Testimonial

Dear Peter:
Your professionalism and knowledge of the industry surpassed all of my expectations. It is clear that you truly care about your clients, and make certain that all of their needs are met in a timely, efficient manner. I will highly recommend your services to anyone seeking assistance in the home buying process.
Mya Newman

What is an Escrow Account?

I recently met with one of my clients who is a first time home buyer. She has an accepted offer on a very nice house, and is excited to be moving in to a house she can call a home. We reviewed the Good Faith Estimate for her mortgage and had a lengthy discussion about what escrow is and why she would have an escrow account, so I thought it would be a useful post for this blog!

So what is it? An escrow account is a savings account for real estate taxes and homeowners insurance. Borrowers who have an escrow account associated with their mortgage pay a set amount each month in addition to the principle and interest on their mortgage, and this money is put into a savings—or escrow—account. The amount put into escrow each month is about 1/12 of the anticipated annual real estate taxes and homeowners insurance premium. For example, if a homeowner must pay $1200 in annual real estate taxes and $120 for homeowners insurance each year, the monthly escrow payment would be $130, or $120 towards taxes and $10 towards insurance. In December of each year, a check is mailed either to the borrower or directly to the municipality, and the real estate taxes are paid. On each anniversary of the purchase of the home, the lender will send a check to the insurance company, and insurance will be paid in full for the next twelve months. By having an escrow account, both the borrower and the lender know that the taxes and insurance will be paid, in full and on time!

Is escrow required? Sort of. Most lenders require escrow, though if you would rather save your own taxes, escrow can be waived for a fee, typically ¼% of the loan amount.

For more information on escrow or other mortgage questions, feel free to call or e-mail me at 414.807.7277 or pkazaks@hotmail.com

New Responsibilities

As of yesterday, I am now a member of the board of the Apartment Association of Southeastern Wisconsin. I look forward to contributing to this great organization, which helps our area's landlords provide quality housing at reasonable prices.

If you are a landlord or are considering investing in residential real estate, I suggest you check out this organization. I have been a member for a year and a half, and have learned a great deal from the speakers at our monthly meetings, and from the connections I have make through the organization.

Check out the website here.

Funny

There is no doubt that the various parties I interact with in the course of a purchase transaction each have a different view the house being bought/sold/appraised/mortgaged. Find an illustrated guide here.

(tongue planted firmly in cheek...)

Spruce Up Your Home for Under $25!

With spring on the way, I spent part of the weekend doing some "spring cleaning." Feels good to have a fresh house as we look forward to enjoying warmer weather. Many homeowners would like to spruce up their home this time of year. Need some ideas to do so without breaking the bank? Check out this article!

Testimonial

I work hard on behalf of all of my clients, and I just love receiving these!

Dear Peter,
I would be remiss if I didn’t take the time to write this letter as a demonstration of my appreciation for all your efforts. Having owned rental properties for the last 8 yrs I have met and dealt with many financial providers as it relates to home and rental loans. Your professionalism and responsiveness is impressive and I have not experienced such an informative process from beginning to end with any other financial provider. Simply put thank you Peter for your efforts that lead to a smooth and successful loan process.
-Troy H.

Mortgage Deduction is Safe

Here's the headline from CNN.com:

Bush: We won't kill the mortgage deduction
President says he wouldn't support removing the mortgage deduction from income tax law.

Read the article here.

Real Estate Taxes are Due!

If you haven't paid your real estate taxes yet, most municipalities require at least a partial payment by today, January 31! If you haven't done so already, make the trip down to city hall and write them a check or sign over your escrow check! The day I pay my taxes is one of mixed emotions--I'm handing over a significant amount of money, but I'm happy because it is tax deductible, and moreover, home ownership is key on the road to wealth!

Appreciation Tidbit

DOUBLE-DIGIT INCREASE - The average sales price of an existing home in the USA has increased +34% over the last 3 years (2003-05), an increase of +10.1% per year (source: National Association of Realtors)

How Are Your ARMs?

In the last five years, many home buyers took advantage of the low interest rates available to borrowers who opt for an Adjustable Rate Mortgage, or ARM. While the advantage of a lower interest rate is appealing, many home owners are now seeing the drawback of an ARM when they receive notice that the loan has reached the end of the initial period under which the intreest rate was locked in, and their interest rate --and payment-- are going up. I am now hearing from homeowners who need help dealing with the increased payment.

Be Proactive!

