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Travis Neliton

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Is it too late? Only if you were waiting for the lowest mortgage rate ever!

12-13-10
Travis Neliton

I have to remind myself as I lock my friends and clients into a committed rate for their pending home purchase or refinance today that an interest rate in the upper 4% range on a 30-yr fixed is still a historically low interest rate other than the very small window of time over the past few months we were lucky to witness. It is tough as a professional and trusted advisor to meet with my new clients and friends and discuss the actual rate the day they came in last month, compared to the rate they may end up with if they were still searching for that perfect home, waiting for their overpriced home to sell or simply, MSNBC told them that mortgage rates would plummet into the 3% range for the first time EVER!

Unfortunately that day has come and gone and I have a lot of disappointed clients that burned that 4.0% number into their heads. The budgeting and planning of that 3.75% 30-yr fixed rate they heard about on 20/20 or some random advertisement on the radio or internet that never happened, now what?

Fortunately, so many of my clients were able to take action back in early 2009 when we saw rates dip into the 4% range for the first time in our generation and it seemed dropping their interest rate from 4.75% to 3.875% became more of a bragging right, not the appreciation of how low their borrowed funds really were historically.

I have attached a few graphs and comparisons of what the indecision or sitting on the fence may have caused. I compared a few scenarios of a $325,000 purchase or refinance value where the loan at 80% of the value was at $260,000.

Had the new home purchase or refinance allowed a rate lock on Nov 4th at the "peak" at 3.875% on a 30-yr Fixed, with perfect circumstances and an APR around 4.126%, it is a much different picture and analysis than 40 days later on Dec 13th with rate a whopping 1% higher at 4.875%. Actually, a difference in monthly payment of $153 a month for the same exact home/purchase price with a 1% rise in rates over the past 40 days.

Another surprising fact when I ran the numbers considering my clients that were waiting for home prices to drop more, had they locked on their new home on Nov 4th on a home price of $325,000, if they waited 40 days until today to lock, they would have dropped their purchase power to a price of $289,000 to have the same monthly payment.

The first reaction for most is, how did rates climb 1% in a little over a month? The more logical reaction or thought would be, how did rates ever plummet to 3.875% without a total global economic collapse.

Thankfully, no global or US economic collapse YET, and the reality is you still have plenty of bragging rights at the water cooler if you lock in your interest rate at 4.875% versus 3.875%. Obviously the status of having a 30-yr mortgage rate under 4% is held by very few in my database and fun to brag about at Christmas dinner this year with your family, but please know, no one is going to mock you if they know you held out and ended up with the forbidden 4.875%.

If you need a shoulder to cry on or a rebuttal for your annoying brother-in-law that is going to be bragging up his 3.875%, give me a call or shoot me an email and I can give you some compensating arguments as to why there had been that slim chance rates could have moved lower. That way you can look like the cool risk taker playing the market and that is simply "how you roll" rather than you truly did miss the prefect window.

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Mortgage Rates are the Best Ever? What does that even mean to you?

08-07-10
Travis Neliton
Another record was set today with mortgage rates and I am afraid the Cry Wolf Complex may have set in.
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Should I really care that mortgage rates are at record lows? Seriously, you must have not done the numbers.

08-06-10
Travis Neliton

I too am guilty of becoming indifferent or jaded to the same worn out message we hear for weeks or months on end and when we hear the same message enough times, our "cry wolf complex" kicks in and we start to tune the message out. There are so many areas of our life where records are set or shocking news is no longer shocking.


Think about it.

After your 10th day in a row of 40 degree below zero temperatures in Minneapolis in the winter, you hear the weather person report a new record low of 50 below predicted the next day, is it really shocking to you at that point?

I can think back to before I was deployed to Iraq hearing that temperatures could reach 120 degrees and when I was sent over for the first Gulf War, I couldn't imagine those conditions in full combat gear. But after about 15 days in a row of 116 degree days, when 120 degrees finally hit one day, was it really unbelievable to me?

