Mortgage insurance will be tax-deductible in 2007, and for some homeowners, the new law means it will be cheaper to get mortgage insurance than to get piggyback mortgages.
Hundreds of thousands of homeowners will save a total of $91 million when they file their tax returns in 2008, according to estimates prepared by the mortgage insurance industry.
The bottom line for consumers, according to Holden Lewis of Bankrate.com: Don’t get a piggyback mortgage without taking a serious look at mortgage insurance, because mortgage insurance is likely to be cheaper in the long run, and it might even cost less in the short run.
Here’s a look at how a piggyback loan and mortgage insurance match up:
According to experts, a homeowner with a $180,000 mortgage would save about $351 in taxes per year because of the mortgage insurance law that was just passed. This assumes the borrower has a good credit score and is in the 25 percent tax bracket.
When you buy a house, a mortgage lender considers you a risk if you make a down payment of less than 20 percent. There are two main ways to make you pay for that risk: mortgage insurance and piggyback loans.
Mortgage insurance is the old-school method. You, the borrower, pay for the policy, but the lender is the beneficiary. If you fall behind on the loan payments and the mortgage company has to foreclose, the mortgage insurance policy reimburses the lender for legal costs and lost income.
The premiums depend on the size of the home loan, the percentage of the down payment, your credit score and the type of mortgage insurance you get.
When you use a piggyback mortgage, you get two home loans: a primary loan for 80 percent of the house’s value and a second mortgage for the rest of the money you need. With a 5 percent down payment, you would get what’s called an 80-15-5 mortgage: an 80 percent loan, a 15 percent piggyback and 5 percent down.
In turn, getting a piggyback loan effectively eliminates the need for mortgage insurance. The piggyback can either take the form of a fixed-rate home equity loan or a variable-rate home equity line of credit. The piggyback has a higher rate than the first mortgage.
The combined payments on a piggyback mortgage are a bit less than the payment on a single loan with monthly mortgage insurance premiums. For years, piggybacks had a big advantage because the mortgage interest on both mortgage loans was tax-deductible; mortgage insurance payments were not.
Now that has changed, with these caveats. The tax deduction applies only to home mortgages that are closed in 2007. If you currently have a home mortgage loan with mortgage insurance in 2006, you won’t be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.
There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no mortgage insurance deduction is available if you make more than $110,000.
This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Of course, if you opt to take the standard deduction instead of itemizing deductions, the new mortgage insurance tax credit makes no difference to you.
When you put those complications aside, the new law makes it easier to compare loan offers. Everything is now on equal footing. Mortgage insurance is tax-deductible and piggyback mortgages are tax-deductible.
The Oakland County Press has an interesting editorial today involving a recently proposed property tax measure. This may be of interest to those who have been struggling to make the Michigan mortgage payments, or are considering taking out a new home loan. See below:
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Some Oakland County residents are going to see in their property taxes for 2007 why some aspects of what has become known as Proposal A were not well thought out.
Passed as a tax limitation amendment to the state constitution in 1994, Proposal A limits property tax increases to the rate of inflation or 5 percent, whichever is less, regardless of increases in home values.
The legislation established both a taxable value and an assessment value on a home. The assessed value is half of true cash value, but the taxable value is what is used to determine a homeowner’s taxes.
Over time, for people in Oakland County who have remained in their homes, the gap between the taxable value and assessed value has widened. Because of that, those people will likely see an inflationary increase in property taxes even if their assessed values have gone down.
A home’s assessed value would have to fall below the taxable value for property taxes to decline.
One of the problems with Proposal A is that when it was passed, legislators did not address the situation of a declining Michigan housing market.
So now, while some residents face lower assessments on their homes, the decrease is applied to only the true cash value of the house, not the taxable value, which could be considerably less than the true cash value, but is the figure used to determine a person’s tax liability.
