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Good Morning!

There can be some confusion in the minds of the average consumer about interest rates, especially as it relates to the Federal Open Market Committee, or FOMC, meetings. About every six weeks, the FOMC meets to discuss the current state of the economy with an eye toward the future. One important task is to monitor and adjust the cost of funds. In general, the “Fed” tries to keep inflation in check and in theory raise or lower the cost of funds. They do so by adjusting the Federal Funds rate and this is the rate that gets so much press each time the FOMC meets.

The Federal Funds rate is the rate banks can charge one another for short term lending. Short term as in overnight. Why does a bank need to borrow money on such a short notice? Banks are required to keep a certain amount of liquid capital, in other words “cash,” at the end of each business day. These funds are essentially demand funds. When a consumer wants to withdraw some cash either at the bank or at any automated teller, there needs to be cash available to meet those withdrawal requests. If the bank sees their reserves to meet these requests do not meet the reserve requirements, banks seek out a short term loan from another depository institution to meet the reserve requirements. This is what the Fed adjusts, the overnight lending rate. But the Fed doesn’t directly impact the everyday 30 year conforming fixed rate mortgage.

When lenders set their rates each day, they refer to a specific mortgage bond. For example, with a 30 year fixed conforming loan underwritten to Fannie Mae standards, the lender will review the current yield on the FNMA 30-yr 3.0 mortgage bond. Just like any bond, with the price of the bond goes up, the yield will fall. And when the price goes down, the yield will rise. Investors buy bonds, all types of bonds, as a safe place to park cash. When the economy appears to falter, investors can get a little skittish and pull some funds from the stock market and transfer those funds into bonds, including mortgage bonds. If on the other hand the economy is healthy and improving, the opposite will occur.

When the Fed makes an announcement at the end of their two-day meetings, investors are anxious to hear if the Fed raised, lowered or kept rates the same. If the Fed announces they decided to raise the cost of funds by 0.25%, it can tell investors the FOMC decided the economy is doing rather well but to hold of any potential inflation, it will raise the cost of funds that banks will pay for short term lending. It’s not a direct affect on mortgage rates, but definitely an indirect one.

Have an awesome week!

THIS WEEK'S HOT HOME LISTING!

825 SAND AVE

Price: $550,000    Beds: 3    Baths: 2    Sq Ft: 2344

Grand very well-maintained home! Light filled vaulted open layout w/ large windows & skylights. Living rm w/ gas fireplace opens to dining area. Office/bonus rm w/ exterior entrance & Shoji sliding dr/rm divider. Massive kitchen w/ cook island, pant...View this property >>

AND HERE'S YOUR MONDAY MORNING COFFEE!!

What Is A Piggyback Mortgage and Is It Right For You?

by Galand Haas

Good Morning!

A loan program that was popular several years ago is making a comeback and many lenders are now offering options for a mortgage loan program called "the Piggyback mortgage".

The following will give you some insight into just what a Piggyback mortgage is and also it will give you some information to help you decide if a "Piggyback" loan is a good option for you, if you are searching for a home loan.

Definition of a Piggyback Mortgage

Also called a “purchase money second mortgage,” a piggyback loan is used by homebuyers with less than 20 percent down to avoid paying for private mortgage insurance (PMI).

Types of Packages

Typical packages might be called 80-10-10 (80 percent first mortgage, 10 percent second mortgage, and 10 percent down payment from the buyer), 80-15-5 (a 15 percent second mortgage, and a five percent down payment) or even an 80-20 (80 percent first mortgage, 20 percent second mortgage, and no down payment from the buyer).

Buyers considering this financing should compare the costs of a second mortgage (they do have higher interest rates than first mortgages) with the cost of a bigger first mortgage plus mortgage insurance. They should compare the after tax costs, because borrowers with higher incomes may not be able to deduct mortgage insurance, but they may still be able to write off mortgage interest.

Piggyback Loan Explained

Essentially, a piggyback loan helps homebuyers who don't have the traditional 20 percent down payment when applying for a mortgage.

