate for you.

As part of our jobs, my team and I spend a significant amount of time studying the current market trends and likely changes.  With the help of live bond tracking, as well as advice from advisors that we hire, we are pretty accurate at predicting short-term market changes. By using this knowledge to recommend when to lock a rate vs. float, we can potentially save you thousands of dollars over the life of the loan.  The key to this is to be prepared to make a quick decision in the event that we see an adverse change in the market.  All too often, we will make a recommendation to a client to lock and they will need time to consider the decision.  By the time they are ready to commit to a rate lock, the opportunity is often lost. Mortgage rates are not stable like car loans or home equity loan rates.  We want to ensure that you are ready to make a decision to lock if we see an adverse change in the market.

Another benefit of using City Creek Mortgage is for our access to the lowest cost money available. You never have to worry about shopping around for the lowest rates. We take care of that for you. We know which banks and mortgage companies are offering the lowest rates at the time, and we will ensure that we are placing your mortgage with the best offering at the time. Furthermore, because interest rates can change from hour to hour, shopping for the “lowest” interest rate is a waste of time. Shop for a lender you trust, not for interest rates.

Lastly, we greatly appreciate you and look forward to serving your mortgage planning needs for life. You can rest confidently knowing that your mortgage will be managed by a team of professionals who are committed to ensuring that we not only help save you thousands of dollars by having us manage your mortgage, but that we also are helping to empower your family and increasing your net worth.  You will never have to worry if you are in the best mortgage based on the current market conditions, or whether you are working with an honest, ethical and purpose-driven company. As long as you are a part of the City Creek Family, you will never have to worry about your mortgage.