Mortgage Rates Lowest Ever, Woo.

Last updated on December 19th, 2017


About a month ago, I discussed whether mortgage rates could drop any lower. At that time, the en vogue 30-year fixed-rate mortgage averaged 4.32%, per Freddie Mac data.

Today, expectedly, it hit a fresh all-time low, falling to 4.12%. Freddie attributed it to “market concerns over Eurozone sovereign debt default and a weak U.S. employment report for August.”

In other words, more bad economic news we all knew was coming came through the door, putting downward pressure on bond yields, which go hand in hand with mortgage rates.

This was no surprise, given the ongoing negative sentiment that simply won’t go away. The good news is that all the stock market swings are making someone rich, but probably not you or I.

It almost seems orchestrated now, the upswing, the downswing, and repeat. Meanwhile, mortgage rates go up, go down, hover in place, and repeat.

Of course, rates have been trending lower and lower because economic news got progressively worse after a brief bright spot.

But I still believe there probably isn’t much more rates can do in the improvement category. Why?

Well, the 10-year bond yield, which essentially dictates their direction, has a historic floor of around 2%, which happens to be its current level, more or less.

It hit a low of 1.93% earlier this week, but has since risen back above 2%. It’s rock-bottom, at least historically, so chances are it doesn’t get any better.

And, as I mentioned in the previous article, most banks and corporations are much better positioned now than they were when the mortgage crisis first struck.

While things are certainly bad, there’s not really too much new drama. There are a lot of lingering problems that will take a long time to sort out, but probably nothing that would surprise any of us at this point.

That said, mortgage rates on the popular 30-year may flirt with the 3% range, but likely won’t do much more than that.

Does Anybody Really Care?

Regardless, nobody seems to be interested in the low mortgage rates anyway.

Purchase-money mortgage applications continue to falter, at a time when affordability for first-time home buyers is at unprecedented levels.

That’s due to a lack of confidence, a lack of employment, and so on. And perhaps a view that buying a home now is like catching a falling knife.

Move-up buyers are screwed because they’ve got no home equity to use as a down payment, let alone to offload their current home, and those looking to do a simple rate and term refinance are stifled by the same problem, assuming the government doesn’t step in soon.

Finally, mortgage lenders could actually be holding rates a bit higher than they need to be (Chase) to keep demand in line with their reduced staff and risk appetite.

So even if they could go lower, they may not. Either way, I don’t think it’s mortgage rates that are holding us back, it’s real estate in general.  It’s just not that attractive anymore.

If you’re wondering whether to lock in your mortgage rate or float it, note that the Fed is considering buying more long-term Treasuries to lower mortgage rates.  But this is only expected to lower rates by 0.1 or 0.2 percent.

Again, I see 3.99% pretty much being the bottom for the 30-year fixed.  What do you think?  Comment below.

Read more: Mortgage rates vs. home prices.

(photo: rightee)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Most Consumers Only Obtain One Mortgage Quote


Here’s a shocker. Only about 40 percent of borrowers obtain more than one mortgage quote, according to a survey conducted by Harris Interactive and mortgage comparison service LendingTree.

Despite this, more than nine in 10 borrowers understand that mortgage rates vary among mortgage lenders, which explains why only three in 10 felt “very confident” they received the best deal on their mortgage.

Borrowers Know Mortgage Rates Aren’t All the Same

  • The survey found that the majority of borrowers
  • Only took the time to get a single mortgage rate quote
  • Even though they know lender rates vary
  • Which explains why they didn’t feel confident they were getting the best deal

So we know most homeowners don’t bother obtaining more than one quote, and that they don’t feel great about it.

But why aren’t they shopping if they have a bad feeling about it all? There’s got to be a good reason, right? Well, of course there is.

Why Aren’t Homeowners Shopping Around?

  • They aren’t quite sure the lender they spoke to is “the one”
  • Yet they aren’t taking the time to see what else is out there
  • One reason is time, or lack thereof
  • Another big reason is the complicated nature of mortgages in general

Borrowers aren’t putting in the time to shop for a mortgage because of the time-sensitiveness associated, and also because of all the complicated terminology.

In other words, they’re often pressed for time either because they have a certain close of escrow date, or they need to refinance ASAP for one reason or another.

