Florida Mortgage Report

Tomorrow is the Last Day at This Domain

I still see many of you subscribing to this feed and/or commenting on this blog.  This post is a reminder that the Florida Mortgage Report will not be located at www.floridamortgagedaily.com after tomorrow.  I will be moving my Florida Mortgage Daily (mortgage market updates) blog to this domain March 1, or shortly thereafter.

That being said, this blog is currently hosted under Typepad, so the blog will remain here for nearly a year, though no comments will be accepted (stopped 2/15/08) and the blog will not be updated any longer.  To follow my writings, please jump over to www.flmortgagereport.com and while there, don't forget to subscribe to that feed to stay up to date.

This will ensure lively discussions continue on the "hot topics" such as Money Merge Accounts and other mortgage acceleration strategies, as well as current events.  All prior posts are over there already (and some new ones), so if you liked a post (or even linked to one), check out the same post (and link to it) over at the new location, www.flmortgagereport.com. 

There are two main reasons for the change that I mentioned before in case you are wondering.  Number one is the change to WordPress to add more flexibility and control.  Since I rely on feedback from you, you can have an effect on how the site looks and its functionality.  I want it to be a very user interactive site and WordPress allows that more easily.  Number two is that I wanted to match domain names to the blog titles.  It was rather awkward, as you can imagine, say the Florida Mortgage Report was at www.floridamortgagedaily.com then turning around and saying Florida Mortgage Daily didn't have its own domain.

So, once again, please go over and visit www.flmortgagereport.com and subscribe to its feed to continue staying up to date on the Florida Mortgage Report.  If you want to see mortgage market commentary, keep www.floridamortgagedaily.com bookmarked and return in March when I have that blog up and running on this domain.  You can also check out my contributions over at Lenderama and Agent Genius.

Flight Planning Your Retirement (Enroute)

In my previous post on the subject, Flight Planning Your Retirement (Pre-Flight), I discussed how airline pilot's prepare for their flights and how it relates to your own financial "preflight planning".  This post will discuss how pilot's constantly monitor their flight and adjust the plans enroute and how you should be doing the same with your finances.

Now that our airplane has taken off, we know we are far from over.  During the remainder of the flight, pilots must monitor the flight, weather, systems, and more and adjust the plan as necessary.  We hope the flight will be "boring", but we plan for the worst as we go along.  By constantly monitoring and adjusting the plan, we can minimize the effects of any changes.

Now that you have implemented your retirement plan (or any financial plan for that matter), you must also monitor it.  I don't mean every day, but regularly check and make sure you are on course.  The regularity depends on you, but it should be at least once per year and any time there is a "life event", such as new child, marriage, etc.  While you certainly don't want life to be boring, you also want to be prepared for life changing events.

As happens during airline flights on occasion, things do go wrong and we have to adjust our plan accordingly.  The issues are usually minor and don't involve much more than an altitude or speed change.  Sometimes things get more dramatic, which you have likely seen on TV or in the paper.  No matter what, preparation is still key and that means planning ahead for problems along the way.

As you go through life, your financial plan will change also.  Besides normal life events, chances are good that you will encounter some sort of financial crisis.  It may be minor, or it may hit you hard.  Again, planning for those types of events is a huge part of ensuring your financial success.  Hopefully, you will not see your house get destroyed by fire, tornadoes, or hurricanes, but what if it does?  Plan ahead, just in case.

Sometimes pilots have to divert and get the plane on the ground quickly to handle an emergency.  That does not mean it is the end of the flight, though you will likely have a change of airplanes and/or crew.  But once that is completed, your flight will likely continue to its destination.

You may encounter major problems in your financial picture along your journey as well, causing a divert of sorts.  It may require you to change your thinking, re-diversify your investments, or completely rework your plan altogether.  Just be ready to get together with your team and do what is necessary when a major problem hits, and remember that while you may have to delay arrival a bit, you will get their if you plan accordingly.

