Two Reasons to Buy vs Rent

1: Cost of renting:

According to recent studies, rents have increased dramatically in recent years.  Vacancy rates are low, and the growth in renter households is high.  This means that landlords have greater pricing power when setting rents.

2: Cost of not owning:

The average rate of house price appreciation over the past 20 years has been over 3% per year.  In the Click here to view house price trends in your local market past five years, house price appreciation in many markets for starter homes has been even greater.

At 3% annual house price appreciation, a $10,000 down payment on a $200,000 house could grow to $40,000 over a five-year time period.

That growth could be money that you would have lost by not owning a home.

Contact me if you’d like me to run a buy vs. rent analysis for your specific scenario! 

Monday, March 19, 2018 - Mortgage Market Matters and Why Does It Matter?


Even though Congress agreed last month on a spending bill for the next two years, the bill did not appropriate funds to the various agencies and programs for the current fiscal year. So, the government is facing another shutdown at the end of this week if an agreement or another short-term funding bill is not passed.

Mortgage bonds opened lower this morning as mortgage pricing continues to drift sideways for the most part. This could be the calm before the storm as there are some large news items that could impact the market this week. On Wednesday, the Fed is scheduled to issue their interest rate decision and monetary policy statement. Also, Fed Chair Powell will be giving his first post-meeting press conference. The market is already anticipating a hike in short-term rates, so Wednesday's focus will rest on the Fed's "dot plot," which is the Fed's estimates for future rate increases.

Meanwhile, Congress is contending with a possible government shutdown on Friday at midnight amidst the ongoing drama regarding Trump, tariffs, trade wars and the Russia investigation. Even though Congress agreed last month on a spending bill for the next two years, the bill did not appropriate funds to the various agencies and programs for the current fiscal year. So, the government is facing another shutdown at the end of this week if an agreement or another short-term funding bill is not passed. As for today, there are no significant economic reports being released, although the Fed is scheduled to purchase up to $815 million of 30-year conventional mortgage bonds.

What should you do about it?


Lock your rate to be safe.

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MBS Chart

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Economic reports that may impact mortgage rates this week:
Date
Report
Period
Prior
Est.
Actual
Wed 21 Mar
Existing Home Sales
Feb
5.38M
5.40M

Wed 21 Mar
Fed Funds Target Rate
-
1.5%
1.75%

Thu 22 Mar
Initial Jobless Claims
Week of Mar 12
226k
225k

Fri 23 Mar
Durable Goods
Feb
-3.6%
1.5%

Fri 23 Mar
New Home Sales
Feb
593k
622k

Rate Markets: Thursday, February 22, 2018


   
What's going on and why does it matter?

Existing Home Sales for January were lower than expected and that was the 2nd "down" month. Is it because of rising mortgage rates? Is the economy as strong as the powers-that-be think it might be? Have they been testing the waters with slowdown in Fed bond buying, upping Fed rate, etc, etc, etc.

   
Mortgage bonds are starting to recover a little after yesterday's sell-off that was triggered by the release of the Fed minutes from their January meeting.  The Fed minutes depicted a more favorable view of economic growth and an even more "hawkish" outlook on interest rates than investors expected. This caused the sell-off in the global bond market to continue.  As for today's news, the jobless claims report came out near a 45-year low, which indicates continued strength in the economy.  There are a few Fed policymakers who are scheduled to give speeches, and the Fed's mortgage bond buying activity today is limited to $315 million of 15-year conventional mortgage bonds.

What should you do about it?
Lock your rate to be safe.

       
   
MBS Chart

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Economic reports that may impact mortgage rates this week:
Date
Report
Period
Prior
Est.
Actual
Wed 21 Feb
Existing Home Sales
Jan
5.57M
5.6M
5.3M
Wed 21 Feb
Fed Minutes
Jan
-
-
-
Thu 22 Feb
Initial Jobless Claims
Week of Feb 12
230k
230k
222k