A piggyback loan occurs when a borrower takes out two loans simultaneously: one for 80 percent of a home's value, and the other to make up for whatever cash is lacking to make up a 20 percent down payment. This is used as an alternative to private mortgage insurance. A piggyback loan is also known as a second trust loan.

The most common type of piggyback loan is an 80/10/10 where a first mortgage is taken out for 80 percent of the home’s value, a down payment of 10 percent is made and another 10 percent is financed in a second trust loan at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5 percent down payment (known as an 80/15/5).

Many lenders will finance loans with down payments of less than 20 percent, but you'll pay a price. Usually, the lender insists you buy private mortgage insurance (PMI) which guarantees that the outstanding balance of your loan will be paid off if you default. You will either pay a lump sum each year for PMI or add the cost to your monthly mortgage payments.

Piggyback loans eliminate the need for PMI. You combine this loan with your down payment to reach the 20 percent down needed for a conventional mortgage. This can significantly lower the interest rate of your mortgage.

If you get a piggyback loan, you will close on it the same time as you close on the mortgage. You will most likely have to pay closing costs, which will require additional upfront cash.

You will probably also have to make two loan payments each month — one for your mortgage and one for the piggyback loan. The interest rate on the piggyback loan will probably be higher. But, the monthly payments of both loans are often still less than they would be if you were paying PMI.

Another benefit of a piggyback loan is that the interest may be tax-deductible, potentially saving you even more money. Check with a tax adviser on how a piggyback loan would affect your tax situation.

Have an awesome week!

THIS WEEK'S HOT HOME LISTING!

176 V Street

Price: $225,000   Beds: 3   Baths: 1   Sq Ft: 1,011

Lovely Hayden Bridge home centrally located! Pride of ownership shows. Step-down living rm w/ pellet stove. Kitchen opens to dining area w/ sliding door. Combination mud/pantry/laundry rm. Workbench in garage, large covered deck w/ hot tub...View this property>>

AND HERE'S YOUR MONDAY MORNING COFFEE!!

Mortgage Interest Rates Holding Steady and May Even Decline

by Galand Haas

Good Monday Morning!

Finally, some bright news for would-be homebuyers. Mortgage interest rates are holding steady and may even see a decline. This trend may help take heat off of a housing market that continues to be over priced for many buyers.

Borrowers saw a slight cool down in mortgage rates this week following last week’s seven-year high. The 30-year fixed-rate mortgage dipped for the first time after five consecutive weeks of increases, averaging 4.71 percent.

But the higher rates may be deterring some would-be home buyers. “The strength in the economy has failed to translate to gains in the housing market as higher mortgage rates have contributed to the decrease in home purchase applications, which are down from a year ago,” says Sam Khater, Freddie Mac’s chief economist. “With mortgage rates expected to track higher, it’s going to be a challenge for the housing market to regain momentum.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 4:
(Scroll over interactive data chart)

30-year fixed-rate mortgages: averaged 4.71 percent, with an average 0.4 point, falling slightly from last week’s 4.72 percent average. Last year at this time, 30-year rates averaged 3.85 percent.

15-year fixed-rate mortgages: averaged 4.15 percent, with an average 0.4 point, decreasing from last week’s 4.16 percent average. A year ago, 15-year rates averaged 3.15 percent.

5-year hybrid adjustable-rate mortgages: averaged 4.01 percent, with an average 0.3 point, rising from last week’s 3.97 percent average. A year ago, 5-year ARMs averaged 3.18 percent.

Have an awesome week!

 

THIS WEEK'S HOT HOME LISTING!

6997 GLACIER DR

Price: $359,900    Beds: 4    Baths: 2 ½   Sq Ft: 2406

Completely remodeled! Fresh interior & exterior paint. All new carpet, vinyl wood floors, LED lights w/ Decora switches, heat pump, furnace, hot water heater. Large lower level bonus space (not included in SF) w/ lots of potential; could make a grea... View this property >>

 

AND HERE'S YOUR MONDAY MORNING COFFEE!!

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Galand Haas Team
Keller Williams Realty Eugene and Springfield
2644 Suzanne Way
Eugene OR 97408
Direct: (541) 349-2620
Fax: 541-687-6411

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