Chances are that you have seen articles and other media types reference the relationship between the Hoover-FDR regime and the current Bush-Obama regime.  Looking back to the time of the Great Depression (aka the Hoover-FDR regime), we can see shocking similarities that indicate history is destined to repeat itself, though this time may be worse.

Now, I am not one for spreading fear, or even for intentionally raising controversy.  However, I do like to spread reality when it appears necessary, such as I have done in reference to Money Merge Accounts and other mortgage acceleration programs.  This is one of those times when our leaders should learn from history so as not to repeat it, and as of now, it appears they are failing in that area.

As I have been reading my “get back to later” emails yesterday, I found some interesting perspectives that were presented.  One of the more interesting ones is that of the comparison of Obama to John Law, the original “New Dealer” that created hyperinflation by using a bank to create money out of nowhere to pay for government programs in France during the early part of the 18th century.  Here is what Doug French of the Mises Institute had to say…

“We can now throw Obama in with the other inflationist New Dealers, and with a compliant Treasury and Federal Reserve and their expanding monetary tools at the ready, he can do more damage than even John Law.”

Personally, I think Mr. French is right on the money with this one.  When looking back in comparison to FDR, it is important to note that an investigative journalist, John Flynn, whom backed FDR prior to his election subsequently became FDR’s fiercest critic, which FDR thus effectively silenced by having the Yale Review stop publishing him.  This what Flynn had to say in reference to John Law…

“As a New Dealer, [Law] was not greatly different in one respect from the apostles of the mercantilist schools – the Colberts, the Roosevelts, the Daladiers, the Hitlers and Mussolinis and, indeed, the Pericles – who sought to create income and work by state-fostered public works and who labored to check the flow of gold away from their borders”

Are you seeing the similarity to our current situation here yet?  Just in case you aren’t yet, let’s take a look at what Ivan Eland of the Independent Institute had to say about the comparison…

“Both Hoover and FDR tried to artificially pump up the economy by increasing credit, aiding banks and increasing federal expenditures, including spending on futile ‘make-work’ public works programs – all of which required the economy to fall farther back toward equilibrium, thus turning a mundane recession into the Great Depression.”

“Similarly, Bush partially or wholly socialized financial institutions, and Obama has gone on a public works binge. They both have increased credit and vastly increased federal spending and regulation.”

I think it is pretty clear now that we are duplicating the actions that were proven to have created the Great Depression and hyperinflation.  With the Federal Reserve and the Treasury creating money out of thin air, and our government doing everything possible, and then some, to extend credit and increasing government expenditures including “public works programs”, how can anyone not see what lies ahead?!?

It reminds of the definition of insanity presented before, that “insanity is when you repeat the same actions over and over again and expect a different result”.  Well, it appears our government is truly insane!!!!

Now, what does this all have to do with mortgage rates?  Well, based on history, particularly that of John Law, hyperinflation is just around the corner.  Since inflation is the archenemy of bonds, and mortgage backed securities (aka mortgage bonds) are what determines mortgage rates, mortgage rates will be hard pressed to remain low, in fact I expect them to hit the double digits in the not to distant future.  I can only hope I am wrong, but then I guess that thinking would make me insane as well.

(source for quotes: Agora Financial’s 5-minute Forecast)


Equity Management Dead? Think Again!!!

by Florida's #1 Mortgage Planner on April 30, 2009

As promised, here is a post on the lunacy of those that just don’t get it.  Of course, this particular individual is an advocate for that complete waste of money program called the Money Merge Account.  I have proved time and again that there are much better ways to manage your debt and equity to increase safety, rate of return, and especially liquidity.  The latter is more important now than ever for two reasons. 

Liquidity, aka cash readily accessible, is what is keeping some homes from facing foreclosure and allowing others to invest and reap great returns even in the current market.  The individual who wrote me thinks that since the stock market is down, that those whom were paying off their mortgage, especially through the MMA program, were better off.  That is actually a ridiculous statement as I will prove yet again, with facts of course.

Besides the cash in hand reality, contrary to popular belief, those whom had their money in mutual funds under good management still lost less money than most homeowners did in the value of their properties.  Using myself as an example, as I often do, my home decreased in value nearly 50% over the last few years.  At the same time, my 401(k)s values dropped roughly 42%, that being since I did not move to an all cash position like I could have and minimized the loss, period.  So, in essence, comparing the two yields a nearly 8% better performance under my 401(k)s than my home’s equity.  That is leaving out the fact that home equity itself can never have a “positive” rate of return.