When notices of assessments are sent out to homeowners in February, the county Equalization Division plans to include a pamphlet on Proposal A. Let’s hope it will help explain the situation, but unfortunately, it won’t change it for those currently holding mortgage loans on properties that are now declining in value.
At first, it doesn’t seem fair that while property values in some areas of the county may be dropping, taxes still may go up for those homeowners.
While convoluted and complex, however, Proposal A actually has done what it was meant to do - keep real estate taxes down for people who have lived in their homes for a long time and wish to remain there. Before Proposal A, property values were skyrocketing, and thus taxes were also rapidly increasing.
Many people, particularly those on fixed incomes such as senior citizens, were being forced to move, or consider a reverse mortgage, because they couldn’t afford to pay their taxes.
If you do the math, those who pay higher taxes this year despite a lower overall assessment will most likely still come out ahead if they’ve lived in their home for any length of time.
Meanwhile, be thankful and realize once the economy turns around and assessments again rise, Proposal A should help keep the property tax down and allow residents on fixed incomes to stay in their homes.
Existing home sales in the Western U.S. rose 0.8 percent to an annual pace of 1.32 million in November, but remained 17.5 percent lower than a year earlier, according to the Phoenix Business Journal.
The median price in the West was $351,000, down 0.8 percent from November 2005, according to the National Association of Realtors. In the Grand Canyon State, sales and prices have crept downward this year after five years of record or near record growth.
But Arizona mortgage rates remain low, offering opportunities for first-time buyers who have been on the sidelines.
Nationally, real estate sales continued to recover last month following a rise in October, suggesting a turn in the market. Existing home sales - including single-family, townhomes and condos - rose 0.6 percent to 6.28 million units in November from 6.24 million in October. That’s 10.7 percent below the 7.03 million-unit pace in November 2005.
The national median existing home price for all housing types was $218,000 in November, 3.1 percent lower than November.
“As the housing market recovers from its correction, existing-home sales should be rising gradually during 2007 - it looks like we may have reached the low point for the current cycle in September,” said David Lereah, NAR’s chief economist. “We’ve entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down.”
According to Freddie Mac, the national average rate for a conventional 30-year, fixed-rate mortgage (the industry’s most common home loan) was 6.24 percent in November, down from 6.36 percent in October. The benchmark mortgage rates came in at 6.33 percent in November 2005.
“Now mortgage interest rates are the lowest they’ve been since January, and it’s the first time since August of 2005 that interest rates are lower than a year earlier,” said NAR President Pat Vredevoogd Combs.
“This is increasing buying power at the same time that more and more sellers are showing a willingness to negotiate price and terms.”
Posted by Richard Barber on Dec 30 2006 under Arizona
The once-sizzling Massachusetts housing market continued its recent decline in November, the Boston Globe reports Wednesday.
Just about all Massachusetts real estate is declining in terms of both sales activity and pricing. Sales of single-family homes and condominiums fell by double digits and the median sale price of single-family homes reached its lowest amount since 1992, according to a housing report issued today by the Warren Group.
As Massachusetts mortgage demand continues to wane, the single-family home median sale price fell 6.5 percent across the Bay State, reaching a low of $315,000 in November - down from $337,000 in November 2005.
Last month’s median home price has fallen more than 13 percent since the $364,000 peak registered in June 2005. The home price decline has now been evident in eight of the last nine months in the state.
Condo sales fell by 10.1 percent from November 2005, but the decrease was not as steep as it had been in the previous four months, when sales dropped between 19 and 28 percent.
Statewide, the median condo sale price was $269,900, a dip of 1.8 percent. Last month, 2,222 condos were sold in the state, an amount less than the same months 2004 and 2005, but more than other November sales dating back at least to 1987. Massachusetts foreclosures remain much higher than last year.
“We’re still in a decline, but the slope is not as steep as it was in the summer and early fall,” said Timothy Warren, Jr., CEO of The Warren Group. “We’re starting to see some signs of stabilization.”