TAX DEDUCTIBLE ITEMS FOR 2017 MORTGAGES

Here is a general overview of some information that may be helpful to you and your CPA as you prepare your 2017 tax returns:
POINTS PAID ON A HOME PURCHASE IN 2017
Closing Disclosure Page 2, Section A - If the origination charges on Page 2, Section A of the Closing Disclosure include points paid to your mortgage company in exchange for a lower interest rate, you can deduct those points in the year paid… even if they are paid by the seller.  Other fees in this section (application, underwriting, processing, etc.) are NOT tax deductible.  Only bona fide points are deductible if they are expressed as a percentage of the loan amount and paid in exchange for a lower interest rate.
POINTS PAID ON A MORTGAGE REFINANCE IN 2017
Closing Disclosure Page 2, Section A If the origination charges on Page 2, Section A of the Closing Disclosure include points paid to your mortgage company in exchange for a lower interest rate, you can deduct those points in the following manner:
  • You can deduct over the life of the mortgage all points paid on the portion of the mortgage proceeds that were not used for home improvements (for example, if you refinance your mortgage to reduce your interest rate, but do not take any cash out for home improvements).
  • You can deduct this year all points paid on the portion of the mortgage proceeds that were used for home improvements (if you received cash-out and are using that cash-out for home improvements). Remember, any points paid on the portion of the mortgage NOT used for home improvements must be spread out over the life of the loan. For example, assume you refinance an old $200,000 mortgage into a new $300,000 mortgage and walk away with $100,000 to be used for home improvements. In this case, 1/3 of your points are fully deductible this year and 2/3rds of your points are deductible over the life of the loan.
  • As outlined above, other fees itemized in this section are NOT tax deductible.
PROPERTY TAXES (ACTUAL AND PRO-RATED)
Closing Disclosure Page 2, Section F - Property taxes itemized in this section are generally tax deductible in the year they are paid. However, property tax escrows in section G are NOT tax deductible until they are actually paid by your mortgage company to the municipality (city, state, county).
PRE-PAID INTEREST
Closing Disclosure Page 2, Section F - Mortgage interest is calculated in arrears. This means that your monthly mortgage payment actually covers the month that just passed. For example, your February payment covers the interest for the month of January, your January payment covers the interest for the month of December, and so on. Oftentimes, when you refinance a mortgage or buy a new home, you “skip” a month’s worth of mortgage payments. That is why you sometimes pay "pre-paid interest" or “daily interest charges” in Section F of the Closing Disclosure. These daily interest charges cover the interest for the current month.  If your mortgage interest is deductible, then pre-paid interest that you pay in this section is also deductible (this will be included in the 1098 statement that you receive from your mortgage company).
PREVIOUS YEAR POINTS NOT YET DEDUCTED
You may be able to deduct the remaining portion of the original points paid on an old mortgage if you refinanced that old mortgage in 2017. For example, assume you paid points on a refinance transaction 3 years ago.  You probably were not able to deduct all the points you paid in the year they were paid. Instead, you had to spread that deduction out over the 30-year life of your mortgage. So, assume you’ve deducted 3/30ths of those points so far, and you refinanced your mortgage again in 2017. You can now deduct the remaining 27/30ths of those old points that you have not yet deducted.
PRE-PAYMENT PENALTIES
A pre-payment penalty paid on an old loan would be deductible on your 2017 tax returns as long as the new loan was taken out with a different lender than the old loan.
OTHER CLOSING COSTS
Closing costs not mentioned above are not tax deductible. However, they are added to your “tax basis” for purpose of calculating your capital gain when you sell the property. In other words, you may be able to reduce your capital gains tax (if applicable) when you sell the property in the future because your home purchase closing costs get added to your cost basis.
DISTINCTION BETWEEN A QUALIFIED RESIDENCE AND AN INVESTMENT PROPERTY
Everything mentioned above pertains to a mortgage transaction involving a primary home or vacation home that is elected as a “qualified residence” for tax purposes. If your transaction involved an investment property, see IRS Publication 527.
PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.

Thursday, February 15, 2018


What's going on and why does it matter?
Mortgage bonds remain pressured as the 10-year US Treasury yield is hovering near the critical 3% level.  Bonds had a rough day yesterday in response to a stronger than expected consumer inflation report. Today's wholesale inflation report (PPI) came out in line with market expectations, but bonds may be pressured again today because the stock market is poised to open higher on the heels of an overnight rally in the European markets. The Fed is scheduled to purchase up to $710 million of GNMA mortgage bonds today.

What should you do about it?
Lock your rate to be safe.
 