Also, remember the big joke in Austin Powers when Dr. Evil was going to hold the world ransom for "One Millllion Dollars" (visualize the pinky up to the corner of his mouth) It reminds me of being in grade school and trying to comprehend how many zeros and how much one billion dollars really was. Now, daily we hear our government spending trillions of dollars and now just shrug our shoulders when we hear about a new spending package or Senate bill costing 300 billion you almost think, "that's it, how is that going to help anyone?"

The "Cry Wolf Complex" at its best which most of us have naturally adopted.

I am very concerned though the CWC (Cry Wolf Complex) must be what is going on with home owners, my family, friends and clients when they hear mortgage rates have set new all-time low records over the past few weeks. Because if these messages or news reports really resonated with everyone, there would be a "run on the banks" for new mortgages.

You must have had to ask yourself by now, what does it really mean that a 30-year mortgage interest rate is at an all-time low and how does that translate to something you should be excited about? Well let me tell you since you asked, a heck of a lot!

Society has pushed us to only focus on instant gratification and what's in it for me NOW? Our tendency is to ask, "why would I spend $3500 in costs only to save $325 a month?"

Here is why.

My case study examples will use the same loan amount and interest rate.a client recently obtained. To make things easy, I did lower the loan amount slightly just so I could work with even numbers but the interest rates are the actual rates this client had before and after.

We refinanced their $300,000 mortgage that was at 5.875% and locked them in at 4.375% with $3500 in closing costs. The simple math when you lower your interest rate by 1.5% like my clients did, is a savings of $4500 a year in interest.

Are you still ambivalent to those numbers?

Let's look at what this meant to these clients and why a huge stressor was relieved and an answer to prayer became a reality in a matter of minutes once we looked at their numbers.

Their 3 year old was soon going to be 4 and that college savings plan they had promised each other to start the month he was born had not come to fruition and 4 years later they were still worried about it. They felt hopeless with no way to start saving anymore monthly with the current obligations and no plan to start.

Simply, we freed up $318 a month in cash flow with their new interest rate and the additional interest savings going toward principal reduction. With some quick math we looked at how that $318 reinvested monthly could perform over the next 14 years. We soon discovered if they just were able to average a modest yearly rate of return of 4.375% (safe estimate since they are paying this on their mortgage) they would have just over $73,500 in 14 years! These clients were shocked that they just created a sizable college fund for their son without changing any of their monthly cash outflow.

Another client had an almost identical loan scenario and their goal was to somehow pay off their mortgage in 20 years when they both had planned to retire but did not want to commit more cash monthly to paying down their mortgage as their main focus was to create wealth with their retirement plans. By taking that same $318 savings and adding it to principal reduction, it took their new 30 year loan down to a little less than 22 years. So we threw in another $60 a month they said they could afford and we now had their mortgage being paid off in 20 years.

Finally, a scenario where so many of us can relate with how our 401k's and other investments have taken significant hits and we are now realizing we will need to work a lot longer than we all had hoped for before we could retire. Investing this same $318 a month for 30 years at a conservative 4.375% ROR, an extra cool $344,000 would be accumulated toward retirement.

A lot to consider but instead of focusing on instant gratification where $318 extra a month may not mean a lot to you currently and the "CWC" has jaded you into not exploring your options, I would say it is probably time to reconsider.

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Travis' Mortgage Rate update, market news, the tax credit deadline

08-19-09
Travis Neliton
A quick overview of market action today as well as my thoughts on 2 important topics that are all the buzz right now with the $8000 tax credit about to expire and advertised rates versus realistic rates with extended lock periods due to HVCC and HERA.
Find more videos like this on The Wealth Creation Team
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$8000 Home Buyer Tax Credit

08-12-09
Travis Neliton
A short video to recap the $8000 home buyer tax credit due to expire Nov 30th. The 5 key points in my video will cover; #1 The deadline and what this means. #2 The IRS' broad definition of what a first time home buyer and who does and doesn't qualify for the credit. #3 Understanding that it truly is a credit and not a deduction or loan that needs to be repaid back. #4 How the credit can or cannot be used in reference to closing costs and down payment. #5 How to amend your 2008 taxes to receive the $8000 credit weeks after closing versus waiting until next Spring to file and the forms needed to receive the credit and amendment.
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