The information tracks real estate and financial data throughout New England, includes all sales logged at registries of deeds throughout Massachusetts.
It will be interesting to see if this beleaguered housing market starts to level off as 2007 begins, or if home loans remain out of reach for most of the state’s would-be buyers and prices continue to fall.
According to a story reported today by CNN.com, real estate mogul Donald Trump may have hired one more apprentice than he thinks.
When the entrepreneur’s empire launched his own mortgage broker arm, Trump Mortgage, in April, he said it would inject integrity into an industry shouldering a reputation for giving customers a raw deal.
To head the mortgage broker, Trump hired E.J. Ridings, who the company’s website touts as a seasoned pro. But if he is trying to build a mortgage brand on honesty, he may have said ‘You’re hired’ to the wrong guy.
In interviews with Money and on his company’s website, Ridings has made a number of false or misleading claims about his professional experience. Last week, following inquiries by Money into Ridings’ background, Trump Mortgage altered its site, removing some of the claims it contained about Ridings’ past.
- Ridings’ initial bio stated that before joining the company he was a top executive at one of Wall Street’s most prestigious investment banks.
- The bio had said that Ridings was an “established leader” at a leading New York mortgage boutique.
- The biography said he had 15 years of experience in the financial industry.
All three claims appear to be false, according to regulatory documents obtained by Money and interviews with former colleagues of Ridings.
Ridings has never been a top professional on Wall Street. In an interview with Money in September, the 42-year-old said that reference in his bio refers to an 18-month period in which he was a retail stock broker at Morgan Stanley.
Even that is a significant stretching of the truth. According to documents from the New York State Attorney General’s office, Ridings worked at Morgan Stanley’s brokerage subsidiary, Dean Witter, in the fall of 1998 for less than three months. During that time, he was a registered broker for six days before leaving the firm.
A spokeswoman at Morgan Stanley confirmed that Ridings worked for the firm’s brokerage division briefly in the fall of 1998, but would not comment on how or why Ridings left the firm. The spokeswoman declined to comment on what Ridings’ role was at Morgan Stanley or whether he could have risen to a “top executive” in his three-month tenure.
In response to questions from Money, Ridings said that the Attorney General’s office is mistaken but did not give any evidence to refute the Attorney General’s records.
Ridings is also inflating his position in the home loan industry. According to former colleagues, Ridings was a relatively minor player at GuardHill Financial, where he worked from June 2003-April 2005.
Jan Scheck, who Ridings listed as his supervisor on documents he filed with the New York State Banking Department, said Ridings held an entry-level position at the firm, and was one of 40 loan origination specialists. Scheck ended up being hired by Ridings at Trump Mortgage as national sales manager, but left the firm this year after his one-year contract was up.
Steven Schnall, who for 14 years has been head of New York Mortgage Company, one of the largest mortgage lenders in the area, says he had never heard of Ridings before Trump launched his company.
Ridings maintains he was a leader at GuardHill. Through a spokesperson, Ridings said his former colleagues “may be seeking to undermine E.J.’s present day success.”
What about those 15 years of experience in the financial industry? According to documents obtained by Money from the New York State Banking Department, Ridings’ first job in the financial services industry was his brief time as a broker at Morgan Stanley in late 1998. The documents also say he was a day trader for two years, and worked at subprime (or bad credit mortgage) lending firm Equity Funding for one year before joining GuardHill.
Where Ridings does have a fair amount of experience is in the nutritional supplement business. In the mid-1990s, he founded a company that sold a variety of vitamins and health drinks. Before that, Ridings owned a cleaning service. Ridings, through a spokesperson, says his 15 years of experience includes the “financial industry experience within his own companies that he founded earlier in his career.”
Trump Mortgage is off to a rocky start. At least six professionals have left the firm in the past six months, including Scheck and Craig Lane, who was hired to run the company’s Florida mortgage operations.