Long term mortgage rates are still very good--the low 6% range for qualified borrowers. If you have an ARM, now may be a good time to consider refinancing into a fixed rate mortgage. While I do not expect we will see fixed rate mortgages top 7% this year, I do expect that rates will head to the high 6% range by the end of the year.

Call me today at 414.453.7620 to learn more about your options!

So You Want To Be A Landlord...

I met with a client yesterday who is considering purchasing his first rental property. He is retired, and has very little left to pay on the mortgage on his own home, and is beginning the process of researching whether or not investing in real estate is right for him, and if so, what type of property. We discussed mortgages for the property, and also what it takes to be a landlord. I suggested that he attend the next meeting of the Apartment Association of Southeastern Wisconsin, which I am a member of, as it is an organization which provides good information on how to stay on top of the best rental practices. I also suggested that he do some reading on what it takes to be a successful landlord, and talk to a realtor who specializes in rental property in this area.

As is discussed in this Motley Fool article, there are many aspects of landlording to consider. I have enjoyed and prospered from my rental properties, but it is not for everyone. Owning rentals is a business, and should be treated as such. If you are interested in investing in real estate, call me at 414.807.7277 to set up a time to discuss it over a cup of coffee.

This Week in the Economy (Friday the 13th Wrap Up!)

The Treasury auction held yesterday showed that foreign demand for US bonds is still strong. This is good news, as a significant amount of foreing money is invested in US bonds, and this helps keep the lending industry healthy.

The last two big economic reports for the week were released this morning, and the bond market is relatively quiet. Stocks are back below the 11,000 marker, and appear to be tickling support around 10,950. If stocks fall decisively below this level, Bonds will benefit. But if stocks continue to run at the 11,000 level or higher, it could pull money away from Bonds and hurt pricing.

Below is a discussion of today's economic reports for those of you who are interested.

The Producer Price Index (PPI) which indicates inflation at the wholesale level jumped 0.9% in December, but when excluding volatile food and energy costs, the Core PPI rose a mild 0.1%. For all of 2005, the PPI grew by 5.4% - the largest calendar year increase since 1990…but was likely due to high energy costs experienced throughout the year. More importantly, the Core rate rose by just 1.7% in 2005. This indicates that overall inflation appears to be in control…good news for Bonds and home loan rates.

Retail Sales were slightly below consensus estimates at 0.7% in December. Economists were estimating an increase in sales of 1.0%, but sales for October and November were revised higher, so it was basically a wash. Year-over-year, Retail Sales for December were up 6.3% from December 2004 – a good sign of a strengthening economy.

Dow is Looking Strong

Yesterday was the 20th time the Dow has ever broken 11,000, the last time being June 2001. The highest level the Dow has ever attained was 11,722 on January 14, 2000. The longest time the Dow has ever held its ground above 11K was August of 2000, when it held for 24 days. In October of 2002, the Dow hit a low of 7,286.

What does this mean for mortgages? While the Dow is down so far today (I write this at 10:56 a.m. CST), it is still above 10,940, a level which for months has been a "ceiling," pushing down whenever the dow approached it. Now that the Dow has broken through this ceiling, it may become a level of "support." If 10,940 does become a level of support, this will draw money away from bonds and into stocks. The end result will be less money available for mortgages, and in turn, higher interest rates.

I don't see any drastic moves coming in the near future, but this is definately a trend that I will be watching in order to make sure my clients are getting the best rates available.

Testimonial

It's always great to hear from a client after we have closed on a home. Here is a testimonial from a recent client:

Peter has a passion for real estate and financing, and I could tell he truly enjoyed assisting my wife and I in financing the home we wanted. Peter took the care to thoroughly educate us on our financial options, and he was creative in structuring a financing plan that saved us the most money under our circumstances. We were very happy with the work of Peter and KLM Mortgage Group. – Michael B.

Milwaukee in the Wall Street Journal

"Milwaukee, an industrial city known for making gritty icons such as Harley-Davidson motorcycles and Miller beer, as well as small engines and mining equipment, is working on a classic American comeback after decades-long shakeout of its manufacturing sector." Read the story here.

The Outlook for 2006

Employment
In 2005, about 2 million new jobs were created, and unemployment hovered around 5%. Because the outlook for the economy continues to be strong, expect new job creation, and low unemployment to continue through 2006. As profits have been strong for American business in the past year, highly skilled employees have seen companies offering good money to attract and retain talent. Expect this to continue as well. At the same time, technology has created an environment which is ripe with opportunity for those who have the entrepreneurial spirit.