And if I had to guess, some of that urgency might come from the one mortgage lender they manage to speak to, who convinces them to “act fast” to avoid missing out on whatever it is they’re selling.

Most Put In the Equivalent of One Working Day

  • For such a major financial decision
  • Consumers sure aren’t putting in much time
  • With most dedicating the equivalent of just one work day
  • Shopping for their home loan

But for such a big decision, it’s rather startling that nearly three-quarters of borrowers only spend the equivalent of one working day or less shopping for their home loan.

LendingTree noted that one in 10 borrowers only spent the amount of time it takes to brush their teeth to research their mortgage options. That’s frightening, but at least they’re brushing their teeth.

Roughly a quarter of those surveyed said they recognized that they could save more than $100 on their monthly mortgage payment by reducing their mortgage rate by one percent, yet they don’t seem willing to put in the work.

Interestingly, women were twice as likely as men to say they were not involved with shopping their purchase mortgage or refinance loan.

Nearly All Americans Comparison Shop for Everything Else

  • 96% of Americans comparison shop
  • When it comes to a new TV, car, or even a pair of shoes
  • Yet the numbers drop off considerably when it comes to a mortgage
  • Consider that the savings associated with a cheaper home loan will stay with you a lot longer and probably be a lot more sizeable

The study noted that 96 percent of all Americans compare prices when shopping for just about anything – make sure that includes the mortgage for goodness sake!

Sure, it’s painful, time consuming, and no one wants to be badgered by pushy salespeople, especially if they aren’t comfortable with all the terminology, let alone numbers.

But even a little bit of work can pay off big. There are other studies that prove you can save thousands of dollars simply by gathering an additional mortgage quote or two. Might as well just dive in and do it right the first time.

After all, if you’re saving money month after month for year after year, you’ll probably feel pretty good for a long, long time too. You probably won’t get the same feeling clipping a coupon or getting a one-time discount.

In short, be sure to contact loan officers at neighborhood banks along with a couple of mortgage brokers so you’re aware of all your loan options.  Also consider local credit unions and online mortgage lenders, both of which may offer lower rates than the competition.

Read more: What mortgage rate can I expect?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Are the Low Mortgage Rates a Home Buyer Trap?

Despite a slight uptick this week, mortgage rates are still pretty much rock bottom, and unarguably at ridiculously low levels.

This has sparked yet another refinance boom, with mortgage application volume rising to its highest point since May 2009, per the latest data dump from the Mortgage Bankers Association.

This is great news for existing homeowners with plenty of home equity looking to refinance to a lower rate. It’s also working out nicely for those who don’t have equity thanks to programs like HARP 2.0.

All in all, it’s a gift to these borrowers who are experiencing some serious monthly mortgage payment relief.

But what about new and prospective home buyers?

Are People Buying Because of the Low Rates?

With rates this low, you have to wonder if it’s all a big trap (whether intentional or not) to lure would-be buyers off the sidelines and into the game.

If you’ve followed the housing market lately, at least in certain regions of the country, such as Los Angeles, homes are speeding into pending status just days after being listed.

In fact, many are pending just one or two days after being listed. It’s looking like a serious seller’s market, though obviously a very unconventional one.

The low rates have increased affordability so much that a new pool of buyers has essentially been created, which has facilitated both standard and short sales.

Again, great news for those who have waited very patiently to sell their homes; many can finally do so!

And perhaps even better for the housing/mortgage market, with seemingly bad loans being replaced with better ones.

Heck, I’m even seeing a ton of flips that are actually selling for a tidy profit. I thought flips were dead?

Reminder of the Homebuyer Tax Credit

But it all seems reminiscent of the boost seen with the now infamous homebuyer tax credit.

That “free money” created a short-lived, yet steep run-up in home prices as first-time home buyers came out in droves.

Just a short time later, it became clear that those who purchased a home did so at a premium, and their tax credit was quickly eclipsed by a larger loss in home value.

If you take a look at this home price chart, you’ll see how the homebuyer tax credit stoked demand, but its effect was clearly fleeting.

In fact, those who purchased before the tax credit expiration were actually worse off compared to those who bought later on.

