The Christiansen Group

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Get Debt Free Using A Debt Consolidation Refinance

debt consolidation refinance

When our clients Jay and Lisa called us a few months ago they were on pace to pay off their mortgage within 12 years. There was just one little catch… at over $200,000, their consumer debt was out of control. As Dave Ramsey followers, they knew they had to address this if they were going to create a better financial future for themselves. They came to us asking “If we’re already in our mid 40’s, how are we going to pay off all this debt so we can enjoy our retirement years?”

We helped them create a debt consolidation refinance plan so they could to tap into the idle equity in their home and pay off their consumer debt. They took out a new first mortgage to pay off their current first and second mortgage as well as their credit card debt and two car loans. Now they’re taking that monthly savings and adding it to their student loan payments to pay them off even faster. In 4.5 years, when these are paid off, they’ll take that student loan payment and apply it to their mortgage. In just over 12 years, they’ll be completely debt free – that’s 5 years sooner than on their previous path!

Benefits of A Debt Consolidation Refinance

While consumer debt continues to increase in the US, so does home equity. Although Core Logic’s Home Equity Report(1) shows that home equity grew in almost every state, Colorado was in the top 10! We showed a significant increase – gaining an average of $17,000 per borrower last year.

If you’ve been considering a debt consolidation refinance, now may be the time to act. For folks who are disciplined with their money, this can be a great financial planning tool. By consolidating your high-interest debt into your monthly mortgage payment, you could reduce your average interest rate, your total monthly debt expense and pay less interest overall.

Though it can be a great option, consolidating credit card and other debt into your mortgage is not right for everyone. Consider these 5 questions before deciding whether it’s an appropriate choice for you.

1. How Much Equity Is in Your Home?

If you’re thinking about a debt consolidation refinance, you’ll need to be sure you have enough equity in your home. Your loan-to-value (LTV) ratio should be less than 80% after completing your refinance. To roughly calculate the potential LTV of a new loan, divide your current mortgage balance plus the cash out desired by the approximate value of your home. For example:

current mortgage: $250,000 + cash out: $100,000/approx home value: $500,000 = 70% LTV

2. Which Loans Will You Pay Off?

If you’re looking to pay off multiple loans with this debt consolidation refinance, keep in mind that depending on the amount of equity you have available, it may not be possible to pay off everything. In this situation, how do you determine which debts to pay off? Typically, we recommend paying off the loan with the highest interest rate first. However, you should also take into consideration the monthly payment, length of the loan and total interest expense. Longer term loans may end up costing you more in interest over the long haul, even if the interest rate is lower.

Keep in mind that refinancing doesn’t really pay off anything, it just moves your debt around.

3. How Will You Avoid Running Up Debt Again?

One of the biggest challenges after paying off debt? Not racking it right back up! If debt has been an issue for you, work on changing your spending habits first. Set a budget and get a sense of how much disposable income you actually have. Otherwise, you’ll end up back in the same situation in the near future, and this time your home could be at stake.

4. What Additional Costs Will You Pay?

A debt consolidation refinance (or cash-out refinance) carries the typical costs of a traditional refinance, such as closing costs, title fees, appraisal fees, etc. This type of loan also has a slightly higher interest rate; about .25% to .375% depending on factors like credit score and your new LTV. Be sure to factor these expenses in when determining if a cash-out refinance makes sense for you.

5. Are You Willing to Put Your Home on the Line?

Last, but certainly not least … a debt consolidation refinance takes high-interest, unsecured debt and rolls it into a mortgage secured by your home. If you’re struggling with personal debt to the point where you are or might consider bankruptcy, this is not a choice for you. If you lose your job or take out a refinancing loan that you can’t afford, you are much more likely to lose your house than if you were to declare bankruptcy due to excessive personal debt. 

Bottom Line: Don’t refinance debt into a mortgage you can’t afford.

What Are Your Next Steps?

If you think a debt consolidation refinance is in your future, give us a call today and we’ll help you determine if it’s the right fit for you.

The information contained herein is general in nature and based on authorities that are subject to change. Churchill Mortgage guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Churchill Mortgage assumes no obligation to inform the reader of any changes that could affect information contained herein. This publication does not, and is not intended to, provide legal, financial, tax or accounting advice, and readers should consult their advisors concerning the application of tax laws to their particular situations.
1. https://www.corelogic.com/news/corelogic-reports-homeowners-with-negative-equity-increased-by-35000-in-the-fourth-quarter-of-2018.aspx

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2019 Economic Outlook

2019 Economic Outlook

Barry is back! Each January, Barry Habib, Founder and CEO of MBS Highway and mortgage & real estate market expert shares his economic outlook for the year ahead.

Barry’s 2019 economic outlook explains what dynamics are in place for this year, where the stock and bond markets are headed and the future direction of interest rates and housing.