And Trump Mortgage has fallen short of Ridings’ earlier forecasts. At the time of the company’s launch, Ridings predicted the company would complete $3 billion in loans in 2006, much of it in residential lending.
Existing home sales in the Midwest declined almost 10 percent in November compared with last year but remained unchanged from October, the National Association of Realtors reported on Thursday.
The group reported 1.42 million existing-home sales throughout the Midwest in November, down 9.6 percent from 1.57 million last year, spokesman Walter Molony said.
The median existing-home sale price in the Midwest was $165,000 in November, down 3.5 percent from $171,000 last year. This makes the region more affordable for seekers of home mortgages because the national median existing-home sale price stands at $218,000.
David Lereah, the association’s chief economist, said that for every 1 percent drop in home prices, he projects an additional 50,000 buyers are drawn into the market.
“As the housing market recovers from its correction, existing home sales should be rising gradually during 2007,” Lereah said. “We’ve entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down.”
Total housing inventories fell 1 percent at the end of November; there are now 3.82 million existing homes available for sale. This is considered a 7.3-month supply at the current sales pace, which emphasizes the fact that we’re in a buyer’s market and those looking for a mortgage loan should act quickly to be assured of the best deal.
Also helping buyers? Freddie Mac reported that the national average home loan rate for a 30-year, conventional, fixed-rate mortgage was 6.24 percent in November, down from 6.36 percent in October.
“This is increasing buying power at the same time that sellers are showing a willingness to negotiate price and terms,” association President Pat Combs said in the release. “Combined with a plentiful supply of homes on the market, there’s a window for buyers now with conditions that we haven’t seen prior to the beginning of the housing boom in 2001.”
Previously, we reported on the future of the Florida housing market.
But what about the present?
The slowdown demand for home loans in the state intensified in November, both around Jacksonville and across the state, as home sales dropped sharply and median prices stayed flat.
The number of single-family existing homes sold in the city last month dropped 19 percent compared with November of 2005. The median price of those homes was $182,000, down $200 from the same time last year. Still, plans for affordable housing in Jacksonville are underway.
The drop in sales in Northeast Florida was less dramatic than in the rest of the state.
Sales were down in 18 of the 20 markets tracked by FAR, with the only increases being in Ocala (1 percent) and Sarasota (2 percent). Statewide sales were down 30 percent from last November, as Florida mortgage demand isn’t very strong this time of year typically.
The statewide median price was down 3 percent to $242,500, with the median price dropping in 13 of the 20 markets.
Sales of existing condominiums were also down locally and statewide. In Jacksonville, sales were off 55 percent and the median price was down 4 percent to $167,100. Those numbers do not include figures from the St. Augustine & St. Johns County Board of Realtors.
Across the state, sales were down 36 percent and the median price of $206,000 was down 4 percent.
Posted by Jed Moss on Dec 29 2006 under Florida
The cooling housing market got a little chillier in November for Greater Cincinnati and Northern Kentucky.
“Mortgage rates are attractive, there is an ample supply of homes for sale and the job market is good,” said Dave Otto, president of the Cincinnati Area Board of Realtors. “We’ll just have to see if the market resumes its normal upward trend in January.”
In November, the Cincinnati area saw 1,708 home closings, compared to 1,975 in November 2005, a 13.5 percent drop. The average sale price fell to $173,593 from $183,212, and gross volume was down 18 percent, to $296.5 million from $361.8 million.
Year to date, 23,526 homes have been sold, versus 24,781 in the year-ago period. Potential buyers are waiting for prices to fall before they commit to an Ohio mortgage it appears.
In the Northern Kentucky housing market, 494 homes were sold during the month, compared to 507 in November 2005. The average price rose to $158,910 from $151,507 a year ago, and the total volume jumped to $78.5 million from $76.8 million.
Year to date, 6,300 houses were sold, versus 6,470 for the first 11 months of 2005. The average price rose slightly, to $156,478 from $155,248, but total volume fell over the period, to $985.8 million from $1 billion.