Now that we are well under way along our route, we have to begin preparations for our arrival.  Yes, more planning is involved, frankly it doesn't end until we have left the aircraft.  As we get closer to the airport, we are setting up for our landing and arrival at our destination.  The next post will cover your financial approach.

Who Do You Trust?

It never ceases to amaze me how people go about purchasing their home, getting financing, handling title, and even getting their appraisals.  Most will just trust those who they are working with, friends, family, or even their boss at work.

The video below is a marketing piece put out by the union I am again a proud member of, the Allied Pilots Association.  Before you think I am simply pushing our agenda as pilots, look at it in a different way.  Look at the video, granted it is a somewhat biased look, and see how people from both sides push their own agenda, trying to get their way.  Then look at who you would likely trust with the decisions affecting your life.

(video produced by the Allied Pilots Association)

Take a look at what airline pilots do, what has been happening over the last five years, and answer the question at the end, "who do you trust?"  I would venture to guess I would say you answered "the pilots", but that is for you to decide. 

Why do I say the pilots?  Yes, I am one, but it is based on the fact that every time you step into an airplane, you are putting your lives in their hands.  Now that is trust.

The same thoughts you may have had when watching the video and answering the question can be taken over to the real estate, or any other transaction, for that matter.  Who are you trusting to get your advice? 

Do you trust those which do the work day in and day out, proving their expertise or do you simply take the referrer's word for it?  Or even worse, simply find a home and lender, etc. on the Internet through a simple search engine website, where "lender's compete"?  You need to understand the true cost of seeking "lowest rates and fees" versus getting the best advice.

Why Are Americans Afraid of ARMs?

Despite all of the media blasting Adjustable rate Mortgages (ARMs), and the fear of foreclosure if you don't refinance, ARMs may actually be a better deal for you, especially now that mortgage rates are headed higher again.

That's right, I will be the first to tell you if an ARM is better for you and that you shouldn't refinance (unless of course it is your best interests overall).  With LIBOR and CMT down, what most prime ARMs are based on, the fully indexed rates may be even lower than the recent lows on the 30-year fixed.  And guess what, those indexes will likely go at least a little lower in the near future.

So why are so many switching to fixed rates right now.  In fact, Freddie Mac reported yesterday that 92 percent of Americans with 1-year ARMs refinanced to a fixed rate, and 89 percent of those with hybrid ARMs did the same during the 4th quarter of 2007.  So, they were rushing to refinance from an ARM to a fixed at a time when their ARMs could be going lower.  Make sense?

Of course, fear of where they will be next year or beyond can drive people to the wrong decisions.  The media, your friends, neighbors, family, even Gene Simmons will probably tell you you need to refinance and get a fixed rate mortgage instead.  So, it begs to question whose advice your going to follow.

Don't count on most mortgage professionals either, as most are hurting financially themselves and may put their interests above yours.  There are several I would highly endorse, such as Brian Brady, Rhonda Porter, and a few others who have shown their ethics to be above all others.  Even financial planners sometimes miss the mark. 

The best way to ensure your financial success, including getting the best mortgage product for your overall financial situation is to do your research and work with a team of professionals that can guide you properly.

Robbing Peter to Pay Paul?

There are many things in life that catch my eye and this one scares me.  In a MSNBC article, it discusses the fact that more and more Americans are taking loans out against their 401(k)s and even stopping contributions.  The reasons for doing this are varied, but some are doing it just to keep up with their lifestyle instead of making necessary changes.  That is just scary.

Why would you want to sacrifice your future to live in the present?  Do you plan on dying early?  This is backwards thinking as any sacrifices should be done now, even if it means moving in a down market.

As home prices fall and banks tighten lending standards, more people are doing the same thing: raiding their retirement savings just to get by and spending their nest eggs to gas up SUVs, pay mortgages or put food on the table.

