Jay's Mortgage and Investors Blog

“We have a long way to go, but we are on the way. We come to the relief for a moment of those who are in danger of losing their farms or their homes. I have publicly asked that the foreclosure on farms and chattels and homes be delayed until every mortgagor in the country has had full opportunity to take advantage of federal credit.”

Locking in your mortgage interest rate can be a game and a gamble.   Locking in at the lowest rate available prior to the closing is like beating the house at three card stud. 

I, being a mortgage broker, like to think I can read the market and find the perfect window to lock in my clients’ rates.  My educated guesses are right on the money most of the time.  My client will never get a higher interest rate based on my poor judgment.   

The banks have taken away this gambling process; which I really did enjoy.  Many of the lenders are making you lock in the rate for at least 30 days minimum.  If they do not receive the loan file within 8 days, the loan is deleted from the pipeline. The complete loan files must be in house prior to 15 days of closing. So many rules.  

MANY BANKS ARE DOING AWAY WITH EXTENDING LOCK IN’S.  This means that you can buy more time with the same rate. They are now expiring the interest rate and giving you the worst case pricing when you have to relock your rate.  The reason I am writing about this today, it to let borrowers be aware that they should not jump to lock in a rate so fast. With interest rates being so volatile, it is hard not to want lock in very far ahead.  However, by doing so, you might lose the loan if it does not close in time.  Banks are saying that they are doing this because of high volume.  I believe that they are doing this to cover their own spreads in this crazy market. Loans are taking longer to get approved and cleared.  The stress factor alone can lead to mistakes and lost locks.  The bottom line:  Be aware and make sure your loan officer is aware of the lock in requirements before you jump.

Many homeowners are entitled to two major tax deductions -- one for annual interest paid on a home loan, and another for real estate tax bills paid to government.

Calculating your approximate tax credit is basic:

1.Add mortgage interest paid and real estate taxes paid together

2.Find your marginal tax rate

3.Multiple your tax bracket by the sum of Step 1

So, for a homeowner that paid a combined $13,000 in mortgage interest and real estate taxes last year, and who is in the 28% marginal tax bracket, a tax credit of $3,640 may be due from the IRS.

This credit is one reason why some people sometimes refer to "after-tax mortgage rates". An after-tax mortgage rate is the adjusted interest rate after the IRS doles out credits and is calculated as follows:

(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 - Marginal Tax Rate)

The same homeowner with a 6.000% mortgage rate, therefore, has an after-tax mortgage rate of 4.32%.

Because not every homeowner is eligible for mortgage interest and/or real estate tax deductions, and because not every homeowner should claim them, you should consult with your accountant to see how tax credits fit into your tax liability schedules.

Federal income taxes are highly personal and require the attention of an experienced tax professional such as a CPA, Certified Financial Planner or both.

Coming up with a down payment is only half the challenge for homebuyers. Deciding how much to pay can be just as difficult, because of the significant financial consequences.

Most buyers should start saving for a down payment long before they begin shopping for a mortgage, because down payment requirements are substantial. The funds that you use have to be in your account for a relatively long period of time, or lenders won't accept them. They want to ensure that that the money is really yours, and not just parked in your account to make you look more financially stronger than you actually are.

Even after coming up with money, there are plenty of pros and cons regarding mortgage down payment strategies, and almost all of them depend upon your unique financial situation. In general, you should pay as much as possible to gain the benefits of a large down payment, while also taking care not to go beyond your own financial comfort level.

Down payment considerations

• If you pay less than 20 percent down, you'll probably be required to pay a heftier monthly payment that includes a premium for private mortgage insurance (PMI). This kind of insurance doesn't benefit you, but protects your lender in case you stop making payments.
• If you pay more than 20 percent, you run the risk of tying-up all your available cash. If you need money down the road, you'll have to take out a second mortgage.
• By paying more up front, however, you improve your chances of getting a more favorable interest rate- even if you don't have excellent credit. This could save you thousands of dollars during the lifetime of a mortgage.
• Moving costs money, so don't overextend yourself by putting all your available cash into your down payment. You'll also need a savings cushion to take care of unexpected homeowner expenses, like the repair or replacement of a roof, heating unit, or other critical item.
• On the other hand, the more you put toward your down payment, the greater your equity. Putting down little or nothing makes you vulnerable, because even a slight slump in prices could leave you owing more than your house is worth. That's a risky situation that sometimes leads to defaults and foreclosures.