Make the most of your home investment

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The Ins & Outs of

Up-and-Down RATES
Across the board, loan rates are higher than they were just a year ago. Keep these factors in mind as you look for the best loan – and rate – for your budget
CTW Features WHAT’S THE BEST TYPE of home mortgage loan to choose in the current housing downturn? Will interest rates continue to tick up? Should you wait for a rate drop? Indeed, the mortgage market is beset by questions these days, especially considering the tighter restrictions being imposed on borrowers lately and the gradual uptick in rates. According to Freddie Mac’s latest Primary Mortgage Market Survey, the average 30-year, fixed-rate mortgage has moved up from 6.18 percent in early January to 6.69 percent in late July. Last year at the same time, the 30-year fixed rate averaged roughly the same, at 6.72 percent. Morgan Brown, COO at New Day Trust Mortgage, Orange County, Calif., says interest rates have returned to the highs of 2006 due to several factors, including the Federal Reserve raising short-term interest rates in an effort to stem inflation in the economy and the decrease in foreign investment in our mortgage bonds. “The fluctuation in rates over the past year has been driven by secondary market investors who have different tolerances for both interest rate and credit risk,” says Keith Conner, vice president of consumer lending at MetLife Bank, Bridgewater, N.J.“Their investment decisions and demand for specific types of mortgage pools to purchase versus the supply available drive volatility throughout any given day.” Ask David A. Podgursky, a Miami, Fla.-based mortgage specialist, and he’ll tell you that

I need to move out of state, and my home can’t stay vacant. What kind of sale can I do?
Q: I owe $138,000 on a house, plus $22,000 on a
second trust. I’ve lived here for two years. The property is worth about $140,000. I must move; my broker cannot find a renter; I don’t want a seller leaseback; and I’m concerned that my broker will not renew the listing when it runs out. I currently am getting job offers out of state, but I can’t leave this house empty or else I’ll default on my homeowner’s insurance. Would a short sale make sense in this situation?

A: With a short sale you’re asking a lender to take a loss.
This raises a question:Why should a lender lose money on your property? The lender would not get some of the profit if the value increased. Since you’re getting job offers, an approach to lenders might work like this:The lender will take back the property if you will agree to a personal loan for the unpaid balance.This will make it difficult for you to buy elsewhere and a short sale can impact your credit, but given a range of tough choices this may be the best option. Have an attorney or legal clinic contact the lender on your behalf. Make sure your lawyer first looks at the listing agreement, as well as the loan papers.

Q: Our son and daughter-in-law are on the verge
of foreclosure. They presently have a $200,000 mortgage, with a $1,200 monthly mortgage payment, excluding taxes. Since my daughter-in-law just recently had our second grandchild, she has gone back to work but is not getting much income. Is there anyway we can lower their monthly mortgage payments?

Bright beauty:The right light brings warmth and utility to any room in the home.

Illuminating Décor
Don’t let a lack of lighting knowledge leave you lost in the dark
ave you ever had dinner in a room that was so poorly lit you weren’t sure if you were being served a salad or an entree? Or the lights were so bright that you felt like you were being interrogated? Lighting that is too dim or blasts you with a hot spotlight not only is annoying but diminishes the beauty and function of your home. By understanding and applying the basics of proper lighting you can bring warmth, beauty and utility to any room. and tour each room of your home, checking for each type of lighting. Look for dark areas or shadows and for uncomfortably bright areas. Ambient light is a diffuse, warm light that fills a room and casts no shadows.This type of illumination should be sufficient to allow you to move safely through a room, have a conversation or watch TV comfortably.Ambient lights can provide enough light to read or work at a desk, but they may need to be supplemented. Ceiling fixtures generally do not provide sufficient ambient lighting.Ways to provide or augment this type of lighting: • A pair of matching table or floor lamps, with white or off-white shades and three way bulbs, placed to either side of the sofa, or on either side