Now, let’s look at the reality of home equity.  Let’s assume you put 20% down on a $325,000 home, you now have equity of $65,000.  Now, we will assume that your home appreciated for a while after you bought it, let’s say to $670,000.  Did your equity actually have a rate of return?  You might think so, but reality is that the home appreciated not due to how much money you put into it, rather due to market forces.  However, you did yield a $280,000 profit (431%) on your money if you sold at that top.

Now, let’s say you bought your property, again 20% down, only this time at the top of the market, aka at $670,000.  You now had $134,000 in equity at the beginning.  The market collapses and now your home is only worth $355,000.  Did your equity have a negative rate of return?  Once again, your equity had no rate of return itself, again market forces drive the price, not how much money you have in the property.  However, in this case, the you would have lost $315,000 (-235%) on your money, right? 

Not necessarily is the correct answer to that question.  In “equity”, that answer is correct, however if you had an interest only loan, that loss is only $134,000 still, all the money you had “deposited” into the home.  If the you had been paying off your mortgage, especially as fast as possible, that loss grows.  Let’s say you paid off an additional $50,000, your loss is now maxed out at $184,000, increasing your loss.  What about if you were able to knock off $100,000 from your mortgage?  Great, you just added to your losses, bringing them to $234,000, and you still walk away from a sale with nothing.

Ok, now you are forced to sell the home, and let’s assume you manage to get a short sale down at the amount you owed.  Which situation would you rather be in?  Losing $134,000, $184,000, 234,000?  I am guessing the $134,000, at least I hope that is how you are thinking.  I know there are other factors that go into this, but this example is to prove a point.

Ok, let’s get back to the advantages of keeping your money in investments or simply in cash.  One big advantage of having cash on hand is that you can pay your mortgage and living expenses for quite some time even during a job loss.  That to me is a huge stress reliever, especially in the current economic environment.  Beyond that, having cash on hand provides the ability to take advantage of opportunities, which many people are doing today, yielding great rates of return, far exceeding the costs of their mortgage(s).  Again, using myself as an example, I had a stock portfolio that increased over 60% in less than two months.  I currently own stocks that yield over 18% in dividends, which are only taxed at 15%.  If you think you cannot make more money than your mortgage costs you, think again.

Now, is equity management, equity harvesting, or any other mortgage strategy besides paying off your mortgage as quickly as possible right for you?  That depends on your specific situation and you need to be working with an appropriately qualified mortgage professional, even a team of financial professionals, to ensure the best strategy for you, along with making sure it is implemented and monitored.  I do my own strategies personally, but I have been trained in finances and investing having had securities licenses before, along with my mortgage planning background.  Yet, even I discuss strategies with financial planners, CPAs, and others I work with and I never stop learning.

So, to those who think that just because the stock market is down is enough reason to push their agenda, selling a product that costs more than it saves, and does nothing more than promote financial incompetence, may I recommend you take some training and study how money truly works and provide genuine comparisons of ALL strategies to your clients.  Granted, you may not make that much money, but at least you can truly say you have your clients best interest in mind.  And for homeowners reading this, make sure you seek a mortgage professional whom can show you side by side comparisons of ALL strategies and explain all of the risks and rewards associated with each one, so you can make a truly informed decision as to which strategy is best for you.


Fed Sees Contraction Slowing, Mortgage Rates Climbing?

by Florida's #1 Mortgage Planner on April 29, 2009

As I have mentioned numerous times before, the Policy Statement released by the FOMC at the time of announcing their decision on the Feds Fund Rate is the more important factor in determining which direction mortgage rates will move in the future.  I had expected a big shock to the markets, possibly even an increase in their MBS purchasing agenda yet again.  This time there was no “surprise”, rather a renewed commitment to the $1.25 trillion MBS purchasing spree, along with  the renewed commitment to use ALL available tools, including those not yet created I am sure, to open the floodgates of credit. 

Let’s break it down…

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower (no surprise hear as that is what the data has been indicating for a while now). Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit (the latter being the real problem since credit is what drove the economy before and is seen as the salvation of the economy). Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing (it’s called survival tactics). Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time (the pool water needs to be tested again before jumping in). Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability (Was it really their actions that are helping the economic recovery?  Is the economy really recovering or will it follow the path of the Great Depression and crash again in 2011?).