I purposefully underlined the gassing up SUVs comment as SUVs are a luxury and there are many cars out there that are just as well suited for your needs and have better gas mileage, but lack "status".  Chasing "status" will destroy your finances and I see that everyday in South Florida, where BMWs and Hummers account for a large portion of the automobiles.

Charlton and his wife used the retirement money and $7,000 from savings to pay down their credit card debt. They also cut monthly expenses by pawning a diamond ring and selling camera equipment he owed money on. And he's looking for someone to take over his $550 monthly payment on a gray BMW 335i he leased last April.

Need I say more?  Well, yes I do as he makes a very common thought process...

"I made the best decision I could," he said. "I keep hearing about bankrupting your future retirement. But I feel like it's far enough away that I'll be able to save up enough."

The time value of money went from working side by side with him to against him, though he does not realize it.  That is a common problem with Americans all across the country.  Focusing on paying down debts, especially mortgages, can be detrimental to your financial health overall.  Not setting up emergency funds and doing other financial planning is what leads to these problems to begin with. (check out my "Flight Planning Your Retirement Series")

There is also an important tax issue for those deciding to get a loan against their retirement account...

Consumers who tap their retirement accounts can take a loan from their 401(k) accounts worth up to $50,000, or 50 percent of the amount invested, whichever is less. There are no tax consequences for a loan in good standing. But if a borrower defaults, the loan is considered a withdrawal and subject to the same tax penalties.

Taking out a loan against your retirement account can have dire consequences.  Besides the tax issues above if you default, if you fail to contribute to your account for five years, you can expect nearly 20% less money available for retirement if you are 40 years old already.  That could easily spell financial disaster for you in the long run.

Flight Planning Your Retirement (Pre-Flight)

Flight planning and retirement planning are very similar in what it takes to achieve success.  Flying requires excellent planning, modifications to the plan enroute, a proper vehicle, and constant monitoring to ensure we reach our destination.  Retirement planning, will also require proper planning, proper vehicles, modifications to the plan along the way, and regular monitoring to ensure you reach your destination.  In fact, the only real differences are the time it takes and the fact one destination is a location and the other is a financial goal.

There is an old saying about the 3 most useless things in flying, which are:  runway behind you, altitude above you, and fuel left in the truck except when you are on fire.  While those rank high on the list, failure to plan is another, and proper planning will ensure the other 3 don't matter.  The same will hold true in your retirement planning.

Before a pilot even gets out to the airplane, he is already preparing his plan.  Keeping with the airline style flying, we will plan along with several other "team" members.  Our team includes dispatchers, load planners, air traffic controllers, and more.  Most of the time, our team members have the flight plan set up for us when we get to work and we likely agree with the plan to start with (we have a good team at American Airlines). 

When working your retirement plan, you will need a team also.  That team should include financial advisors, insurance agents, mortgage planners, tax advisors, and anyone else that can help you make your destination.  You will work together to develop your specific plan to get you started, ensuring everyone is working together to get you to your destination.

The next step for the pilot is to preflight the airplane and make sure it is ready for its flight.  "Walk-arounds" are down to make sure the vehicle doesn't have any exterior problems, while interior checks are performed as well.  If any issues are found, modifications to the plan are made to ensure safety, including switching aircraft if necessary. 

Your pre-flight retirement planning will cover types of investment vehicles that can help you attain your financial goals and which ones to use.  While flying requires only one vehicle, investments should be diversified for better chances of success.  This could include stocks, bonds, mutual funds, currency exchanges, options, real estate.  Then you can wrap those up into IRAs, 401(k)s, 1031 Exchanges, or other "vehicle" to get you there.  Choose your option wisely and minimize "overlap".

The remaining portion of a pilot's pre-flight is to ensure adequate fuel to get there, have an alternate (or two), and more to deal with problems that may arise enroute.  We also get a clearance for departing, get in position and go.  Thus, we have done the best we can to ensure a safe completion of that flight at our destination.

The final preparation of your retirement plan will be to bring it all together and implement it.  No investment ever pays off if you don't put any money into it, so get your plan together, make sure it looks good, and get it going.

