The Pros and Cons of An Adjustable-Rate Mortgage

 With mortgage rates rising rapidly and coming off years of record lows, many potential

homebuyers are looking for ways to beat the situation. One available option is an adjustable-rate mortgage. An adjustable-rate mortgage has pros and cons, and both have to be carefully weighed before making a decision.

An adjustable-rate mortgage is also known as an ARM. These home loans have an interest rate that adjusts over time based on what’s happening with the market. These loans will often begin with a lower interest rate than a comparable fixed-rate mortgage, and the interest rate doesn’t stay the same forever.

Your monthly payment can fluctuate after your initial period.

A fixed-rate mortgage offers predictability and certainty because, for the life of the loan, the interest rate stays the same, regardless of what’s happening with the market.

An ARM, by contrast, can become more expensive or less expensive.

There are two periods with an ARM. There’s a fixed period, usually the first 5, 7, or perhaps ten years of the loan. During this set period, your interest rate doesn’t change. Then, there’s an adjustment period. Your interest rate during the adjustment period can go up or down based on changes in the benchmark.

Mortgage rates are influenced by a range of factors, including personal factors like your credit score and broad factors such as economic conditions. You might get a teaser rate upfront that’s much lower than the rate you could pay later on in the life of the home loan.

The benchmark in your ARM loan would be the basis of your rate. The contract may name the rate benchmark the U.S. Treasury or the secured overnight finance rate (SOFR). The named benchmark will, at some point in the life of your loan, be the starting point to calculate resets.

The benchmark is used, and the loan is priced at a markup or margin. The margin applied to your ARM will depend on your credit history. A rate cap may be in place with an ARM, which would be the maximum interest rate adjustment your loan would allow at any particular time.

The Pros of Adjustable-Rate Mortgages

Adjustable-rate mortgages can be a good option if your initial goal when buying a home and getting a loan is the lowest interest rate. Your teaser rate isn’t forever, but you’ll get lower initial payments, so you’ll improve your cash flow. You might also be able to put more toward your principal balance every month.

If you’re planning to move fairly soon after buying a home, you might not have to worry about the adjusting interest rate. An ARM can be a good option for someone buying a starter home. You may have plans to upgrade, so you can sell your home before the fluctuation of the interest rates, which keeps your risks pretty low with this type of loan.

When you’re paying less monthly, you have more flexibility in your budget to meet other financial goals.

If you think you’re moving somewhere that you won’t stay for more than five years, an ARM is often the best option.

The Cons of an Adjustable-Rate Mortgage

The biggest downside of this type of mortgage is that you’re taking a risk that your interest rate will go up. That’s highly likely, meaning eventually, your monthly payments will increase. It’s hard to predict what your financial situation will be in the future, and you might at some point find it’s a struggle to make your monthly payments if they’re higher.

There’s also an inherent sense of uncertainty that can cause anxiety for some buyers.

Finally, you also have to consider the risk that if you are planning to stay in your home for five years or fewer, you may not be able to sell it before your rate adjustment. If you’re in an ARM situation and can’t sell it, an alternative would be to refinance to a fixed-rate loan or maybe a  new adjustable-rate mortgage.

MSHDA Step Forward $7,500 Down Payment Assistance

• MI HOME LOAN

  The MI Home Loan is a mortgage program for first-time
  
  homebuyers statewide and repeat homebuyers in targeted areas. My friends Burney and Rosemarie Ashley at Capital Mortgage Funding can help you get your started.  Call them at 586-585-2626 and tell them that I sent you. 
  
  
  
  • Down Payment Assistance up to $7,500. (Homebuyer Education class required.)
  • Available to first-time homebuyers (have not owned a home in the previous three years) statewide and repeat homebuyers in targeted areas.
  • Household income limits apply and can vary depending on family size and property location.
  • All adults in the household MUST apply and credit qualify (except dependents 18 years of age and older that are full-time students).
  • Maximum sales price is $224,500.
  • Minimum credit score of 640 required or 660 for multiple-section manufactured homes.

• MI HOME LOAN FLEX

  The MI Home Loan Flex is a mortgage program available statewide. This mortgage may be a better option for some borrowers because it has more flexible eligibility requirements.
  The overall eligibility requirements are:
  • Down Payment Assistance - 4% of the purchase price, not to exceed $7,500 (Homebuyer Education class required.)
  • Available to homebuyers statewide.
  • All adults in the household DO NOT need to apply, only qualifying borrowers will be underwritten for credit, assets and income.
  • Collections and judgments DO NOT necessarily need to be paid off; the lender will follow the AUS findings.
  • Household income limits can vary depending on family size and property location.
  • Maximum sales price is $224,500.
  • Minimum credit score of 660 required.