A: Possibly.When you say they are on the “verge of foreclosure” do you mean they have one or more missed mortgage payments? Do they face higher monthly costs because their loan is resetting? It costs big money to foreclose; by some estimates lenders lose perhaps $40,000 on each foreclosure – even after mortgage insurance kicks in. If your son and daughterin-law have a lender who is in any way lucid, the lender will not want to foreclose, thus they or their attorney should contact the lender immediately and ask if it is possible to modify the mortgage terms. A loan modification is not possible with all loans because of the way in which they have been packaged for investors, but in many situaSee ASK OUR BROKER, Page 2


There are three basic types of lighting: ambient, task and spot lighting.To assess the use of all three in your home, wait until nightfall, turn on the lights


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CONTINUED FROM PAGE 1 of a bed. • Torchieres placed in one or two corners of the room. • Wall sconces (those that do not require installation by an electrician come with a cord cover and can be plugged into the nearest outlet) may be screwed into the wall near a reading chair, by a piano or a desk. • Recessed lights placed at carefully spaced intervals, supplemented with one or several of the above. Be aware that this type of fixture requires installa-

tion by an electrician, can cast unflattering shadows and should be controlled by a dimmer. Task Lighting illuminates the area where you read, work or eat.The height of the lamp is very important – too high and the glare of the bulb is irritating, too low and the fixture may block your view or provide inadequate lighting.Table and floor lamps can double as ambient and task lighting when placed next to a reading chair or on a desk. Clip-on lamps, small table lamps and pharmacy lamps all are good sources of task lighting. Pendant lamps and chandeliers are traditional sources of light over eating areas. Spot lighting is used to draw

attention to or highlight an area or object, such as a piece of artwork. Use spot lighting only if you have adequate ambient lighting.Track lights, recessed lights with fittings to direct the light in a certain direction, picture lights, and tabletop spots are useful in drawing attention to wherever they’re pointed.

If your analysis indicates you need more light and you’re on a budget: • Scrounge around for something unusual - a teapot, a cowboy boot, flowerpot, antique oil lamp, a trumpet, a wine bottle, a vase or an olive-oil can – add lamp guts and convert it into a

new light source. Most hardware stores carry all you need to make a lamp. • If your lamp is fine, but the shade is shot, replace it. Or, if the shade has a smooth surface, try decoupaging it with pictures from magazines, squares of fabric, leaves, cut-out shapes traced from cookie cutters, antique fruit labels, etc. • Remove or tie back window treatments that block the natural light; add strategically placed mirrors. • If you are patient and practice the Zen of shopping, you can find inexpensive fixtures at flea markets and garage sales. And brake for all yard sales.

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tions a lender may be able to change some mortgage terms before matters get out of hand. Be aware that the lender properly wants to collect as much interest as your son and daughter-in-law originally agreed to pay, so they must demonstrate that their need is real and that the lender could suffer a significant loss if there is a foreclosure. In today’s environment, with so many foreclosures, many lenders will at least listen to borrowers who share their distress.

Q: After turning my former home into a rental
18 months ago, I’m concerned about the time limit to sell. I understand you must live in the home for two of the last five years. With our local market so sluggish now, should I keep the property as a rental and pay the 15-percent capital gains tax later or unload now? Is there a way not to pay a tax on my profits?

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Conner, on the other hand, says that it doesn’t appear that mortgage rates,“which are typically tied to the 10-year part of the treasury curve, will rise or fall by a significant margin over the next 12 months. Buyers will need to manage their expectations and accept that rates have moved up this year.” Taking a big-picture approach, Conner says that the vast majority of buyers eventually will regain their confidence in the housing market and take advantage of today’s historically low rates. “Freddie Mac has tracked mortgage rates since 1972, and the lowest and highest reported yield on a 30-year, fixed-rate mortgage has ranged from 5.83 percent to 16.63 percent,” says Conner.The current reported yield of under 7 percent is still historically very attractive, he says. Bill Lyons, CEO of Lei Financial, San Diego, agrees. “Potential borrowers should not be concerned about the rate market,” he says.“Rates are still at a historic low.This is just part of a business cycle. Home values will eventually go up again and rates will eventually go down again.”