To bring it all together, home prices were pumped up as a result, similar to what we may be seeing with the record low mortgage rates.

With rates so low, homeowners and their clever real estate agents probably feel they can list their homes for more than they could have six months ago.

And the whole “it’s never been a better time to buy” adage is back.

Economy Still in Disarray

The big problem is that the economy is still a huge mess, with the European crisis hanging over our heads, and domestic unemployment still far from unresolved.

Then there are the millions of homes in the process of foreclosure, or knocking at its door.

So is this artificial stimulus actually going to help the real estate market long-term, or is it just another quick fix with no staying power?

My gut tells me that this recent run-up in prices and virtual 180 in consumer sentiment is bad news.

Getting into a bidding war over a house just months after no one was interested seems really fishy.

Additionally, all these calls of a “housing bottom” are concerning as well. You always have to wonder when every single media outlet (including your local news channel) is claiming that the worst is behind us.

Of course, the low rates have led to lower mortgage payments, even with the recent home price increases factored in.

So there’s some serious power behind those rates. The question is will you be able to buy a home next year at an even better price with a similar (or even lower) interest rate?

Read more: Home prices vs. mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Proposed Bill Lowers FHA Costs for Educated First-Time Buyers

Last updated on March 20th, 2014

A new bill being floated by Representative Karen Bass (D-Calif.) aims to lower the costs of obtaining an FHA loan, which have surged in recent months.

Back in April, the FHA’s upfront mortgage insurance premium increased from 1% to 1.75%. On a $200,000 loan, we’re talking about an increase of $1,500, which certainly isn’t incidental.

The change was implemented to bolster the FHA’s capital reserves, which were drained as a result of the ongoing mortgage crisis.

But clearly this has made FHA loans a lot less attractive to first-time homebuyers, many of which rely on the agency’s signature low-down payment loan program, which requires just 3.5% down.

Enter the Homeownership Preservation Education (HOPE) Act

To offset some of these new costs, Bass has proposed new legislation, namely, the “Homeownership Preservation Education (HOPE) Act.”

In short, it provides a 0.25% reduction on the FHA upfront mortgage insurance premium for first-time homebuyers who complete a HUD-approved housing counseling course.

On that same $200,000 loan referenced earlier, a borrower would save $500 in closing costs, making homeownership more attainable and a little less painful.

The general thinking behind the bill is that more educated homeowners default less often, which reduces foreclosures and losses for the FHA.

As a result, these types of buyers should be able to catch a break on the costly upfront mortgage insurance premium.

While it may seem minimal, every little bit helps because purchasing a home can deplete your assets very quickly.

Look at Mortgage Alternatives

While this bill is certainly well intentioned, first-time homebuyers should also consider other loan options, such as conventional loans.

Though you generally have to come up with 5% down, you won’t have to deal with the pesky FHA upfront mortgage insurance premium, which is now ridiculously high.

Or look at programs such as Fannie Mae Homepath, which only require a 3% down payment and NO mortgage insurance.

If possible, you may also want to consider getting a gift for a larger down payment, that way you can avoid mortgage insurance altogether.

And with a loan-to-value ratio south of 80%, you’ll also enjoy a lower mortgage rate, which will decrease your mortgage payment and increase your affordability.

So along with the HUD-approved homeowner education course, educate yourself on all your loan options well before applying for a loan.

Also be sure to take the time to review your credit report to ensure there are not any errors holding you back from securing a lower rate.

Putting in the time to do some housecleaning before applying for a mortgage is probably the best way to save money.

By the way, beginning next week, the FHA is cutting mortgage insurance premiums for streamline refinances., which should be a godsend to scores of underwater homeowners.

Read more: Which mortgage is right for me?

(photo: cdsessums)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Can You Pay the Mortgage with Bitcoin?

Mortgage Q&A: “Can you pay the mortgage with bitcoin?”

First off, I apologize for writing an article about bitcoin. I know it’s all the rage right now and I’m just adding to the hype, but it’s newfound relevancy warrants this post, maybe.

U.S. Mortgage Lenders Accept U.S. Dollars

  • At the moment U.S. dollars are the only form of payment
  • Accepted by U.S. mortgage lenders
  • Any so-called bitcoin payment option
  • Will likely be through an intermediary service that converts bitcoin to USD

As far as I know, all U.S. mortgage servicers only accept U.S. dollars for mortgage payments. So the simple answer would be no, you can’t use your bitcoin to pay the mortgage.