Easy Come, Easier Go?
While consumer spending bolsters the economy, it doesn’t help personal savings… As a nation, we are currently spending more than we earn. In 2006, expect that the continued rise in the cost of oil will further decrease the rate at which we save, as consumers continue their driving habits in spite of the increased expense. Remember that even if the potential for gas prices stabilizing in the high two dollar range sounds expensive, we are still paying quite a bit less than in most other countries.

Inflation
While inflation has been pretty much non-existent the last few years, it reappeared in 2005. Inflation pulled money out of the bond market in the latter half of the year, causing interest rates to rise moderately. The measured series of Fed rate hikes kept inflation in check, and expect more of the same in 2006.

Alan Greenspan Exits Stage Left
After 18 ½ years, Alan Greenspan’s last meeting as the Fed Chair will be January 31. The market is expecting one last ¼ point rise to the fed funds rate at this meeting, and when the new Chair Ben Bernanke takes over at the March meeting, he will likely show that he means business with another ¼ point hike. While these rate hikes do not impact fixed rate mortgages much, they do have a direct impact on ARM’s and Home Equity Lines of Credit (HELOC’s). I expect we will see consumers driven toward fixed rate second mortgages, decreasing the prevalence of HELOC’s.

What Housing Bubble?
2006 is the fifth year that the media has been talking about a housing bubble. While some areas may see prices cool, employment is strong and mortgage rates are still low. Appreciation may slow, but a widespread bubble is not in the cards, particularly here in the midwest where appreciation has been rapid, but not outrageous. Remember that a good realtor can provide you with lots of information on the current housing market in your area.

The Bottom Line: Mortgage Rates
Rates will rise in 2006, but not by much. Foreign demand for our bonds continues to be strong, and as our population ages, their assets will flow from stocks into bonds in order to preserve wealth. This continued flow of money into the bond market will prevent mortgage rates from going up too quickly. Expect 30 year fixed rates to spend most of the year in the mid six percent range.

The First Week of 2006!

The last few weeks, Mortgage Bonds have been drifting sideways, meaning not much change has taken place during the holidays for home loan rates. This is typical during the holiday season, when trading is light and the economic calendar is not busy. Traders will be back to the pits in full force the first week of the New Year, and we have a busy fat economic calendar, punctuated by Friday’s Jobs Report, which can set the trend for home loan rates for days and weeks to come. If the report comes in showing blockbuster numbers and higher than expected job growth, home loan rates will worsen…where a weak number would help home loan rates to improve.

In The Last Week of 2005...

The big financial event last week was the appearance of an “Inverted Yield Curve”, when the shorter term 2-Year Treasury Note Yield moved higher than the longer term 10-Year Treasury Note Yield. Why care? Only because historically, this has tended to be a recessionary signal, implying that investors do not trust the long term strength of the economy…so while it had the markets a bit rattled initially, a closer inspection shows little cause for concern.
Bottom line, things are different this time because the Fed moves have pushed the 2-Year Note Yield higher, while contained inflation and foreign demand for longer term bonds have helped reduce the 10-year Note Yield. The economy is and will continue to be strong and a recession does not appear to be in the cards for 2006.

Old Cell Phones

As technology advances, we all replace our cell phones on what seems to be an all too frequent basis. Not only does it seem like a waste, but there is a risk that toxic materials in discarded cell phones can impact our environment.

So what is the best way to savely discard old cell phones? I recently discovered a program which will get you a long distance calling card in exchange for your old cell phone! Not only can you sleep well knowing that you are responsibly handling used electronics, you also get a phone card to use or give to a friend. See the details here.

To take advantage of this program, send me an e-mail with your address, and I will send you the postage paid envelope which will hold two cell phones. You simply enclose your old phone(s), and drop it in the mail!

Send your address to: peter @ klmmortgagegroup.com, and use the subject: Cell Phone Recycling

Is Right Now a Good Time to Buy a Home?

The article found here discusses research done by the Illinois Real Estate Lawyers Association of Arlington Heights. While most home shoppers in the midwest hibernate for the winter, consider the following quote from the president of the aforementioned association:

"[T]he holidays create an advantage for buyers because there is less likelihood of a bidding war with another buyer, and with the slowed market, real estate agents can 'roll out the red carpet to shoppers who are serious about shopping.'"