CONTINUED FROM PAGE 1 rates have shown their ebb and flow just like stocks or any other freely moving market index. “They’ve ticked up some and back down.Actually, there hasn’t been anything huge and breathtaking for the year, despite the panic of the media’s ‘foreclosure crisis’ and ‘subprime meltdown.’” In the current rate climate, Brown says that most buyers “are best served by longer periods of fixed interest rates. Homeowners who plan on being in their home for 10 or more years should consider a long-term, fixed-rate mortgage, such as a 30-year fixed – particularly if they are on a fixed income, such as Social Security or a pension.” First-time homebuyers, or homeowners who don’t plan on being in their home for more than 10 years, however, could consider an adjustable-rate mortgage as a way to save money, says Brown.“An ARM with a five-, seven- or 10-year fixed period provides the combination of lower payments, compared to a 30-year fixed, along with the stability of a longer-term loan that is

just right for homeowners planning on moving at some point in the not-so-distant future.” Be aware, though, that ARM payments can spike very highly after their introductory period. When it comes to picking the best mortgage loan for your needs, Carolyn Warren, author of “Mortgage Rip-Offs and Money Savers” (Wiley & Sons, 2007), says to remember that time, not rate, is your biggest enemy.“Don’t be driven by fear,” she says.“I’ve seen too many people take the 30-year fixed rate because they were afraid [payments] might go up, when the rate hikes wouldn’t affect them anyway.” Additionally,“buyers should look at real estate purchases with a long-term view of five years or more,” Brown says.“By using that mindset, they can ensure that they will be making an investment based on long-term gains that make the impact of small interest-rate changes negligible.” Ultimately, Podgursky says, there is no cure-all loan program. “The only true way to pick a program for a borrower that fits their needs is to sit down with a licensed mortgage professional and look at the options. Some people have gotten caught in the middle of the loan process with

an unexpected rate hike, and some are better off locking into a fixed rate right from the get-go and some aren’t.Those who aren’t or who choose not to have taken a calculated risk against a choppy market.” As for what to expect in the coming months, Conner says that mortgage shoppers should anticipate a certain level of interestrate volatility. “For those who are concerned about continued increases, they should think about locking in a rate as soon as possible when applying for a fixed-rate mortgage,” says Conner.“Consumers should also take the time to look at all the available options to determine which option is the best that fits a person’s unique needs.” As inflation cools and housing begins to drag significantly on overall economic growth, many pundits are predicting that the Federal Reserve will have to cut interest rates at some point to stimulate the economy and prevent it from tipping into a recession, Brown says. He predicts that we will see an interest-rate cut either in this fourth quarter or the first quarter of 2008, as housing continues to be a drag on the economy.

A:You could defer the tax (but not eliminate it) with a 1031 tax exchange. Or, you could hold the property for the long term (the real long term) and make it part of your estate.When you die, the property would be received by your heirs at its stepped-up value and there would be no capital gains tax. However, if you sell now and meet the requirements for the residential capital gains write-off, then there would be no tax on the first $500,000 in profits if married, $250,000 if single. For most owners this is a better option than an exchange, which really puts you into the real estate business, or thinking about estate planning, which may not be appealing for a variety of reasons. For details, see a CPA or other tax professional. The real issue, though, is your local market.While it may be slow today, if you bought a number of years ago you are likely, in most areas, to still have a substantial profit. If you sell now and lock in your profit you will then have lots of cash in a weak market.This could be a negotiating advantage if you want to acquire another property – not something to overlook if the local rental market is strong.
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Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to Due to the volume received, not all letters may be answered.

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