But I have heard of third-party companies offering the service in the past, perhaps working as an intermediary between bitcoin holders and loan servicers.

At that point though, you have to question what the benefit of such a service would be. If anything, it might just cost you money in conversion fees and so on.

I’ve also heard of individuals buying real estate with bitcoin, but that’s a different story because it’s an agreement between buyer and seller, and it’s effectively a cash-alternative transaction.

In other words, they’re probably buying a property outright with bitcoin as opposed to cash. No financing is taking place, nor is there any mortgage to speak of.

Why Would Mortgage Lenders Accept Bitcoin?

  • You have to ask why they’d accept bitcoin
  • Which is known to be a very volatile “currency”
  • With high transaction costs
  • There has to be an incentive for the lender

Another way of looking at it is why would mortgage lenders accept any type of non-USD currency for payment?

First off, it would require a currency conversion into the currency related to the mortgage, which would be USD.

And after all is said and done, you wouldn’t really be paying with bitcoin anymore. You’d be converting your bitcoins to USD, then sending them onto the lender.

In that case, you could effectively pay your mortgage with bitcoin, but it would be a manual, indirect process.

There are bitcoin wallets that allow bitcoin holders to sell their holdings, in part or in whole, and then withdraw the funds to their bank accounts.

After doing so, the bitcoin holder would have U.S. dollars to use toward paying their mortgage.

The only way a lender would probably be willing to accept bitcoins directly is if they saw some overwhelming value in the currency (if it’s a currency).

And even then, it would be pretty doubtful given the infrastructure that would need to be in place, along with whatever compliance stuff would need to happen.

The Same Reason They Won’t Accept Gold or Tesla Stock

  • Mortgage lenders don’t accept gold or silver
  • Nor do they allow you to pay with stock
  • Ultimately they want USD, which the mortgage note is based on
  • How you pay might be an option as long as it’s converted to USD first

As for the valuation issue, what would it be worth when it was applied to the mortgage? The bitcoin market is 24/7, nonstop action.

It’s also pretty unpredictable, not to mention the many exchanges that value bitcoin differently at the exact same time. So it’d be really hard to nail down a value everyone agrees upon, at least at this juncture.

All that adds up to a lot of unnecessary cost and risk a lender just won’t want anything to do with.

This is the same reason why you can’t send your mortgage lender bars of gold to pay the mortgage, or shoot them over a few shares of Amazon or Tesla stock every month to meet your obligations.

Paying the mortgage in bitcoin would also complicate matters if and when you needed to document your payment history for a subsequent mortgage or refinance. Anonymity isn’t favored here.

When it comes down to it, the lender is going to want to be paid in USD because there’s no second guessing its value. And there’s no currency conversion to worry about. However, that doesn’t mean you can’t pay the mortgage with a credit card.

There are services that allow that because the transactions involve USD and typically involve a two-step process whereby you charge the desired amount with the payment processor, then they cut a check to the lender on your behalf in USD.

Maybe there will come a time when this changes, but I doubt it’ll happen anytime soon. In the meantime, individuals are always free to sell investments and withdraw the cash proceeds and use them as they wish.

Soon You’ll Be Able to Pay Rent with Bitcoin


  • A new company called ManageGo
  • Will allow you to pay rent with bitcoin
  • But as mentioned it converts crypto currency to dollars first
  • So it’s really just a conversion process

A company by the name of ManageGo is launching bitcoin rental payments soon. In fact, they’re even going to allow tenants to pay rent in Ethereum and Litecoin.

But really, it’s just going to convert the rental payments to US dollars first, and then deposit them in landlords’ bank accounts.

Tenants will apparently get an “instant conversion rate” that displays the exact amount in USD that needs to be sent to their landlord to cover the rent.

And the landlord probably won’t care how they pay because by the time they get the money, it’ll be in USD.

To that end, it sounds more like it’s facilitating the conversion of bitcoin to USD, not landlords truly accepting bitcoin. Is that truly accepting bitcoin? I don’t know.