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued (While there is slack, it is interesting to note that our government has gone way beyond others in handling the situation.  This overreaction is likely to create high inflation rates, even hyper-inflation, so once it becomes un-“subdued”, watch out). Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term (Interesting outlook, the question being how much time and can the Fed react appropriately and timely enough to prevent excessive inflation, something I highly doubt).

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability (and will likely create even more). The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period (Well, they can’t go any lower unless they pay people to borrow). As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn (actually shortened the time of purchasing, but essentially both recommitments to artificially propping the markets – can you say “bubble”?). The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets (expect purchasing to be aggressive when it appears rates will increase dramatically, such as today). The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs (they feel without the credit floodgates opened, our economy will not recover). The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of financial and economic developments (if they don’t like the way the balance sheet looks, they will just print more money).

Well, it looks like the Fed has everything under control still, right?  After all, they recommitted themselves to printing as much money as necessary and artificially manipulating the markets, not to mention using everything they can possibly think of to get credit flowing.  I am sure they will be able to just “soak up” all that money supply once inflation really starts going.  Yeah, right.


Will the Federal Reserve Pay You to Borrow Money?

by Florida's #1 Mortgage Planner on April 28, 2009

As strange as that sounds, many moons ago I mentioned that the Fed, led by Ben Bernanke, would love nothing more than to pay people to borrow money and a study released yesterday proves I was right.  The fact is that Big Ben wants inflation so bad that he would be willing to pay others to borrow money if he could actually do that. 

The study that was released yesterday morning stated that the Federal Open Market Committee (FOMC) was presented with the suggestion that the optimal interest rate would be –5%.  That’s right, supposedly the best interest rate would be to pay others 5% to borrow money, despite the fact inflation is near 2%, so the net loss on money lent would be around 7%.  That’s OK though, they don’t have to take the loss, they just pass it on to every American with increased taxes down the road.  Oh, and don’t be naive, those higher taxes will be coming, it is just a question of when.

Nevertheless, since the Feds know that they cannot go negative and they are already sitting near zero percent, they recommend keeping up, even stepping up, other unconventional policies that have the same effect as negative interest rates, such as the announcement of the stepping up of MBS (mortgage backed securities) purchases to $1.15 trillion.  The research the Fed was acting upon actually suggested an even greater amount, but the Feds decided to play it “conservative” as one Fed governor defined it.

Why am I bringing this up right now?  Easy, the FOMC is meeting again as this is posted so be prepared for more of these "unconventional” policies to be released.  What worries me is that Big Ben himself already stated that inflation will be an issue after the next FOMC meeting, so we are likely in for a shock as the Fed makes their announcement tomorrow.  There is even talk that the Fed may up their MBS purchasing yet again.  Remember that the Fed’s Policy Statement has a much greater impact on mortgage rates than their actual decision, so I will give you a rundown once it is released tomorrow at 2:15.


Tax Planning: Everyone Should be Doing it

by Florida's #1 Mortgage Planner on April 23, 2009

I cannot tell you how many people I come across whom do not plan ahead for the tax year.  We just past April 15, the day personal taxes are due, and when many options for the last year expire.  Nevertheless, it is not too late to take advantage of some tax planning for this year. 

Now, I am not an accountant, CPA, or even a tax preparer (except my own business and personal taxes), so what follows is just from my own perspective and may or may not apply to your situation.  If you don’t feel like looking through the thousands of pages of tax code yourself, I suggest seeking professional guidance as to how you can save on your taxes.

OK, with the above in mind, let’s get into some possibilities for you.  Did you know that one of the best ways to save on taxes is by owning a small business?  That’s right, if you don’t already have own, you may very well want to start one, but don’t do it simply to save taxes or the IRS will get you.  There is a lot of planning and preparation that goes into starting a business, so it is not something to enter into with little or no thought, as consequences can be very costly.  There are plenty of resources to be found on the internet about starting and maintaining a business, though some bad info is out there as well.  I have two businesses currently operating with another in limbo.  If you want more information, please feel free to contact me.

Now, even if you don’t have a small business, there are many tax advantages to be had.  I come across people all the time that don’t realize some of the deductions that they can legitimately take, especially when it comes to their current employment.  You would be surprised some of the legal deductions one can take as it applies to being an employee.  For instance, if your job requires you to be properly groomed and cannot have a beard (such as being a pilot), you may be able to deduct the costs of haircuts, razors, and other grooming supplies.  These types of items are placed on a Schedule A, and are subject to limitations of course, but as they add up, your tax savings may be adding up also.

