What's Up With Interest Rates These Days?

What Is The Rate Outlook?: The U.S. and global economies are in uncharted territory given mass post-crisis government stimulus spending, so even the best market oracles don't know how rates will play. But here's what we do know: rates drop when mortgage backed securities (MBS) rise, and MBS are at all-time highs because they're one of the best safe havens for global investors rattled by market uncertainty. This is why rates are at record lows. MBS are priced for a very weak economic outlook. Any signs of improvement will cause MBS to sell and rates to rise.


Getting Rate Quotes: Even the best rate websites like MortgageNewsDaily aren't a substitute for a rate quote. As noted in the 'Cost or No-Cost' section, there's a direct relationship between rates and fees, so a rate quote will depend on your objectives and it can only be provided to you by a lender. Always insist on a full written term sheet displaying the rate, term (e.g., 30yr fixed), every single line item closing cost, total monthly costs including insurance and taxes, and total cash-to-close or cash-in-hand at closing. Lenders are required by Federal law to give you a three-page Good Faith Estimate but this form is a joke because it doesn't show you all of your line items, nor your total monthly cost, nor your cash-to-close. So make sure your lender shows this to you in some written format before you lock a rate.

Is Your Rate Locked For Long Enough?: Banks are busy during these rate dips and quoted rates can only be locked for a certain number of days. Ask your loan agent when they expect to close your loan, and if their quoted rate lock is enough time to get the deal done. Also refer back to the 'Provide All Documentation Immediately' section above, so you can hold the loan agent's feet to the fire if the delays are on their end and not yours.

Your Rate vs. Headline Rates: Every Thursday Freddie Mac publishes a rate survey from the previous week. This is source material for virtually all media. In addition to the fact that those rates are expired by the time you're reading about them, there's lots of fine print the headlines don't catch including: those rates are only for loans to $417k, single family homes only, owner-occupied only, and most of those loans have .7% to .8% in points (aka extra fees). Rates on this website are more timely, but again, a rate quote is based on your profile and your property profile so it must come from a lender to be specific.

What If Rates Drop More During Loan Process: When you lock a rate, you're setting that rate then the market will go up or down. It's very much like buying a stock. The main difference is that lenders have what they call 'renegotiation' policies if rates drop after you've locked. All renegotiation policies are similar in that rates have to drop significantly for you to be able to capture some of that drop after you've already locked a rate. Bottom line: renegotiations don't let you capture the entire gain because you've already made a commitment. So as an example, if you locked a rate at 4.75% and the quoted rate for that same unlocked loan a week later dropped to 4.5%, most lender renegotiation policies will give you half of the gain which would put you at 4.625%.

Julian Hebron is San Francisco branch manager and a top producer for RPM Mortgage and also runs mortgage and housing blog The Basis Point.

Homeowners: Are you ready for tax time?

While there’s still time left to file your taxes, the clock is ticking if you haven’t. It’s pretty well understood that tax time is a season of dread for many Americans, homeowners or otherwise. Whether you consider tax time a breeze, a hassle or one big ball of confusion, every homeowner needs to be well informed as to how their home, and the expenses they pay on it, factor into their tax bill.

HSH.com staff writer Gina Pogol compiled the 10 frequently-asked questions regarding homeowners and their taxes.

Let’s take a look at a few:

1. How much of my mortgage payment is tax deductible?

On a Schedule A, you can deduct the following:

Interest on debt used to buy, build or improve your primary or second home (called acquisition debt), as long as mortgages totaled $1 million or less ($500,000 if single or married filing separately).

Mortgage insurance (or funding fees for government loans) for loans taken after 2006 as long as your adjusted gross income does not exceed $109,000 for a married couple (half that for singles and those married filing separately).

Property taxes on first and second homes. Starting in 2010, however, you must itemize your deductions to get this tax break.

2. I sold my home this year. Will I owe capital gains tax?

As long as the property was your principal residence for at least two of the last five years, you can exclude $250,000 of your profit ($500,000 for married couples) from your taxable income. If you profited less than the $250,000/$500,000 threshold, no extra form is required. You can do this as often as every two years.

For those with profits that cannot be excluded, you’ll report your gain on a Schedule D, Capital Gains and Losses. There are special rules for vacation homes. You may be able to exclude some or all of your gain.

3. I lost money on the sale of my home. Do I get to deduct the loss?

Loss on the sale of a personal residence is treated like a loss on the sale of any personal property. It is not deductible. Losses on investment properties are deductible.

4. I bought or refinanced a home this year. Are my closing costs tax deductible?

You can claim a deduction for real estate taxes you paid as part of your mortgage closing costs. The same goes for prepaid interest. It will be included on the 1098 form your lender sends you. What about points? The IRS has a flowchart that you can use to see when points are and are not deductible. In general, you must have paid points to build, buy or improve your primary residence in order to deduct the entire amount in the year they were paid. Otherwise they may still be deducted but on a prorated basis.

5. What happens with points on a refinance?

This deduction is often overlooked, and it could be worth a lot. When you pay points on a refinance, they have to be prorated. For example, if you pay $3,000 in points on a 30-year mortgage, you can deduct $100 a year for 30 years. But if you refinanced again this year and have prorated points that have not yet been deducted–for example, you are 10 years into a 30-year loan and have only deducted $1,000 of $3,000 in points paid–you can deduct the remaining $2,000 in the year you refinance.

To learn more about how loan modifications, foreclosures, prepayment penalties, and more affect your taxes, be sure to continue reading “10 critical questions for homeowners at tax time.”