I think if and when mortgage lenders and landlords eventually accept actual bitcoin for payment, it could be a cost-saver and a quicker transaction, as opposed to sending a check or ACH.


Will Low Mortgage Rates Hurt Home Sales?

Last week, I argued that the super low mortgage rates could actually be contributing to strategic defaults.

The general idea being that the current low mortgage rates today make it even less desirable to hold a “high-rate” mortgage from the past.

The only positive from this assumption is that homeowners in this position may buy a new home and bail on the old one.

That’s a positive for them, minus the credit score hit, but a negative for the housing market and mortgage lenders (another foreclosure, more overpriced inventory that is difficult to unload).

And now it has occurred to me that the promise of low mortgage rates for the foreseeable future may have the unintended consequence of hurting home sales, at least in the near term.

Only 33% of Americans See Mortgage Rates Rising

You see, a new poll from mortgage financier Fannie Mae revealed that just 33 percent of consumers expect mortgage rates to rise in the next 12 months.

That figure is down from 45 percent a month ago, and is the lowest number Fannie has recorded since their monthly tracking began.

At first glance, it sounds like great news. Mortgage rates are going to stay at or near their record lows for longer than we thought.

Low mortgage payments for everyone who decides to dive in! Can’t argue with that.

But wait, why isn’t anyone buying a home? Well, if mortgage rates aren’t going anywhere fast, why not simply take a “wait-and-see” approach.

Kick back, see how the economic uncertainty plays out, watch for more home price declines, and buy next year instead.

You see, Americans also expect home prices to decline further. On average, they see a 1.1 percent decline over the next 12 months, which is the highest expected decline to date in the survey.

And only 18 percent believe home prices will increase over the next year, the lowest number reported to date.

So it’s a bit of a dilemma. If home prices are expected to keep slipping, and mortgage rates are forecast to hold steady, why buy now if you don’t have to?

[Home prices vs. mortgage rates]

Might as well just rent a little bit longer (or hang out in your parent’s basement) before making a move, especially since a lot of homeowners are pricing their homes higher as a result of the insanely low mortgage rates.

Of course, it’s still a relatively attractive time to buy as a first-time home buyer. And trying to time the bottom of the market is a pretty trick endeavor, if not impossible.

But with the traditionally slower portion of the home buying season ahead of us, holding out may lead to a discount over today’s prices.

Read more: Should you buy a house now or wait?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


When Will the Next Housing Market Crash Take Place?

I’ve noticed a trend lately. Everyone’s a real estate expert.

It seems the most recent crisis and recovery has turned just about every single person into a guru on all things to do with home buying and selling.

I suppose part of it has to do with the fact that the massive housing bubble that formed a decade ago swept the nation and was front page news.

It also directly affected millions of Americans, many who serially refinanced their mortgages, then found themselves underwater, then eventually short sold, were foreclosed upon, or held on for the ride back up to new heights.

It’s a common conversation piece these days to talk about your local housing market.

Thanks to greater access to information, folks are scouring Redfin and Zillow and coming up with theories about what that home should sell for, or what they should have listed it for.

Neighbors are getting upset when nearby listings are not to their liking for one reason or another. What were they thinking?!

A New Housing Bubble Mentality

  • Real estate is red-hot again thanks to limited supply and intense demand
  • It can feel like an ominous sign that we’re headed down a dark road again
  • But that alone isn’t reason enough for the housing market to crash again
  • There have to be clear catalysts and financial stress for another major downturn

All of this chatter portends some kind of new bubble mentality in my mind, though it seems everyone is just basing their hypotheses on the most recent housing bust, instead of perhaps considering a longer timeline.

One could look at the recent run-up in home prices as yet another bubble, less than a decade since home prices bottomed around 2012.

After all, many housing markets have now surged well beyond their previous lofty levels seen about 15 years ago when home prices peaked.

For example, Denver area home prices are about 86% higher than they were in 2006. And back then, everyone felt home prices were completely out of control.

In other words, home prices were haywire, and are now nearly double that.

Meanwhile, the typical U.S. home is currently valued around $273,000, per Zillow, which is about 27% higher than the peak of $215,000 seen in early 2007.

It’s also nearly 70% higher than the typical home price of $162,000 back in early 2012, when home prices more or less bottomed.

