Mortgage Rate News

Many analysts think that the Fed will cut interest rates by the end of the year. While some analysts think that this interest rate cut could take place as early as next month, some think that the first cut won’t come until October. But, as Inman News reports, the Fed move to cut interest rates is likely to come. And it may affect mortgage interest rates as well:

The federal funds rate is not directly correlated to mortgage rates, [NAR economist Kevin] Thorpe said, but NAR expects a federal funds rate cut would have a positive impact on housing markets.

“We believe there is pent-up demand in the marketplace right now,” Thorpe said. Adding liquidity to the marketplace would make it easier for prime and subprime borrowers to get a loan, Thorpe said, and “that should help demand translate into home sales.”

This means that it might be easier in a couple of months to get a home mortgage loan, and to get it at a better interest rate. Right now, with lending standards tightening, it can be difficult to get a home mortgage loan, even if you have good credit. And it is especially difficult to get a subprime loan, or to refinance to a second home mortgage. A home equity loan is harder to get as well right now.

Additionally, the extra liquidity provided if the Fed were to cut interest rates would also prove a boon for homeowners in trouble. It would help stave off foreclosure, and could keep the credit market — and the economy — afloat.

While interest rates don’t control everything about the economy, interest rates are significant players in how well the economy does. Especially in terms of home mortgage loans.

Tags: home equity loan, Fed cut interest rates, home mortgage loans, second mortgage,
Fed chair Ben Bernanke, mortgage interest rates, mortgage interest rate news

Today is the final installment in a three-part look at types of real estate ownership. We’ve looked at speculative real estate, and we’ve looked at investment real estate. Today’s focus will be on personal real estate.

Personal real estate is not an investment

One of the biggest misconceptions is that personal real estate is an investment. When I read the famous best-seller Rich Dad, Poor Dad, I was floored by the idea that buying a home to live in is not real estate investment. Isn’t that what we’ve always been taught? That owning a home is an investment? Well, as our guide to the types of real estate ownership, Logan Flatt, CFA points out on PowerWealth.com, personal real estate is actually nothing more than a purchase:

In fact, it is hard to make money with personal real estate. To make it your home, you must take cash out of your pocket each month to finance it, insure it, maintain it, fix it, furnish it, and pay property taxes on it. Unlike investment real estate, your home generates no income to offset these out-of-pocket expenses. So, while you likely derive much pleasure from owning your home, you lose money on it every month. Don’t fool yourself – your home is not an investment. It is simply a purchase.

But, even so, there is a silver lining. After all, personal real estate is still better than renting. Flatt explains that having a home mortgage has distinct advantages over renting for an extended period of time:

• Tax deductions for mortgage interest and for local property taxes
• Ability to turn it into some sort of income if you relocate — you can rent it out, turning into a true real estate investment
• Recoup some of what you paid in when you sell

So remember, while owning personal real estate has advantages, the fact of the matter is that it is actually a rather large purchase, not true real estate investment.

Tags: home mortgage, mortgage interest, types of real estate ownership, real estate ownership,
personal real estate, real estate investment, personal real estate investment

Yesterday we took a look at the one type of real estate ownership: investment real estate. Today, as we continue looking at types of real estate ownership as set out on PowerWealth.com, speculative real estate is the subject.

Speculative real estate

Speculative real estate is when you purchase real estate at something close to the market value in the hopes that the value will go up. This is called speculation, because you speculate that the real estate will go up, and you aren’t planning on doing much with it, beyond just buying it. The problem with buying real estate and just holding on to it is that it does not always go up. Logan Flatt, CFA, explains:

What we do know at the time of purchase is that there are three equally likely outcomes for the future market price at which the new owner might ultimately sell his property. First, there is a 1 in 3 chance that he will sell the property at a future market price equal to the current market price. Second, there is a 1 in 3 chance that he will sell the property at a lower future market price. Finally, there is a 1 in 3 chance that he will sell the property at a higher future market price. In other words, at the time of purchase we know there is a 2 in 3 chance the new owner will fail to sell his property at a higher future market price.

Flatt also points out another thing that is worth mentioning. The fact that interest paid and other costs of buying property are part of the total cost can seriously cut into your profits. Speculative real estate means that you buy property and then sit on it, hoping it will go up in value. While this can work out in some cases, it is important to note that you are not getting any cash flow out of this arrangement, nor are you getting the satisfaction of living on the property, since you bought it to hold on to, rather than to live in. Monday: personal real estate.

Tags: real estate, types real estate ownership, real estate ownership, speculative real estate,
real estate investment, personal real estate