Now, that we are on our way, the next part of the series will cover handling problems enroute and making adjustments along the way.

Economy Gets Stimulated: So Are You Excited?

President Bush signed into law the economic stimulus package we have all heard about.  Even the IRS said today that they will begin mailing checks in May for those who filed 2007 taxes, so make sure you file this last year if you haven't been.  It is "free" money after all, right?

Are you excited to get your money and rush out and spend it?  Are you excited that you can turn your jumbo loan rates into a new conforming loan (limited time offer, contact me for application), maybe even take some equity out so you can rush out and stimulate the economy even further?

I don't know about you, but my money is not going to be spent, rather I will invest it wisely, that way it will actually mean something in the future.

So, what changes occurred that Floridians should know about?

Well, you may qualify for up to $1,800 rebate, or more.  That's pretty cool, even if the rebate is only $300.  So, you need to decide what you "should" do with that money and not just blow it.

Conforming loan limits have been temporarily increased.  That means you may qualify for refinancing your high jumbo rates for a lower "conforming" rate.  I would be happy to help you determine if this is truly in your best interests, as it may not be in reality.

I am not going to get into the nitty-gritty details here as the post would just drag on.  If you want to know more on how the stimulus package can benefit you, especially as it pertains to your mortgage, contact me and I will be happy to assist you.

Did You Have Your ARM Fixed By a Real Mortgage Professional?

If you are like the multitudes that rushed to convert your ARM (Adjustable Rate Mortgage) to a fixed rate mortgage, following the media's advice and not listening to true mortgage professionals, I'll bet you are wishing you hadn't wasted your money.  Fixed rate mortgages are still hovering in the mid-5s if you don't pay points and those ARMs, even when fully indexed are dropping below the mid-5s at this point and probably will fall further.

Now, if you are sought out the help of a true mortgage professional, they would have advised you not to fix your ARM if it wasn't broke.  Now, thousands, if not millions, of Americans have gone and wasted money seeking a general mortgage practitioner instead of seeking a specialist.  The end result is wasting money fixing something that wasn't broken in the first place.

Take a look at this chart to see what I am talking about, and what I have been for a while...

As you can see, there are clear advantages of keeping your ARM, especially if it is tied to LIBOR.  The chart above shows the 30-year rates and the fully indexed 6-month LIBOR rates (including the standard 2.25% margin).  I even threw in the Fed Funds Rate to show the correlation to the Fed's decisions and your LIBOR ARM.  (Keep in mind that pricing on new ARMs are not effected directly by the Fed's actions, but rather on market forces like normal mortgage rates).

As you can see, if you kept your ARM the entire time, there were times when your rate would have been significantly below those of the 30-year fixed, while the times when your rate would have exceeded the 30-year, it was not very significant and short lived as well.  ARMs are not really as bad as people think, that is the bottom line.  And rushing to get your ARM fixed right now may prove more costly over time than you could possibly think.

Now, there are reasons why you would want to convert your ARM to a fixed rate mortgage, but you need to seek a true mortgage professional that will put your best interests above his/her own and that is very hard to find these days.

Is Home Equity Safe? (Originally Published in 2006)

(This is another article written back in 2006 when interest rates were higher, originally posted on my AR blog)

Would it be better to have $400,000 in Home Equity or $400,000 in a safe, conservative investment account? Many Florida and Gulf Coast homeowners no longer need to pause and think about it, they can easily answer that question now.

One of the least publicized lessons from hurricanes Katrina, Rita, and Wilma taught us concerns personal finance and the best way to own your home. Most Americans strive to pay down or pay off their mortgages. However, those that followed this advice were worst hit when the hurricanes arrived, including Senator Trent Lott.

Senator Lott was living the “American Dream” by owning his home outright. Like many Americans do, he considered it his retirement nest egg, which accounted for half his net worth. When hurricane Katrina completed its destruction, the Senator’s home, and his nest egg, were wiped out. He estimates he lost the $400,000 he built up in home equity, and he’s still fighting with the insurance company to pay claims so his loss doesn’t grow any higher. The reason is many insurers are balking at paying claims citing that the damages were the result of floods, not hurricane winds.

