04
Jan
By Fred Gruber
Mortgage

15-Year vs. 30-Year Loans Compared

Choosing the right mortgage term is a critical decision when purchasing a home. The two most common options are 15-year and 30-year mortgage terms. Let’s compare the advantages and disadvantages of each to help you make an informed decision:

15-Year Mortgage Advantages:

Interest Savings: The most significant advantage of a 15-year mortgage is the amount of interest you can save over the life of the loan. With a shorter term, you pay less interest because the loan is repaid more quickly.

Faster Equity Building: Monthly payments for a 15-year mortgage are higher, but a larger portion of each payment goes toward the principal. This results in faster equity buildup, which can be beneficial if you plan to sell or refinance in the future.

Lower Interest Rate: Generally, 15-year mortgages come with lower interest rates compared to 30-year mortgages. This can contribute to overall interest savings.

15-Year Mortgage Disadvantages:

Higher Monthly Payments: The main drawback of a 15-year mortgage is the higher monthly payments. This option may strain your monthly budget as compared to a longer-term loan.

Reduced Flexibility: Higher monthly payments can limit your financial flexibility. If unexpected expenses arise, you may find it challenging to meet the higher mortgage payment.

30-Year Mortgage Advantages:

Lower Monthly Payments: The primary advantage of a 30-year mortgage is the lower monthly payments, making it more manageable for many homebuyers. This can free up cash for other investments or expenses.

Greater Flexibility: Lower monthly payments provide greater financial flexibility. You can allocate extra funds towards investments, emergency savings, or other financial goals.

Tax Deductibility: Mortgage interest is often tax-deductible, and with a 30-year mortgage, you may have higher interest payments, potentially resulting in a larger tax deduction.

30-Year Mortgage Disadvantages:

Higher Total Interest Paid: While monthly payments are lower, the total interest paid over the life of the loan is higher compared to a 15-year mortgage. This means you’ll pay more for your home in the long run.

Slower Equity Buildup: With lower monthly payments, a smaller portion of each payment goes toward the principal. This leads to slower equity buildup compared to a 15-year mortgage.

Considerations:

Financial Goals: Consider your financial goals and priorities. If you prioritize long-term savings and can comfortably afford higher monthly payments, a 15-year mortgage might be suitable.

Budget and Cash Flow: Evaluate your monthly budget and cash flow. If you need more flexibility and want to keep monthly payments lower, a 30-year mortgage may be a better fit.

Long-Term Plans: Consider your long-term plans. If you plan to stay in the home for a significant period, a 30-year mortgage may offer more financial flexibility.

Ultimately, the choice between a 15-year and a 30-year mortgage depends on your individual financial situation, goals, and preferences. It’s advisable to consult with a financial advisor or mortgage professional to make the best decision based on your unique circumstances.

03
Jan
By Fred Gruber
Home Mortgage Tips

The Role of Mortgage Escrow Accounts in Property Tax and Insurance Payments

A mortgage escrow account, also known simply as an escrow account, is a financial arrangement set up by a mortgage lender to manage and disburse certain payments related to the property on behalf of the homeowner. The purpose of an escrow account is to ensure that essential expenses, such as property taxes and homeowners’ insurance, are paid on time.

Here’s how a mortgage escrow account works:

Creation of Escrow Account: When you obtain a mortgage loan, your lender may require you to establish an escrow account. This account is typically separate from your mortgage loan account.

Monthly Payments: As part of your monthly mortgage payment, you contribute a prorated amount toward property taxes, homeowners insurance, and, in some cases, private mortgage insurance (PMI). The total amount is divided by 12, and a portion is added to each monthly mortgage payment.

Lender’s Responsibility: The lender is responsible for making payments from the escrow account when they come due. This includes paying property taxes and homeowners’ insurance premiums directly to the relevant authorities or insurance companies.

Annual Analysis: Each year, the lender performs an escrow analysis to ensure that the correct amount is being collected to cover expenses. If there is a shortfall or surplus in the account, adjustments may be made to your monthly payment to reflect the anticipated expenses for the coming year.

Changes in Taxes or Insurance Premiums: If there are changes in property taxes or insurance premiums, the lender adjusts the escrow account accordingly. This can lead to changes in your monthly mortgage payment.

Surplus or Shortage: If there is a surplus in the escrow account after all expenses are paid, you may receive a refund. Conversely, if there is a shortage, the lender may increase your monthly payment to cover the shortfall.

Homeowner’s Responsibility: While the lender manages the escrow account, it’s still the responsibility of the homeowner to stay informed about changes in property taxes and insurance costs. Homeowners should review their annual escrow statements and communicate with their lender if they have concerns or questions.

Having an escrow account can be convenient for homeowners because it spreads out the cost of property taxes and insurance over the year, making it easier to budget for these large annual expenses. Additionally, it helps ensure that these crucial payments are made on time, reducing the risk of liens on the property or lapses in insurance coverage.

02
Jan
By Fred Gruber
Financial Reports

What’s Ahead For Mortgage Rates This Week – January 2nd, 2024

With the New Year, the final week only featured the normal reports of Jobless Claims, S&P Shiller Home Price Index (YoY), and the Chicago Business Barometer. All of them will have limited impact compared to the GDP and the Inflation data reports that have already been released.

S&P Shiller Home Price Index (YoY)

For the ninth consecutive month, home prices in prominent U.S. metropolitan regions have surged, reaching an all-time high. This increase is attributed to an ongoing shortage of available homes for sale. In October, the S&P CoreLogic Case-Shiller 20-city house-price index, after seasonal adjustments, showed a 0.6% rise compared to the preceding month.

Chicago Business Barometer

The Chicago Business Barometer, also known as the Chicago PMI, fell 8.9 index points to 46.9 in December.

Economists polled by the Wall Street Journal had forecast a 50 reading. 

The index had jumped to 55.8 in November, the highest level in 17 months, after the end of the United Auto Workers strike.

Primary Mortgage Market Survey Index

• 15-Yr FRM rates seeing a week-to-week decrease by -0.02% with the current rate at 5.93%
• 30-Yr FRM rates seeing a week-to-week decrease by -0.06% with the current rate at 6.61%

MND Rate Index

• 30-Yr FHA rates saw a -0.04% decrease for this week. Current rates at 6.08%
• 30-Yr VA rates saw a -0.04% decrease for this week. Current rates at 6.09%

Jobless Claims

Initial Claims were reported to be 218,000 compared to the expected claims of 215,000. The prior week was 206,000.

What’s Ahead

Next week will be a light release week with one major report being the Consumer Price Index and Producer Price Index, which will show the inflation rates over December.