One of the most obvious deductions is that of mortgage interest, which has its own limitations as well.  Most also know of the deductibility of real estate taxes as well.  But did you know you can deduct investment interest expenses?  Did you know that you may be able to deduct mortgage interest as investment interest in certain circumstances?  Did you know you may be able to deduct mortgage interest as interest on a business loan in certain circumstances? 

Did you also know that there are some deductions that can be bundled together and carried forward to the next year, allowing you to take advantage of the standard deduction this year and combining several deductions the next that exceed the standard deduction.  There are also certain tax deductions, even tax credits, that you can take even when using the standard deduction.  Again, seek a professional for your own situation and see what you can take advantage of.

Chances are that you have also heard of Flexible Spending Accounts, Health Savings Accounts, or the like that allow you to take a portion of your income and place it aside tax free for certain qualifying expenses.  For Health Savings Accounts, you may even be able to use money from this tax free account to pay for over the counter medications, such as aspirin.  If you have been budgeting, or at least have an idea of how much you spend annually on qualifying expenses, why not create one of these accounts (if available to you) and save on your tax bill.

Of course, since I am not writing a book here, I cannot even begin to cover all of the possibilities you have to save money on your tax bill.  You need to seek professional guidance (or read the tax code) to find all that apply to your specific situation, but if you do so, the savings generated could go a long way to helping you reduce debt, invest more, and become financially free. 

Now many of you reading this will simply find a way to boost your refund.  That is poor planning, and believe me when I say I am guilty of getting over ten thousand dollars back on a couple of occasions, which actually pisses me off a bit.  You see, if you do proper tax planning, you can achieve those savings on a monthly basis, and receive a slight refund, or even pay some when your taxes are due.  Why give Uncle Same an interest free loan on your hard earned money?  You may be able to adjust your W-4 as an employee and boost your cash flow today and get your money working for you.

The bottom line is that there is no time like the present to begin your planning for your taxes and taking advantage of every possible deduction or tax credit.  Doing so can result in tremendous tax savings, increased cash flow, and even attaining financial freedom much sooner than you expected.  Don’t delay and implement your tax strategies today.


Long Time…No Postings: Lots of Information Coming Soon

by Florida's #1 Mortgage Planner on April 19, 2009

I know many of you that have followed my postings for a while have been wondering where I disappeared to.  Well, I needed to focus on other things, not the least of which were my taxes, which were 17 pages long for just my personal filing.  Fortunately, the business one was shorter, but all are very time consuming to say the least.

Now that taxes have been filed and I am getting caught up on things missed, you can expect some posts this week.  I will be highlighting some of the questions and statements I have received about equity management, including one that proves his ignorance on the subject.  Of course, he is an advocate of the Money Merge Account, so that explains a lot by itself.

I will also hit on the need for tax planning and how even those whom don’t itemize every year can save on their taxes.  Of course, one of the best ways to save on taxes is to have your own business, which if you need help finding one to start, I can assist you should you choose to go that route.  It is not a choice to take lightly, but the rewards can be tremendous, and I am not talking only about taxes.

Adding to the delays in posting, and an experience I will likely work into a post eventually, was a flight which included a few bad experiences wrapped up in one leg.  It was certainly a leg no one will soon forget, especially the passengers.  However, it also proved how safe flying is despite all of the factors that worked against us.  Of course, it also stresses the importance of working with professionals and not just anyone who manages to get the job.  For those wanting the quick rundown now, the flight included an engine that lagged in spooling up, a microburst, and low fuel, not to mention the diversion into a city we normally do not serve.  If you want more details, you will need to contact me.

So there you have the basics as to why postings have been non-existent over the last month here.  I do maintain daily postings over at Florida Mortgage Daily, covering the mortgage market and the direction mortgage rates are headed of course.  I also have maintained the weekly mortgage market updates over at Lenderama.  And over the next few days, I expect to have several posts uploaded right here. 

PS – that book I have been writing, along with other projects, will have work resuming and hopefully completing in the very near future.  I will also be launching a marketing plan for my travel business soon.