Economic reports that may impact mortgage rates this week:
Date
Report
Period
Prior
Est.
Actual
Wed 14 Feb
Core CPI
Jan
0.3%
0.2%
0.3%
Wed 14 Feb
Retail Sales
Jan
0.4%
0.2%
-0.3%
Wed 14 Feb
Business Inventories
Dec
0.4%
0.3%
0.4%
Thu 15 Feb
NY Fed Mfg Index
Feb
17.7
17.5
13.1
Thu 15 Feb
Initial Jobless Claims
Week of Feb 5
221k
230k
230k
Thu 15 Feb
PPI final demand
Jan
-0.1%
0.4%
0.4%
Thu 15 Feb
Industrial Production
Jan
0.9%
0.2%
 
Thu 15 Feb
Capacity Utilization
Jan
77.9%
78.0%
 
Fri 16 Feb
Building Permits
Jan
1.3M
1.3M
 
Fri 16 Feb
Housing Starts
Jan
1.192M
1.23M
 
Fri 16 Feb
U of Mich Consumer Sent.
Feb
95.7
95.5
 

Monday, February 12, 2018


What's going on and why does it matter?

Mortgage bonds opened lower this morning as stocks seem poised for a rebound.  The big news today is President Trump's fiscal 2019 budget release which will include $200 billion for infrastructure spending. This is adding to bond market jitters as investors worry about increasing bond supply due to federal budget deficits and decreasing bond demand as the Fed winds down its massive bond-buying program. The Fed won't be buying any mortgage bonds today, but they'll be back in the market tomorrow. The economic calendar for this week is quite full and the market will be paying extra close attention to consumer inflation and retail sales on Wednesday, wholesale inflation (PPI) on Thursday, and housing starts on Friday.
  
   
MBS Chart

Economic reports that may impact mortgage rates this week:
Date
Report
Period
Prior
Est.
Actual
Wed 14 Feb
Core CPI
Jan
0.3%
0.2%
 
Wed 14 Feb
Retail Sales
Jan
0.4%
0.2%
 
Wed 14 Feb
Business Inventories
Dec
0.4%
0.3%
 
Thu 15 Feb
NY Fed Mfg Index
Feb
17.7
18.0
 
Thu 15 Feb
Initial Jobless Claims
Week of Feb 5
221k
227k
 
Thu 15 Feb
PPI final demand
Jan
-0.1%
0.4%
 
Thu 15 Feb
Industrial Production
Jan
0.9%
0.2%
 
Thu 15 Feb
Capacity Utilization
Jan
77.9%
78.0%
 
Fri 16 Feb
Building Permits
Jan
1.3M
1.3M
 
Fri 16 Feb
Housing Starts
Jan
1.192M
1.23M
 
Fri 16 Feb
U of Mich Consumer Sent.
Feb
95.7
95.5
 

How do the changes to to the Mortgage Interest Deductions impact me?


The only type of home mortgage interest that is tax deductible in 2018 is interest on up to $750,000 of
loan proceeds used to buy, build or improve a qualified home.  The $750,000 is aggregate total for both qualified homes(one primary home + one vacation home). For more details, see my article called, “When is Mortgage Interest Tax Deductible.” Here are five ways this change may impact your home loan strategy:
  • Debt Consolidation Loans – the interest on the “cash-out” proceeds or home equity loans used to pay off other debt that was not used for home improvement is no longer tax deductible
  • Vacation Home Loans - it may not be a smart idea to use a “cash-out” mortgage or home equity line of credit on your primary home to buy a vacation home. Instead, you may want to consider placing a mortgage on the new vacation home when you buy it so that it can be treated as “acquisition indebtedness” for tax purposes.
  • Home Improvement Loans - the interest on a “cash-out” mortgage or home equity lines of credit is generally still deductible if you are using the funds for home improvements. There are certain rules and timelines that need to be followed to make this work.
  • Refinancing an “Acquisition” Mortgage Closed on or Before December 15, 2017 – there may be no need to worry about losing your tax deduction if you refinance an old loan that was used to buy, build or improve your home. That’s because the interest on your new home loan is generally still tax deductible on balances up to $1mm if the new loan balance is the same as your current loan balance.
  • Refinancing an “Acquisition” Mortgage Closed After December 15, 2017 – the interest on your new home loan could be deductible on balances up to $750,000 if the loan balance is the same as the old loan balance. If you are increasing your mortgage balance, you may want to use the funds for home improvement to keep your tax deduction on that portion of the loan.
Be sure to check with a CPA for more details about how these changes may impact your specific situation.

PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.