refis in q1 reduce payments by $2.5b in 2009

dave_donhoff

14 years ago

REFINANCES IN FIRST QUARTER REDUCE MORTGAGE PAYMENTS BY $2.5 BILLION IN COMING YEAR

http://www.freddiemac.com/news/archives/rates/2009/1qupb09.html

PARTICULARLY interesting is the data table provided...

Dave Donhoff

Leverage Planner

Here is a link that might be useful: REFIS IN Q1 REDUCE PAYMENTS BY $2.5B IN 2009

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Comments (3)

dave_donhoff
Original Author
14 years ago
Ballast
devorah
14 years ago
Wait - let's not add the ballast quite so fast. I have been shy about asking you this Dave, partly because I hate to impose on your time and partly because I have to reveal what a dork I am.

Last fall when we bought first one and then a second triplex, I asked about the mortgage broker's fee because that was something new to me. I still wonder about it because the American Trust mortgage broker I dealt with found me a mortgage through American Trust Mortgage who sold it to American Trust Bank. Seems awfully convenient. Fees were at the top end of what I understood to be usual, and I am a little reluctant to deal with these people again

But, I read in the paper that rental properties up to a triplex in size could also benefit from refinancing. I don't know how to approach this. I am paying about 7 1/2% because these are not owner occupied. I am not sure that I can afford to pay all the fees again that I paid last fall. I don't even know where to begin to investigate this since I am in a different state. Could you give me an idea of how to begin to see if this is something that would be beneficial to me?
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Hi graywings, I started reading this thread without noting the dates the posts were written. Dave, I don't want to put you on the spot, but I am wondering how the accounts you spoke of in 2007, the 72c Guaranteed Savings accounts (equity-indexed fixed life contract, or annuity contract) have weathered over the last three years. Heh... you can "put me on the spot" in this regard *ANY* time ;~) Both the equity indexed life & annuity products have *VERY* strongly outperformed the unprotected stock index markets over the same periods of time (since 2007. In fact, going back from today to almost as far as you'd like.) Their design is that they capture & credit any annual upside (to a maximum gain,) and lock that amount permanently to your credit. On any years with a downside, your account sits tight with no losses at all (guaranteed by the insured backings of the company reserves and the state's guarantee association (each state's equivalent of a regional "FDIC" in essence.) If you put $100,000 in the S&P 500 for the last decade, you'd actually be holding a bit LESS than $100,000 today (not deducting the tax or management fees that may also be applied.) The same $100,000 in an insured indexing account would be approximately $211,768, net of everything (taxes & fees,) *OR* about an average annual tax-free rate of return of 7.06% Alternatively, those folks who decided to take their working capital OUT of growth, and put it into their real estate equity, have been double-stung; Not only have they gained nothing toward retirement, their equity values have decayed from 10-30% (depending on the area.) The clients who've been with us the last 3-5 years have been rather relieved, ecstatic, and pleasantly bored, all at the same time. Its a very nice financial reality to provide. Cheers, Dave Donhoff Leverage Planner (PS. to re-paraphrase celticmoon; When everyone else's retirement nest-egg is drowning deep underwater... its kinda nice to be riding on the back of a "duck" ;~)
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What I understand from reading the fine print is that 6 months after you take out the loan, you can extend it for another 5 years at the best rate. So by the end of 2009 you could have basically a 10-year loan in place. Rates may or may not be this low for the rest of the year, but I don't expect them to go up dramatically. Whether that second 5 years is amortized over 30 years or not, I don't recall, but that would be a pretty small point, wouldn't it? I was considering this because we have refinanced twice in the past 10 years.* I was wondering if we really would keep another loan in place for 5 years, let alone 30. Our goal is to set aside enough cash over the next 10 years to pay off the balance -- when we have that, we can decide if it makes sense to do so at that time, but it would be an option. Also, I don't know if we will even stay in this house more than 10 years -- but time can go by before you realize it. I would like to take Dave's advice and find a mortgage broker. That seems like the way to go. But it's not that easy figuring out where to start, and in the meantime, rates are ticking up a bit. *First time: we went to a 15-year loan at the then-amazing rate of 5.125. After a few years of paying those high payments and putting the max into retirement accounts, we had no liquid cash. So for the second refinance, we went to a 30-year loan at 6.125. This has been working out well for us. Refinancing now at the current low rates would obviously allow us to retain more cash, but we can certainly manage as we are. I still remember when I bought my first house in 1993 and the 7.25% loan seemed really great.
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Values here have gone down some, but not a lot. That's particularly true in this development. We have a community newsletter & a realtor lists properties in the development that have sold, what the sale price was & how long they were on the market. We were in the first neighborhood of the development, so we pretty much know what the build price was on each home & can tell how values are holding up from that. We closed on our loan in June 06, construction was complete in Aug. 07. We refinanced in March 08 because rates had been steadily dropping. We managed to shave off a full point then. At that time the house appraised with a decent appreciation over the build price. I'm looking into refinancing again but it'll depend on how well values have held up. We're at 5.875% fixed now. While we'd like to get that lower, we won't complain too much if we can't.
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I found a wonderful quote in today's Chicago Sunday Tribune. It was the lead story in the Business section (although authored by the RE section's columnist, Mary Umberger). It illustrates something we see every day in this forum. Pennsylvania economist Joel Naroff is quoted: "The problem for buyers is that there is no such thing as 'the market'. Every community is its own special market, and each different submarket will bottom out at a different time. The bottom may be hitting the community next door to where you're looking to buy, but not the one where you're looking." He feels the country as a whole will bottom in 12 to 18 months and defines this 'normalcy' being where the number of sales grows and prices are stable or rising. (I guess this is the same 'market' he said didn't exist? LOL) Still, the same man just bought a house! It was what he wanted, where he wanted. The mortgage rate -- and costs! --were attracive, and he plans to live there for at least five years. The selling price was 25% under what the house would have brought two years ago, he says. The article points out that builders are prime in bringing down selling prices. An amazing example was a $100,000 reduction in prices for homes to be built in Plainfield (40+ miles SW of downtown Chicago). That's a LOT of money, especially as a reduction on homes costing $360,000 to $480,000! Did it work? Well, buyers were in line to put down lot deposits of $1,000. (Not this chicken.) Some big questions loom. Will there BE a 'spring market'? (Generally agreed to start after Super Bowl.) Will builders cease offering big concessions and reductions? What will mortgage rates and fees do? Biggest one: Will there be Recession? The closing paragraphs are quotes from a Wharton School of Economics professor of real estate, Susan Wachter. She sees further turbulance in the economy as a whole. She says that for most people this is NOT a good time to buy a house; that prices will decline another 5% or more over the next period; that the market (that non-existant market again!) could bottom in 2009 (NOT 2008)...unless there is a Recession. The OP in this thread may be low at 80%, but if there have been NO SALES and NO REDUCTIONS in six months in his community of choice...it does sound like everything IS overpriced. (Is that the case, OP?) They may not be over-priced by 20%, though. There are only so many buyers for homes in a community of million-plus properties. I am seeing some 10% - 15% reductions in my town on million-plus homes that have over 365 DOM. On the 'home as investment' side, might one be better off holding more RE and fewer dollars in an time of increasing inflation? (If liquidity isn't a problem!)
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dave_donhoff
Original Author
14 years ago
Hi devorah,