• MORTGAGE CREDIT CERTIFICATE (MCC)

  The Mortgage Credit Certificate (MCC) program provides housing assistance by issuing a federal tax credit to first-time homebuyers statewide and repeat homebuyers in targeted areas.
  • Qualified homebuyers can credit 20% of their annual mortgage interest paid against their year-end tax liability. A tax credit is a dollar for dollar reduction in tax liability.
  • The tax credit is allowable every year for the life of the original mortgage (up to 30 years).
  • Available to first-time homebuyers statewide and repeat homebuyers in targeted areas.
  • Household income limits can vary depending on family size and property location.
  • Maximum sales price is $224,500.

• HOUSING EDUCATION

  Lender Referred Individual Counseling
  Borrowers already working with a MSHDA Lender can be referred to a MSHDA or HUD approved agency by the Lender. This 3-hour maximum Homebuyer Education session is based on the borrower’s individual needs, and mortgage product.
  
  
  Borrowers electing this type of Homebuyer Education must provide a completed Lender Referral Document to the MSHDA or HUD agency at the time of the service. Because housing educators providing this service work with many clients each day, borrowers must contact the agency well in advance of loan submission to secure an appointment, and ensure they don’t encounter delays in the closing of their mortgage. Your clients can locate a MSHDA or HUD Housing Education Agency within their community by visiting our Housing Education Locator or the HUD website to find a local agency.
• Online Homebuyer Education
  MSHDA or HUD approved Housing Education Agencies may also offer online Homebuyer Education. To utilize the online education option, borrowers must contact an approved MSHDA or HUD approved agency to obtain information on the registration process. Agencies providing this service can be found by visiting our Housing Education Locator.
  
  Once borrowers complete this four-to six-hour online course, which includes quizzes, they must contact the MSHDA agency and speak with a certified counselor. The counselor will provide a review of the session content, the borrowers’ mortgage documents and discuss other topics like PITI, budgeting and savings, moving costs and foreclosure.
• Homebuyer Education Workshops
  Another option for homebuyers is to attend a Homebuyer Education Workshop at a MSHDA or HUD approved agency. Workshops require a six to eight hour commitment.
  Visit MSHDA’s Housing Education Locator or the HUD website to find a local agency.
  Regardless of the type of Homebuyer Education completed, the agency providing the services will issue a Certificate of Completion to the borrower. This document must be submitted to MSHDA along with all loan documents.

• AM I READY TO BUY A HOME?

  
  Buying a home is a big step. Whether it’s your first home or your next home, my good friends Burney & Rosemarie Ashley

  
  

  of Capital Mortgage Funding who can help determine if you’re ready and be a resource for you throughout the process.  Call them at 586-585-2626.
  
  

  
  
  
  
  
  

  I make a good salary. Am I still eligible?

  These programs are more accessible than you may think. MSHDA loans are available to potential homebuyers with an annual household income as high as $123,620. First-time homebuyers and previous homeowners are eligible.

  What homes can be purchased?

  Your dream home is within reach. Homes priced up to $224,500 are eligible for a MSHDA loan and a Michigan down payment. Your home can be a new or existing single-family home, new or existing multiple-section manufactured home (built after 6/14/1976), or a condominium.

  Is this a grant or a loan?

  The Michigan down payment loan is a second mortgage loan that is due back to MSHDA when the first mortgage is paid in full, the house is sold, refinanced or homeownership interest is transferred. Since no interest accrues and there are no payments, you may find this loan a better option than borrowing from your retirement fund, depleting your savings account or using money from family. The Michigan down payment of up to $7,500 can only be used in conjunction with a MSHDA mortgage. Review program details | See if you are eligible >
  
  

30-year mortgage rate falls to its lowest level in nearly three years

Economic uncertainty drove mortgage rates down, according to Freddie Mac data released Thursday, with the popular 30-year reaching its lowest level in nearly three years.

The 30-year fixed-rate average fell to 3.55 percent from 3.60 percent — the lowest since November 2016 — with an average 0.5 point. (Points are fees — equivalent to 1 percent of the loan amount — paid to a lender on top of the interest rate.) It averaged 4.51 percent a year ago.

Ronald Dwyer / Realtor

The 15-year fixed-rate average fell to 3.03 percent from 3.07 percent with an average 0.5 point. It averaged 3.98 percent a year ago. The five-year adjustable rate average decreased to 3.32 percent from 3.35 percent with 

"The drop in interest rates to a 3 year low, is fantastic news for buyers since lower mortgage rates make buying much more affordable," said Ronald Dwyer, a veteran Realtor with DwyerProperties.com powered by 3DX Real Estate. "Home prices have gone up anywhere from three percent to 6 percent and some areas higher in the past year in the Metro Detroit area, so these lower interest rates really help new home buyers  Now is the time to buy!"