Move over female home buyers - more and more Latinos are fulfilling the American Dream by purchasing property.
Between 1995 and 2005, the number of Latino owner-occupied homes increased by 3.1 million, reaching 6.9 million. That’s an 81% increase - compared to a 19% increase for all other non-Latino owner-occupied homes, according to the National Association for Hispanic Real Estate Professionals‘ website.
In the next 20 years, Latinos are expected to make up 40% of all first-time home buyers, according to the site.
“The Latino buyers for us has been a market that has been increasing,” said Henry Nunez, owner of Arcadia-based Henry Nunez Real Estate Co. “Immigrants - especially Hispanics - have a very strong desire to own their own properties.”
Latinos have made great economic strides, and coming to the United States and buying a home represents success, he said. Hence their desire to receive mortgage approval and take the next step.
“It’s part of the American dream,” he said. “That’s what it really is, part of the American dream.”
Moreover, as home sales slow, more real estate companies are catering to immigrants, Nunez added. Mortgage lenders have created specific loan programs to make it easier for immigrants to qualify for a loan..
The market slowdown has also resulted in more inventory.
“Buyers can take more time to make a decision in buying, so prices dropped a little bit,” he said. “It made the market more available to people. That’s why we have a focus on minority homeownership to promote that.”
When the market was hot, real estate agents would instantly receive offers for a new listing, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.
“Now you have to work harder at it, and given that the Latino community is the largest ethnic community in Los Angeles County, it represents a rich market,” he said.
Owning a home is important because no one is dictating what your rent will be, said Marty Rodriguez, owner of Century 21 Marty Rodriguez in Glendora, California. For immigrants, the sense of freedom that a home loan allows for is extra special.
Half her staff is bilingual and they deal with a lot of Latino buyers, she said.
One belief her father instilled in her was “we’re Americans first before we’re anything,” she said. “We live in a great country that has so much to offer. That’s why people want to come here. They want to be Americans.”
Mortgage rates climbed for the third straight week following recent reports that home sales and consumer spending performed better than expected in November, Freddie Mac and Bankrate.com reported today in their weekly surveys.
In Freddie Mac’s survey, the 30-year fixed-rate mortgage climbed to an average 6.18 percent (from 6.13 percent last week), while the 15-year fixed-rate mortgage gained from 5.89 percent to 5.93 percent.
Points - which are fees charged by lenders for loan processing expressed as a percent of the loan - averaged 0.4 on the 30- and 15-year loans.
“Mortgage rates edged up over the week following news of a jump in consumer spending in November,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Financial markets were concerned that stronger spending could keep inflation elevated. These worries were further compounded by the releases of new- and existing-home sales for the same month, which both exceeded market forecasts and caused Treasury bond yields to continue to rise.”
The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.98 percent this week, with an average 0.5 point, up from 5.96 percent last week. The one-year Treasury-indexed ARM averaged 5.47 percent this week, with an average 0.6 point, up from last week’s 5.44 percent.
In Bankrate.com’s survey, mortgage rates moved higher for the third consecutive week following strong consumer spending figures for November. The average 30-year fixed-rate mortgage is now 6.23 percent, with an average of 0.25 discount and origination points.
The average 15-year fixed-rate mortgage - popular for mortgage refinancing - nosed higher to 5.96 percent. On larger loans, the average jumbo 30-year fixed rate was down slightly to 6.44 percent. The average 5/1 adjustable-rate mortgage climbed to 6.11 percent, and the average one-year ARM increased to 5.93 percent.
Bankrate.com said mortgage rates increased following a report about strong consumer spending in November. This was additional evidence, following other reports in recent weeks on retail sales and a strong labor market, that any hopes of a Fed rate cut coming soon are premature.
Bond yields and mortgage interest rates - whose movement is closely tied - were only slightly higher, as there was little else of significance during a holiday-shortened week with light trading volumes.
