Will mortgage rate increases cool a hot housing market?

By our guest writer Bob Cahill:

Of course no one really knows if the increase in mortgage rates will cool a hot housing market.? The answer depends on factors that are worth watching in the coming months, ?especially if you?re in the market to purchase.

First of all, positive economic conditions and improved employment have resulted in the Fed forecasting their Bond Purchase exit strategy that will likely begin soon and complete some time in 2014 if economic, employment and inflation conditions meet expectations that the Fed has outlined. This mention by the Fed has resulted in a major sell-off in mortgage bonds and treasuries which have increased treasury yields and rates on conventional 30 year fixed rates by approximately 1%.

Second, home sales and values may actually see some near term additional increase due to buyers that are in the market now looking to move more quickly to lock in rates before they continue to rise.? However, the impact on future values and sales is the concern that we?re all apprehensive about especially considering how important a strong housing market is to the broader economy, consumer confidence and our own personal home ownership dreams.

To attempt to quantify a 1% rate increase for a family earning $100,000/yr and purchasing a home with a $400,000 mortgage I?ve calculated the increased monthly cost and impact on total monthly debt.? This resulted in an increased housing expense of ~$230/m or ~3% in terms of total debt from say 34% to 37%.? The impact to a higher net worth families will of course be less significant.? It?s my opinion that the current demand in the housing market will be able to absorb such an increase and 30 year rates in the 4.50% to 5% range but the markets will be the only one to determine what can and will be tolerated.

Considerations if you?re in the market to purchase:

  • Interest rates swings on a daily and weekly basis during the current market have been significant
  • Budget total housing payment based on current interest rates at time of loan pre-approval
  • Obtain interest rate quotes at the time you?re presenting an offer so you know what your payments will be
  • Be prepared to lock your interest rate once your offer has been accepted especially during current volatile times
  • You can of course also float your rate and lock later but this should be managed closely
  • Impact of higher rates and monthly costs typically impact first time buyers more significantly

Bob Cahill is a Senior Mortgage Banker with Leader Bank N.A. (www.leaderbank.com/agent/cahill).? He can be reached at 781.589.8756 or email rcahill@leaderbank.com.

  • Stay in close contact with your mortgage professional when purchasing


Mortgages do provide homeowners with a little credit – Mortgage Interest Credit to be exact.? Check out Form 8396, Mortgage Interest Credit.? According to the IRS:

Mortgage Interest Credit

The mortgage interest credit is intended to help lower income individuals afford home ownership. If you qualify, you can claim the credit each year for part of the home mortgage interest you pay on Form 8396. Who qualifies. You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. The MCC will show the certificate credit rate you will use to figure your credit. It also will show the certified indebtedness amount. Only the interest on that amount qualifies for the credit. You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Contact your state or local housing finance agency for information about the availability of MCCs in your area.

How to claim the credit:

To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR. Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write ?Form 8396? on that line.

Questions about Mortgages:

If you have any questions about refinancing your current mortgage or getting a new mortgage in connection with purchasing a home, feel free to reach out to Bob Cahill, Senior Mortgage Banker at Leader Bank, N.A. at rcahill@leaderbank.com. At my firm, we frequently refer our clients with mortgage needs to Bob.


There might be a lot of uncertainty surrounding the tax rules these days. Don’t use that uncertainty as an excuse to avoid trying to improve your personal finances. What better time to make some resolutions for 2013 than New Year’s Day?

Last January 1st, did you make any resolutions concerning your personal finances? If so, how’d you do? Did you attain your financial goals, or was 2012 a total financial washout?

The good news about New Year’s resolutions is that you get to make new ones each year. Below are some New Year’s resolutions to improve your finances.

Pay Some Extra Principal With Your Mortgage Payment Each Month

Looking for a risk-free return on your money? By paying extra toward your mortgage each month, you’ll get a risk-free return on that money equal to your mortgage interest rate. Plus, you’ll cut down on the number of years it will take to pay off your mortgage. As a rule of thumb, try to pay extra principal each month equal to at least 10% of your total mortgage payment.

If You Don’t Own A Home, Try to Qualify For the Home Office Deduction

If you’re a renter, the rent you pay generally isn’t deductible on your federal tax return. By claiming the home office deduction, you make a portion of your rent tax deductible. To qualify, you need to use a portion of your home regularly and exclusively in connection with your trade or business. Using your office for managerial and administrative tasks qualifies. You’ll claim the home office either directly against your self-employment income on the Schedule C or as a miscellaneous itemized deduction on the Schedule A.

Save A Set Amount Of Money Each Month

Did you know that if you deposit $81.50 into your savings account each month, the account would be worth $1,000 at the end of the year? To help you reach your goal, make sure to transfer the money out of your checking account into a separate savings or investment account. By doing so, it’s more difficult to spend the money that you have managed to save.

Download our (Microsoft Excel) debt/savings calculator to calculate how much you need to set aside each month to reach a certain savings goal.

We’ll post more Resolutions in Part 2 of this series – stay tuned!

Refi Your Mortgage on Devalued Home with Harp 2.0

by Guest Writer Don Clark, LYC Mortgage LLC

On October 24, 2011, the Federal Housing Agency (FHA), together with Freddie Mac and Fannie Mae, issued a press release announcing a series of changes to the Home Affordable Refinance Program (HARP). This program is designed for homeowners that are current on their mortgage but have been unable to refinance because of their reduced home value. Finally, this program provides low risk borrowers the opportunity to capitalize on today’s record low mortgage rates.

Informally known as HARP 2.0, this new program updates and removes many of the previous regulations which kept good borrowers at bay. With HARP 2.0, homeowners who lost value in their home (pushing their loan-to-values over 80%) or who previously were obstructed from refinancing because of mortgage-insurance coverage requirements or condominium project approvals are now eligible for HARP refinancing.

While some restrictions still surround HARP 2.0, this is likely the only opportunity millions of homeowners living in devalued homes, with good credit and a solid payment history, have at refinancing their original mortgages. Also, with mortgage rates making history in the past month for shattering all-time lows, timing could not be more perfect. Unfortunately, this program will only be around for a limited time as it?s scheduled to expire in 2013.

To qualify for this program, general eligibility requirements require that the current mortgage be a conventional first lien owned or securitized by Freddie Mac or Fannie Mae and has been owned by them prior to May 31, 2009. That would mean that your mortgage had to be obtained prior to that date to qualify.

If this situation applies to you, the first step is to determine if your mortgage is owned or securitized by Freddie Mac or Fannie Mae . If you are unsure, you can check both Fannie Mae and Freddie Mac?s websites or you can call their toll-free number for confirmation.

A short HARP eligibly questionnaire is available by contacting LYC Mortgage by email or phone (781-303-2620). If your home has decreased in value, this might be your only option to refinance with mortgages at today’s historically low rates. Don?t miss out.

This article was provided by Don Clark at LYC Mortgage LLC, headquartered in Wellesley, MA. To contact Don Clark directly, please call 781-303-2620 or email dclark@lyccpa.com. You should also check out LYC’s state licenses before contacting them.