So if want to look at home prices alone, you could start to worry (though you also have to factor in inflation which will naturally raise prices over time).

But they say bubbles are financially driven, and we’ve yet to see a return to shoddy underwriting.

I will say that there’s been a recent return of near-zero down financing, with many lenders taking Fannie and Freddie’s 97% LTV program a step further by throwing a grant on top of it.

This means borrowers can buy homes today with just 1% down payment, and even that tiny contribution can be gifted from someone else.

So things might be getting a little murky, especially if you consider the increase in prices over the past four or five years.

One could also argue that affordability is being supported by artificially low mortgage rates, which history tells us won’t be around forever.

There’s also a general sense of greed in the air, along with a feeling amongst homeowners that they’re getting richer and richer by the day.

That type of attitude sometimes breeds complacency and unnecessary risk-taking.

But When Will Home Prices Crash Again?!

real estate cycle

  • If you believe in cycles, which seem to be pretty evident in real estate and elsewhere
  • We will see another housing crash at some point relatively soon
  • There appears to be an 18-year cycle that has been observed for the past 200 years
  • This means the next home price peak (and then bust) might begin in 2024

All of those recent home price gains might make one wonder when the next housing market crash will take place.

After all, home prices can only go up for so long before they drop again, right?

Well, the answer to that age-old question might not be as elusive as you think.

The real estate market apparently moves in cycles that some economists think can be predicted to a relatively high degree.

While not a perfect science, there seems to be “a steady 18-year rhythm” that has been observed since around the year 1800.

Yes, for over 200 years we’ve seen the real estate market follow a familiar boom and bust path, and there’s really no reason to think that will stop now.

It puts the next home price peak around the year 2024, followed by perhaps a recession in 2026 and a march down from there.

How much home prices will fall is an entirely different question, but given how much they’ve risen (and can rise still), it could be a long, long way down.

And we might not have super low mortgage rates at our disposal to save us this time, which is a scary thought.

You’ll Never Get Back Into the Housing Market…

  • There are four main phases in a real estate cycle
  • A recovery period and an expansion period
  • Followed by hypersupply and an eventual downturn
  • Don’t believe the hype that if you don’t buy today, you’ll never get the chance!

Another housing bust in inevitable, despite folks telling us we’ll never get back in again if we sell our home today, or don’t buy one tomorrow.

There are four phases to this predictable cycle, including a recovery phase, which we’ve clearly experienced, followed by an expansion phase, where new inventory is created to satisfy demand. This is happening now.

At the moment, home builders are ratcheting up supply to meet the intense demand in the market, with some 45 million expected to hit the average first-time home buyer age this decade.

The problem is like anything else in life, when demand is hot, producers have a tendency to overdo it, creating more supply than is necessary.

That brings us to the next phase, a hypersupply period where builders overshoot the mark and wind up with too much new construction, at which point prices plummet and a recession sets in.

The good news (for existing homeowners) is that according to this theory, we won’t see another home price peak until around 2024.

That means another three years of appreciation, give or take, or at least no major losses for the real estate market as a whole.

So even if you purchased a home recently and spent more than you would have liked, it could very well look cheap relative to prices a few years down the line.

The bad news is that the real estate market is destined to stall again in just three short years, meaning the upside is going to diminish quite a bit over the next few years.

This might be especially true in some markets that are already priced a little bit ahead of themselves, which may be running out of room to go much higher.

But perhaps more important is the fact that home prices tend to move higher and higher over time, even if they do experience temporary booms and busts.

So if you don’t attempt to time the market you can profit handsomely over the long term, assuming you can afford the underlying mortgage.

And remember, there’s more to homeownership than just the investment.


Jim Cramer Just Paid Off His Mortgage with Bitcoin Gains

Posted on April 15th, 2021

File this one under bizarre, for several different reasons.

Mad Money host Jim Cramer disclosed yesterday that “he recently paid off a mortgage using profits from his investment in bitcoin.”

He apparently purchased a significant amount of the cryptocurrency back when it was trading at around $12,000, which was actually as recently as last October.

The price of a single bitcoin has launched since then, hitting a record high of around $64,000 this week.