You are DEFINITELY NOT a 'DORK' (unless you mean that in an endearing way... which I fully embrace myself ;~)

7 1/2% because these are not owner occupied.

HIGHLY likely you can get that dropped sufficiently enough to have the deal make sense.

I am not sure that I can afford to pay all the fees again that I paid last fall.

I'd suggest looking first at whether there is any way to have the properties themselves pay for their own leverage refinancing from equity... then their own operating income will cover their costs, *and* the monthly savings from the interest reductions will "catch up to break even" on the initial costs against equity.

With primary residences the maximum breakeven point is usually best-advised at 3-5 years, simply because of the statistical realities of people's "life happens" creating unforeseen reasons to move (and thus sell.)

With rental income properties... *ESPECIALLY* self-supporting non-local properties, the unforeseeable "emotional" causes of a forced sale drop dramatically, and the statistical longevity of ownership stretches out, so that a significant reduction in carry costs (dropping the payments, increasing the operating positive cashflows) can make much more sense even when the breakeven on the refi takes longer.

I don't even know where to begin to investigate this since I am in a different state. Could you give me an idea of how to begin to see if this is something that would be beneficial to me?

I'd suggest working with a nationally licensed advisor (or at least one licensed in all the states you are concerned about,) preferrably one with investment property experience themselves. Of course, shamelessly, that describes ME on point... but there are certainly others (not many... but there are ;~)

Cheers,
Dave Donhoff
Leverage Planner

refis in q1 reduce payments by $2.5b in 2009

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dave_donhoff
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devorah

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refis in q1 reduce payments by $2.5b in 2009

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devorah

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