Interest rate hikes may be delayed. Great news for homebuyers!

Good news for home buyers! 

Federal Reserve Chairman Jerome Powell raised the possibility that the central bank is willing to hit the brakes on interest rate hikes in the near future.  This should slow mortgage rate increases, allowing you to buy more home for your money!

The Federal Open Market Committee (FOMC), the central bank’s policy making arm, will meet again in December, and many observers believed another rate hike would occur at that time. But in prepared remarks delivered today before the Economic Club of New York, Powell stated the central bank had “no preset policy path,” adding that he was cognizant of the concerns that raising rates too quickly would disrupt the economy.

“We know that moving too fast would risk shortening the expansion,” Powell said. “We also know that moving too slowly, keeping interest rates too low for too long, could risk other distortions in the form of higher inflation or destabilizing financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously.”

Powell made no specific mention of President Trump, who appointed him to the Fed’s leadership and has since made several harshly critical remarks of the Fed’s rate hikes. Powell defended recent rate increases, noting that “interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy—that is, neither speeding up nor slowing down growth.”

Staging Tips For A Quick Home Sale

Stage Your Home to Sell

Home staging techniques can transform a ho-hum house into a buyer's dream, getting your property the attention and purchase price it deserves. Dress your home for real estate success with easy, low-cost projects you can accomplish in a few pre-sale weekends.

 See What They See

Grab a pad and pen--along with your digital camera or smartphone--and get outside for a buyer’s perspective of your home. The view from the curb often determines whether or not a shopper will even consider giving your home a closer look and any signs of neglect or clutter can instantly turn them away. Start your to-do list here, noting what needs to be cleaned up, repaired and repainted.

 Take the 10-Cent Tour

Next, head inside for a preview of what buyers will see during an agent’s open house. As you travel from room to room, try to step out of your usual traffic patterns and take note of the dominant features in each room. Plan touch-ups that will showcase your home in the best light.

Declutter Your Home

A truly lived-in look is not a plus when it comes to selling a home, so clear away everyday clutter including paperwork, collections and personal photos. The buyer needs to be able to visualize themselves in the space, and they won’t be able to do that with constant reminders that you’re still very much in residence.

'Edit' Furnishings

Rearrange furnishing schemes in every room by getting rid of worn pieces and items that make a space seem overstuffed. There should be enough furniture in place to suggest proper scale and capacity, but not so much that traffic flow is hindered and architectural features are obscured.

The Deep Clean

Every inch of your home should sparkle with the kind of clean that tells buyers the property is cared for and in tip-top shape. Remove corner cobwebs, keep windows squeaky clean and banish any odors resulting from pets, cooking, smoking and the like.

With Accessories, Less Is More

After you’ve cleaned, painted and repositioned furniture, carefully select the art and accessories you choose to replace in every room of the home. Remember the rule of threes to create pleasing, uncluttered groupings of items, and add welcoming vitality with a few thoughtfully placed plants. Stow away all personal items and limit wall decorations to fewer and larger pieces, including strategically placed mirrors that expand spaces and reflect your best assets.

 Choose a Neutral Color Scheme

A bright-red living room may fire up your imagination, but soft, neutral paint colors will better serve the buyer. Replace patterned and boldly colored wall coverings with off-white paint, and install low-grade tan wall-to-wall carpet.

Spend Time in the Garage

Home shoppers consider the garage to be a major bonus space, so help yours live up to their expectations with a thorough cleaning and uncluttered view of work and storage areas.

Touch up and repair

Give your home’s interior and exterior details some TLC. Touch up trim, polish cabinetry, repair or replace inoperable hardware and secure handrails. Also add shine to light fixtures with a thorough cleaning and installation of brand new bulbs.

Create Curb Appeal

Get potential buyers in the door by creating a grand entry. A front door that’s energy efficient as well as beautiful makes a great impression, and polished hardware, a tidy new doormat and planters overflowing with colorful blooms complete the look. And don’t forget to trim the lawn and tend to landscape plantings, because these chores can bring you a different kind of green: according to the Professional Landcare Network, lush landscaping adds as much as 15 percent to the property value of a home.

Ronald Dwyer is a Real Estate Agent working with buyers and sellers.  He is also  an independent insurance agent licensed in Michigan for Home - Auto – Motorcycle - Watercraft - Business Insurance. He can be reached at rondwyer@roninsureme.com or 248-390-6345. His real estate website is http://www.dwyerproperties.com His Insurance Website is http://www.roninsureme.com or Twitter @ronalddwyerin sFacebook: http://www.facebook.com/dwyerinsurance / Linkedin:http://www.linkedin.com/in/ronalddwyer