For Cramer, that’s an investment return of about 433%, something he then moved into his mortgage account, which was probably earning a return of say 2-4%, which is the mortgage rate.

He said it was “great to pay off a mortgage,” likening it to using “phony money” to pay for “real money.”

But why would he pay off a home loan that was priced at 2-4%, which is essentially its annual rate of return?

Surely a big-wig investment guru like Jim Cramer could do better than a measly 2-4% in this market, or any market for that matter.

What Is Cramer’s Rush to Be Free and Clear?

  • Mortgage debt is typically the cheapest debt you can own, especially today
  • Yet homeowners are often in a huge rush to pay off their home loans
  • While this could make sense from an emotional or psychological point of view
  • It’s a bit of a head-scratcher coming from an investment guru like Jim Cramer

Now I understand it’s a common goal for homeowners to pay off their home loan(s) in full, to become free and clear on the mortgage.

It’s certainly an achievement, and not something to be frowned upon. But it also is just that, a celebratory moment, not necessarily a financial win.

This is especially true when mortgage rates are near their all-time record lows, with the 30-year fixed priced around 3% today.

Perhaps this infatuation with paying off the mortgage early got started back in the 1970s and ‘80s when interest rates hovered between 10-18%.

That would make a lot more sense, as you’d essentially be carrying what equated to credit card-style debt, and a lot of it.

But why go crazy paying off a 3% mortgage way ahead of schedule? Does it make sense to do so financially, or is it just the emotional victory?

And why is Cramer boasting that he now owns a house “lock, stock and barrel.” What’s the good in that?

He’s proud to have a lot of money tied up in an illiquid asset?

Taking Profits Makes Sense, But Is Cramer Being Too Conservative?

  • He sold some of his bitcoin in order to take profits after a massive run
  • That sounds pretty smart because it’s not a gain until you actually sell it
  • But why did he turn around and settle for such a low rate of return (mortgage rate of 2-4%)
  • Could his profits be better served in an index fund where they might earn triple that conservatively?

Now I understand taking profits, reducing risk, and stashing gains in a safer place after such a historic and massive win.

But why the mortgage, which yields maybe 2-4% as noted, versus say anything else?!

For example, the S&P 500 Index has seen an average annual return of roughly 10%–11% since it got started back in 1926.

While there are certainly good years and bad years, those who hold long-term, which is the preferred method of investing, would see their money grow handsomely.

Cramer essentially settled for paying off a super-cheap mortgage instead of opting for relatively conservative double-digit annual gains, which is surprising.

To sum things up, paying off a mortgage in full can be a crowning achievement, assuming you do it on schedule over the course of several decades.

But rushing to prepay the mortgage might not make the best financial sense, especially with mortgage rates as low as they are now.

Simply put, there’s often a better place for your money. Now if rates go back to 10%, I might change my tune.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


You May Have Missed the Housing Bottom, But Not the Mortgage Rate Bottom

Posted on May 15th, 2012

Over the past several months, it has become somewhat clear (insert gigantic grain of salt here) that home prices may have bottomed last year, at least in some areas of the country.

While it’s still too early to say so definitively, it looks like some homes were snatched up at rock-bottom prices a year ago.

These same homes are now valued quite a bit higher, and recent comparable sales are backing up the numbers.

Of course, some are also calling it a “mini bubble,” otherwise known as a fake recovery, spurred on in part by the record low mortgage rates.

But only time will tell…

[Tips for first-time home buyers.]

You Missed the Bottom

Perhaps you’re kicking yourself, thinking you could have purchased that same house for a lot less a year ago.

Yep, you were all set to time the bottom, and seemingly out of thin air, it came and went, and you were none the wiser.

How did that happen? You were watching home prices on a weekly basis, looking at recent sales, surveying market conditions. How could you have missed it?

Well, they always say that timing the market bottom is near impossible, partially because you only know it has actually hit bottom when it’s too late.

So did you mess up? Did you miss your chance to get the steal of the century? Not quite.

[Are mortgage rates negotiable?]

Have Mortgage Rates Bottomed?

For much of the first half of 2011, mortgage rates on the popular 30-year fixed stood around 4.75%.

While this may have seemed like the “bottom for mortgage rates,” they now sit around a percentage point lower, which most people would have never guessed in a million years.

