Wednesday, May 13, 2015

Five Reasons to Refinance Your Home Mortgage Loan Soon


Mortgage loan rates are creeping up in Los Angeles

The Mortgage Banking Association (MBA) has just released its April 2015 statistics, concluding that credit availability for home mortgages has inched upward again. This is a continuation of a trend that has been ticking ever higher since January of 2015.

On the other hand, mortgage interest rates have followed bonds (which the invariably do) with increase in early May. While this may also reflect mortgage demand which is usually stronger in the go-go home sales months of May - August, it may also be telling us something about the direction of interest rates due to the competition for low interest bonds worldwide. Too many bonds chasing not enough cash will drive up rates.

The question you might ask yourself is this: "Should I refinance my home mortgage now?" Here are five solid reasons to do so.

1.  Lock in historically low interest rates - Even if mortgage rates have moved up .3 over the last couple of weeks, current rates of 3.8 on 30 year fixed loans is not normal, and will likely never happen again soon, if ever, once the Fed decided to tighten credit and increase base rates.

2. To realize optimal cash out - This may be the optimum value on your home for now. While the supply demand curve for residential real estate appears to favor owners for the next few years, there is likely to be at least a short term dip in home prices if interest rates rise by a point or two, back to normal levels. Moreover, prices usually peak in mid summer and drop of in the fall. If you want to get cash out, now may be the best time.

3. To eliminate your mortgage insurance - Whether through FHA or through a private insurance company, you may be paying as much as 1% or more per year to cover premium mortgage insurance. Most private insurance can be eliminated if you reach 80% equity in the home. Some FHA plans don't have this option. But you may be able to refinance the loan to get rid of the FHA premium.

4. To get rid of higher priced debt like credit cards of finance companies - Why would you want to pay 8%, 12.5% or even 23% for borrowed money, when your local mortgage lender will be happy to provide you that money for $3.8%.  If you have even $10,000 in credit card debt at 14%, you are shelling out $1400 per year for that credit line.  Save $1000 a year with a refinance.

5.  Prepare for a time of less or no income - Are you getting ready to retire? You won't likely be able to borrow against your home after your income stops. While for many homeowners, it is wiser to sell the home for cash or downsize to take out cash, for many the best approach is to to refinance the existing home to reduce the interest rate and/or take out cash. With such low rates today, you can generally invest the money at a better return, maybe even much better.

If you are thinking about refinancing your home mortgage, you

The Future of Los Angeles Residential Real Estate - Part 1


Who knew housing would crash in 2007? What's next?

Applaud who you will for the exploding cost of housing from 2000 to 2007, and then blame the same folks for the disaster that followed said explosion. Unscrupulous bankers, brokers, government workers and agencies, and consumers all had a hand in the mess. But none of the excesses would have been possible but for the BIG MYTH of that time: home prices will continue up forever.

The truth about any market is that there is no permanent truth other than change. Whether gold, steal, copper, coffee, stocks, bonds, or real estate, you can count on the reality that at some point the amateurs and pros will both get blindsided. Over the next several weeks, this blog will make the case that Los Angeles, and to a great extent the rest of the US and World, is entering into a period where the most brilliant among us haven't a clue of what to expect. They might pound their chest with bravado about their scientific theories of what the future holds, but the ones who turn out to be right will have done so by blind, or at least almost blind, luck.

Here is a short list of why the future is so unknowable regarding economic trends of any kind.
  1. Population growth in Los Angeles is coming from an aging population. People are living a lot longer. This trend is very likely to increase, not decrease.
  2. Young adults are getting married much later in life, if at all.
  3. We are not replacing the population through childbirth.
  4. Homes built in last 50 years were designed for a family of 5, not 3.
  5. A possible future where a majority work at home.
  6. A shrinking middle class, and increasing upper middle class.
  7. Not enough jobs for two wage earners in many homes.
  8. Possible shrinking population with no low wage jobs for immigrants.
  9. Second industrial revolution completely changing manufacturing and the service sector
  10. Self driving cars making commuting more bearable.
  11. Likely large increase in mortgage rates from historic lows today.
  12. Student loans keeping many out of the housing market.
  13. AirBnB and other similar companies eating up prime residential real estate
  14. Cost of basic goods and services will continue to decrease, creating a rising % of income that will be available to compete for housing. 
  15. The largest wealth transfer in history as baby boomers leave the stage
  16. The middle class moving out of Los Angeles, or even California, in search of cheaper housing and lower taxes in places like Texas or the Carolinas. 
If you'd like to do your own analysis. Go back through the list and see how many of these changes are likely to push prices up, and how many will be pushing prices down. 

Add your voice. What other major factors are likely to shape real estate prices in the future?