Posts Tagged ‘interest rate’

What is an APR and What did it do to my Rate?

March 10, 2011

After discussing some options and various programs with your Loan Officer you reach a plan that works for your situation.  You are satisfied with your interest rate and then you are handed that one piece of paper that shows in large, bold-faced type a number that is not what you recall discussing and the words, “Annual Percentage Rate” next to it.  Where did this number come from?  Did my interest rate change?  What will this do to my payment?

If you know nothing else about home loans and borrowing money, you understand that there is a cost associated with the money you are borrowing, specifically your interest rate.  However when presented with a new percentage and the words Annual Percentage Rate (or APR) next to it, you are left with more questions than answers.  Let us explain.

The interest rate is the cost percentage used to calculate your monthly payment.  However, there are other fees and charges associated with the set-up and origination of a loan.  The APR takes these fees and charges into account and provides the consumer with an effective rate (or total cost) of their loan expressed as a percentage.  The intent of the APR is for consumers to be able to compare competing lenders and various loan programs.

Lenders are required by law to disclose the APR to the borrower within 3 days of applying for a mortgage loan. In late 2008 further regulations were passed (effective in 2010) stating that if the APR changed by more than .125% from this initial disclosure on the Good Faith Estimate (GFE), the lender must re-disclose this information to borrower and wait another three business days before closing the loan.

The APR does not change your interest rate; rather it clarifies the true cost of your loan.  It generally includes points, origination fees, mortgage insurance and document prep fees.  It is not however, how your payments are calculated.  Your payments are still based on the interest rate you discussed with your loan officer.  We hope this helps.

Advertisements

Gaining Perspective

February 9, 2011


There are times when you need to view something from a different angle to better understand it.  We tilt our heads when appreciating abstract art.  We walk around a new car to take in all the lines.  We step back when we place an arrangement on the table.  Changing the view gives us new perspective in order to better understand what we are looking at.

 

The same can be said when looking at factors and indicators of the economy, housing sector and interest rates.  We have all heard that interest rates are at historic lows, but just how low is that?  Did you miss out on this recent refinance boom?  Is this refinance boom even over?  Just where are rates right now anyway?

 

Interest rates have been tracked and recorded for the past 39 years.  In that time if there has been one constant, it would be change.  Consider these facts on 30-year fixed rate loans:

 

  • The average interest rate from one month to another has only held unchanged 14 times in 39 years.
  • Interest rates have dropped 2.69 points from 1972 when the average rate was 7.38% to 2010 where rates ended at 4.69% on average.
  • Over the past 39 years interest rates climbed as high as 11.07 points above the yearly average of 1972.
  • Interest rates have dropped as much as 14.22 points since their highest in October of 1981 when that single month boasted rates at 18.45%.
  • The highest yearly average interest rates occurred in 1981 at 16.63%.
  • The lowest rates on record happened last year in 2010 at just 4.69%.
  • Over 39 years the average interest rate was 8.92%, almost double 2010’s yearly average.

So yes, we really are at historically low interest rates!  Yes, this is still a fantastic time to review your current home loan to see if refinancing makes sense for you!  No, you most definitely have not missed out on these low rates!  And yes, it is a fantastic time to buy a home.  Not a bad view from that perspective.  Give us a call to review your current loan or to help you with a pre-approval for your new home.

Mortgage Credit Certificate (MCC) Program

February 1, 2010

Home ownership is a great source of pride and personal satisfaction.  At Awareness Home Funding we enjoy helping our clients reach this goal.  And with the Mortgage Credit Certificate (MCC) program, we have another tool to assist you. 

The MCC program is a Federal tax credit on the mortgage interest you pay on your home loan over a calendar year.  While this does not reduce your monthly mortgage payment, it is a dollar for dollar reduction from the amount of your Federal Income Tax liability.  To date, for the five states we conduct business, only Michigan and Indiana have this program.  (Kansas does not have this program and Florida stopped the program due to lack of funding.)

The beauty of the program is that it effectively reduces your annual interest rate. 

For example: In Michigan the program offers a full 20% tax credit on the amount of annual interest paid.  On a $100,000 mortgage at 6% interest, the approximate annual interest amount is $6,000 for the first year.  At the full 20% tax credit, $1,200 can be deducted from the amount of Federal Income Tax you owe.  ($6,000 x 20% = $1,200; making your effective interest rate 4.8%) 

The MCC credit remains in effect as long as your home continues to be your principle residence and the original mortgage remains in place.  If you refinance your home loan, sell your home, or purchase a new home as your primary residence, the credit program will end.  For most homeowners who participate in this program, there really is no need to even consider a refinance since their effective rate is already reduced.

 The benefits of this program are significant! 

  • In many areas of Michigan and Indiana, you do not need to be a first time homebuyer to qualify.
  • In Michigan, up to 20% of your mortgage interest can be credited on your Federal tax return.  Plus, the remaining 80% of mortgage interest paid will continue to qualify as an itemized deduction on your Federal tax return. 
  • In Indiana, 20-35% of your mortgage interest can be credited on your Federal tax return dependant upon the size of your mortgage loan amount.  Again, the remaining 65-80% of interest paid will qualify as an itemized deduction on your Federal tax return.
  • Since the MCC is applied after all other credits are subtracted, any unused portion may be carried forward against future Federal Tax returns for up to 3 years.  (See your tax advisor for specific federal credit criteria.)
  • The program is effective for the life of the original mortgage.
  • The program may also be applied to individuals with current non-taxed income, but who have the potential for taxable income in the future.
  • Most mortgage loan programs apply.

Talk to one of our Home Loan Specialists today for how this program can work for you!