That’s right; today you can snag a 30-year fixed for around 3.75%, which is pretty much unheard of.

And who knows, rates could fall even lower over time, though the more they drop, the less upside there is for lower rates.

You certainly shouldn’t bank on rates slipping any lower because then you’re falling into the same “timing the bottom” trap.

All that said, let’s do the math to see what the difference is using a real world scenario, assuming the home buyer is putting 20% down.

2011 Home price: $475,000
2011 Mortgage rate: 4.75%
2011 Mortgage payment: $1982.26
Total interest paid: $333,613.60

2012 Home price: $520,000
2012 Mortgage rate: 3.75%
2012 Mortgage payment: $1926.56
Total interest paid: $277,561.60

Wait just a minute here. Those who missed the housing bottom are actually ending up with a lower mortgage payment?

While not significantly lower, it’s still roughly $50 cheaper each month to buy the same house today, and results in $56,000 in interest savings throughout the life of the loan (yes, the down payment is slightly higher).

Who would have thought that? Turns out you didn’t necessarily miss out, assuming you are financing the deal via a mortgage, which most of us are.

Put simply, even though you may have missed the housing market bottom, whether by choice or accident, waiting may have actually paid off.

Read more: Home prices vs. mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Is a 2% 30-Year Fixed Mortgage a Real Possibility?

Week after week, mortgage rates continue to shatter records, and dip to levels no one thought was possible.

It seems as if every month we have to revisit the conversation because what seemed like a bottom wasn’t.

In fact, not too long ago a 30-year fixed mortgage in the 3% range seemed absurd. Now it’s the norm, and everyone seems to want better.

This week, the hugely popular 30-year fixed averaged 3.53%, down from 3.56% last week, per Freddie Mac data. That’s a new all-time low.

And the 30-year fixed has been below 4% in every week but one so far in 2012. So to say it’s been a good year for mortgage rates would be a massive understatement.

By the way, the 15-year fixed also discovered new record territory at 2.83%, down from 2.86% last week.

[30-year fixed vs. 15-year fixed]

So this all begs the question, “Can the 30-year fixed fall below 3%?”

Is It Possible?

If you talk to most bankers, mortgage brokers, or anyone else who tracks the mortgage market, they’ll probably tell you to lock your mortgage rate and forget about it.

At the very least you’ll sleep soundly at night, right? After all, mortgage rates are already at record lows, so why get greedy?

But these same people would have made the same recommendation a year ago when mortgage rates were a percentage point higher.

Heck, I was one of the many that figured rates were bottoming, or very close to a bottom.

I’ve argued many times that the 30-year fixed probably wouldn’t go much lower than 3.5%, but I’ll probably be eating my hat now (if I owned one).

I’ll admit I was wrong, but now I’m focused on how low rates can actually go.

In case you didn’t know, mortgage rates follow the 10-year Treasury bond yield, which is currently around 1.50%.

And because the 30-year fixed is pricing around 3.50%, the spread is about 200 basis points.

[What mortgage rate can I expect?]

If the Yield Keeps Falling…

If the yield were to fall to around 1%, then the 30-year fixed could dip below 3%, and homeowners would finally be able to get their hands on a 2% 30-year fixed mortgage.

I don’t mean 2% literally, but something in the 2% range. So something around 2.75% or 2.875%, which would be nothing short of spectacular.

And if you think it’s impossible, note that a number of Wall Street bears see that yield falling to around 1% by the end of the year, thanks to the looming so-called “fiscal cliff.”

The fiscal cliff refers to the end of some major Bush-era tax breaks and spending cuts, which some argue could lead us in to recession again.

But it’s still very questionable – most believe things will be sorted out at the eleventh hour, with benefits possibly extended, as to not make a very fragile situation any more vulnerable.

However, with all that uncertainty, demand for “safe” bonds could push that yield lower and lower, meaning you may have to refinance again in the near future if you want a lower mortgage rate than your friends.

It’s not to say that you should cancel your refinance application today and wait for better, because as mentioned, we are in unprecedented times and you’ll certainly have a great rate either way.

But don’t be surprised if mortgage rates continue to trickle even lower, as insane as that may sound.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.