No doubt, unless you are a hermit, you have heard the media talk about mortgage rates heading for 4%.  Heck, even Jim Cramer, you know that “Mad Money” guy on CNBC, was praising Ben Bernanke for making this move today and even saying he just gave us 4% mortgage rates.  Of course, John Stewart (Daily Show on Comedy Central) showed just how good Jim Cramer is, and it makes you wonder just how much he knows about the markets and how mortgage rates are derived.

So, just why is everyone in the media talking about 4% mortgage rates again?

Well, it all comes down to the Fed’s Policy Statement and not just their rate decision.  Sure, the Fed kept the Fed Funds Rate at 0-0.25%, but statements released were what really is driving the markets nuts today.  Let’s take a moment and dissect it…

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract.  Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending (no arguments there).  Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment (reduced inventories help spark inflation).  U.S. exports have slumped as a number of major trading partners have also fallen into recession.  Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth (and what about inflation when this happens?).

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued (big gamble).  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term (CPI showed deflation is not an issue).

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability (this has been repeated time and again).  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period (until America decides it’s OK to increase their debt loads again).  To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion (here is why mortgage rates are dropping today – market manipulation)Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months (wow, the governmentis even manipulating their own debt market).  The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility (yet another bailout program) to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets (they will probably even except excrement as collateral so they can give away money).  The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of evolving financial and economic developments.

OK, am I being harsh?  Maybe. Reality will show a different picture, one that has all of this Fed purchasing of mortgage backed securities as only keeping mortgage rates steady, just as they have been.  What I read into this, and maybe I am wrong, is that the Fed knows market pressures are going to increase and want to drive mortgage rates higher, and do so for a long time.  As a result, they will need far more than the original $500 billion in market manipulation to prevent the mortgage rate bubble from bursting too soon.  Do to other market forces and the way mortgage rates are derived, mortgage rates are not likely to drop much, nor will they likely stay low for an extended period of time.

Yes, the mortgage rate bubble I have talked about before is likely seeing more “air” being pushed into it.  As the government spending spree continues, along with the “gradual” return of the economy, the mortgage rate bubble will burst as artificially inflated markets do.  One need to look no further than the housing market to see this fact, as it was artificially inflated interestingly enough by the government, namely Barney Frank and Christopher Dodd.  Are you going to believe that the Fed’s market manipulation of MBS is not going to result in a bubble burst?  We can only hope that the Fed will make a pinhole and let the air out gently, but with a bubble as big as $1.25 trillion, even a pinhole is likely to create a big bang.


Would You Like a Side of Hyper Inflation to go With Your Job Loss and Reduced Fat Retirement? That is the question our government would be asking you if they were your waiter.  While I was doing this morning’s mortgage market update, that thought came to mind as a great way to sarcastically explain the government’s actions thus far.

With job losses mounting, the government claims they need to force through another stimulus package which creates more jobs, government jobs that is.  And they did exactly that, well not exactly as the amount of jobs they actually will create versus what they claim will not equal each other, and it will be inversely proportional to how much the cost is.  In simpler terms, they won’t create the promised amount of jobs and it will ultimately cost more than what they said.  Also, history shows that growing the government is exactly opposite of what the government should be doing, at least in a capitalistic society.  maybe the dessert selection will be socialism?

I don’t think there are many out there that didn’t have money in the markets in one form or another, 401(k)s, IRAs, etc.  With real estate prices already tanked, stocks and even bonds crashing (or about to), virtually everyone approaching retirement right now is facing a new reality.  That reality is that they will be forced to work a lot longer than they expected.  Those of us whom have more time on our hands, well, chances are you are freaking out about your losses right now, but you will recover in the long run, again based on history.

Don’t think history repeats itself?  Look again. 

If we look back at the Great Depression, you can see we are pointed likely towards an even greater one.  Why?  Last time, our currency was based on gold.  Now, it is merely paper currency and Bernanke has already stated that he will run the printing presses, debasing the dollar, creating inflation (even hyper-inflation if need be) in an effort to jumpstart the economy.  Looking back to the Great Depression, FDR brought on the New Deals, a move that prolonged the depression, not fixing it as has been proven.  Bernanke has scholared himself in the Great Depression, and I believe he thinks the New Deals were what brought the America out the other side, wrongful thinking, but also the same thoughts no doubt that Barack Obama and his congressional buddies have.