Senator Lott was not the only politician that was affected. The Mayor from Port Arthur, TX had his house burned down in the aftermath of hurricane Rita. His comment was “the sad thing is we just paid off our house.” Even when those affected by the storms do settle with the insurance companies, it will take a long time to rebuild or repair there homes and be in position to take out their equity.

As the victims of these hurricanes found out, home equity is not as safe as they originally thought. It can be wiped out completely in a short period of time. The Senator and Mayor would have been better off if they had separated their homes’ equity and placed it in a safe, conservative bank account prior to the storms. In fact, all homeowners are better suited to keep as little cash in their homes as possible, and instead allow their home’s equity to build up in a safe side investment account.

Those homeowners that had separated their home’s equity prior to the hurricanes were able to get back on their feet much quicker. The reason is they had cash available to them and were not dependent upon the insurance companies to decide whether their damage is covered. This is a good example of how cash is king and the ones with cash hold all the cards. In Senator Lott’s case, if he had the $400,000 in an investment account, he would have many more options and more leverage while dealing with the loss of his home. Instead, the insurance company is in control and he is dependent upon them to replace his cash.

With another busy hurricane season forecasted, will there be more disasters? How many people affected will have their homes paid off and lose their nest egg? How many will reposition their equity into a safe investment account and be prepared?

With mortgage rates being around 6.5% today (about 4.7% after tax savings), it’s relatively easy to realize a higher rate of return in a conservative investment account. In addition to increasing safety and liquidity, a higher rate of return can be achieved and allow your money to grow and compound also! For more information on strategic mortgage planning concepts, contact Robert D. Ashby, CMPS at (954) 432-3450 or visit www.solidrockmortgage.com. As Florida’s first Certified Mortgage Planning Specialist, he can verify if it makes sense which mortgage solution is best for a particular family to better protect their home equity, increase their liquidity, and build their wealth.

Don’t Pay Off That Mortgage, It Could Be the Biggest Mistake!

(This is a repost of an article I wrote back in 2006, even before I started blogging)

Paying additional principal toward your mortgage, or even getting a bi-weekly mortgage program, could be detrimental to your financial health?

That’s right. In most cases, instead of paying extra principal, there may be a better way to pay that mortgage off and experience financial freedom faster. “The truth is, you may never want to pay off your mortgage,” says Robert D. Ashby, President of Solid Rock Mortgage Corporation.

Mr. Ashby continues, “Why? Your home’s equity is not a safe investment. Equity has no rate of return and has no liquidity. You cannot access your equity without qualifying for a mortgage of some kind, which requires you to pay fees, and borrow your equity on the banks’ terms, plus you must prove you can qualify.” This is especially true in cases of job loss or some other financial crisis.

Additionally, by taking the money normally put toward extra principal and investing them in other safe investment vehicles, families can increase their liquidity, and realistically be able to pay off their mortgages faster. Families may even want to take out a new loan or refinance their current loan to increase safety, liquidity, and rate of return.

The majority of Americans carry huge credit card balances with high interest rates and most do not have enough money in savings to tide them over in a financial emergency. For this reason, refinancing or taking out a new loan may be even more beneficial for them by increasing their cash flow, which can then be invested to create a college savings plan, vacation plan, or even increase their retirement plan.

There are several strategies for the homeowner to consider that can allow them to experience financial freedom sooner than trying to pay off their mortgage as quickly as possible. Obviously, these strategies will not be advisable to everyone, so seeking the guidance of a Certified Mortgage Planning Specialist to find out which strategy is the best is a wise decision.

For more information regarding these concepts, contact Robert D. Ashby, Certified Mortgage Planning Specialist, at (954) 432-3450 or visit www.solidrockmortgage.com.