Since Bernanke knows that in a paper-based economy he can run the printing presses without limit, there literally is no end to the amount our government can, and will, spend.  The end run, again based on history is that when the economy does finally return, and it will, we will realize exactly what the true cost of those government bailouts is, inflation, if not hyper-inflation, and don’t expect the CPI (Consumer Price Index), PPI (producer Price Index), or even the PCE (Personal Consumption Expenditures Index) to show it, at least not until it is too late.  In fact, we may already be seeing inflation reentering the picture, despite the recent data, at least based on the fact that money supply is climbing rapidly.

What does it all mean for mortgage rates, and even the real estate market?  People will always need to buy homes, but with rising rates, they may not qualify for a large enough amount to sustain rising real estate prices.  If this all unfolds as it may, we may very well see rising mortgage rates and real estate prices remaining steady for a long time, with no real appreciation since people will not be able to afford higher priced homes.  Hopefully I am wrong, but it is a reality we may very well face and must be prepared for.


Can You Afford to Wait for Lower Mortgage Rates?

by Florida's #1 Mortgage Planner on February 13, 2009

Can You Afford to Wait for Lower Mortgage Rates? Many of you reading this have been waiting for those government promised mortgage rates of 4.5%, or even lower.  Do you realize those rates may never come in actuality?  Can you comprehend how much money you are wasting by not refinancing or outright purchasing a property right now?

First, let’s look at those of you waiting to refinance.  Since rates are currently around 5% and it usually doesn’t make sense to refinance with less than a 1% drop in rate, let’s put together a scenario.  You have a $200,000 loan at 6%, with monthly mortgage payments (not including taxes and insurance) of $1,199.  You are now faced with the dilemma of refinancing since rates dropped lower, down into the 4’s, but you didn’t take advantage of them and they have now risen to 5%.  You hear the media talk about lower mortgage rates, namely 4.5%, throughout the headlines and this causes you to wait longer in anticipation.  As we near the passage of a new stimulus package, along with headlines from the federal Reserve stating they will keep buying mortgage backed securities, you think to yourself that mortgage rates must be heading lower, so I will wait.

But how much money are you wasting while you wait.  Let’s say that it takes 6 months to get rates that low (personally I don’t think it will happen) and we will leave the tax benefits aside.  If you refinanced that $200,000 right now, your monthly payment would drop to $1,074, giving you an extra $125 in cash flow.  That $125 can go a long way to paying off high interest debt, or we can simply save it.  That means that 6 months down the road, you would have saved $750, right?  Actually it is more since when you have a lower interest rate, more money each month goes to the principal, so your savings actually are $1,000, even more if you invested the savings instead, which I highly recommend.  It would take you over 15 months to recover those losses if you refinanced into a 4.5% mortgage at 6 months.  And what if rates continue to go up?  How much more will that cost you in the long run?

What about those of you whom continue to rent, say at $1,000 a month?  If you were to buy a home with a $200,000 mortgage at 5% right now, your payment would go up, yes, to $1,074.  But what about the tax savings you gain, not to mention the equity building?  Let’s take a look, of course I need an estimated tax bracket, so we will just use 25%.

If you were to buy the home now, your net after tax payments would go down to $865, yielding a savings of $135 each month.  You can adjust your W-4 form with your employer and start reaping that savings immediately as well, instead of lending it to Uncle Sam interest free.  So, in 6 months you would have paid down $1,457 in principal, plus had a net savings of $810, for a total savings of $2,267!!  Again, what if mortgage rates don’t go down or even continue their climb?  Are you willing to risk those losses?

The reason I am writing this is not to get you to rush into taking on that new mortgage right now.  rather, this is to ignite in you the realization that every decision you make, even not making one, has a profound effect on your finances, especially when it comes to your mortgage.  Use your mortgage as a financial tool, and it can be the best investment you ever made.  Enter into a mortgage without incorporating into your overall financial and investment plans, it could easily lead to financial disaster, and you could become another statistic or part of the next hews headline.  I cannot stress the importance of seeking a genuine mortgage planner, and those are hard to come by as mortgage professionals across the country struggle to survive.


"House of Cards" on CNBC

by Florida's #1 Mortgage Planner on February 12, 2009

I normally am against promoting any shows in particular as most forecast the doom of the market(s) they represent, but this one may be worth watching.  I have been in contact with a couple of people at NBC about this show and look forward to watching it, hopefully as it airs tonight, if not recorded for watching tomorrow. I will, of course, critique it after viewing, so look for my review in the near future.

House of Cards on CNBC