2018 In Review

Prediction: Stocks will be toppy and vulnerable and there will be a significant stock market pullback in 2018.
Actual: Stocks were toppy and they did pull back significantly at the end of the year.

Prediction: Inflation will be tame in 2018 and the fed will tighten by hiking rates 1-2 times and reduce their balance sheet.
Actual: Inflation did remain tame and the Fed stopped reinvestments and reduced the balance sheet. They hiked rates 4 times.

Prediction: The 10-year-2year yield curve will flatten in 2018.
Actual: The yield curve flattened from 0.51 to 0.11. This is important looking forward as an inverted curve in 2019 may become a self fulfilling prophecy where fears and concerns could hurt stocks and help bonds.

Prediction: The 10-year will trade between 2.65% and 3.04% most of the year and mortgage rates would be 0.375% to 0.5% higher on average.
Actual: The 10-year did trade between 2.65% and 3.04% for 10 months of the year and mortgage rates did rise for most of the year within our predicted range.

Prediction: Our forecast for appreciation was for housing to be up to 4.5% to 5.5%.
Actual: For most of the year, housing was up greater than that – to over 7% at times –  but as the year came to an end home prices had risen nationally between 4.7% to 5.5% year over year.

2019 Economic Outlook Dynamics

  • China – Could there be a trade war?
  • US Economy – Is it slowing?
  • The Stock Market Pullback – How much and what will the impact be?
  • Rates Set to Rise – The Fed is indicating two rate hikes and is scheduled to further unwind its balance sheet. How much and what will the impact be?
  • Housing – Housing appears to be slowing. Is this a bad thing or will it regain its footing?
  • Inflation Rising with Oil Prices – We saw wages start to rise at the end of 2018 while oil prices took a big dip, helping inflation stay low overall. If they move back to more normal levels, will that pressure inflation?

Key Areas To Consider In 2019

1. Stocks

The 2019 economic outlook starts with a more normal market. With the Fed no longer artificially adding liquidity through the purchase of mortgage bonds and treasuries, we expect stocks to be choppy and volatile. The Feds are not the only ones draining liquidity – the European Central Bank is as well. This gives stocks a head wind at the start of 2019.

Although stocks will likely decline early in the year, they’ll find their footing with valuations coming down to realistic and sustainable levels. Barry thinks the stock market will reverse course after a very difficult 2018.

Barry’s Prediction: Stocks will end 2018 up 5% to 8%.

2. The Federal Reserve

Different this year, there will be a press conference at every Fed meeting. In the past, only every other meeting had press conference. Since the Fed historically has only changed interest rates where there was a press conference, this could add to increased speculation and volatility with the media covering every single detail and speculating what may or may not happen.

The 2019 Fed dot plot shows is showing that they are planning 2 hikes in the year ahead. The Fed will be concerned about rising inflation due to a combination of higher oil prices and wage pressures. These factors may influence the Fed to push interest rates higher unless we see a slowdown in the economy.

Barry’s Prediction: The Fed will hike 1 time to get the Fed Funds Rate (FFR) to 2.75% although they would love to get the FFR to 3%. The Fed stays on course to reduce the balance sheet.

3. Interest Rates

As we know, inflation is the main driver of rates, and inflation will likely tick higher with oil prices rebounding and increasing wages as 20 states are increasing their minimum wage in 2019. We think theses causes an uptick on the rate on inflation, Because of this, that pressures inflation a bit more – this is the enemy of interest rates.

Also pressuring the interest rate environment is the unwinding for the Fed’s balance sheet by $50 billion per month at the same time that our government has more borrowing needs due to the deficit. As our government puts out more paper (more supply) with less buying, bond prices will worsen which means an increase in interest rates.

Barry’s Prediction: The 10-year treasury note will trade between 2.75% and 3.25% for most of the year, with a high tick for the 10-Year at 3.5 percent.  30-year fixed mortgage rates will be in the 5% to 5.5% range for most of the year. This is slightly more than where we’re at now, but shouldn’t get out of hand.

4. Housing Market

The housing market has taken a beating in the media for a long time. It will have a rocky beginning with some areas doing well and some areas will do poorly. Overall we’ll see a slow start, but as the spring market starts to come around and stocks stabilize, folks will feel the wealth effect and be more confident about buying. Demographics are also favorable as there is more demand than supply. This points to a good housing market ahead.

Barry’s Prediction: Home appreciation in 2019 will fall in the 3.5% – 4% range. While less than last year, it will still create significant wealth.

We wish you and your families all the best for 2019. We wish you happiness, we wish you health and we wish you prosperity!

The information contained herein is general in nature and based on authorities that are subject to change. Churchill Mortgage guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Churchill Mortgage assumes no obligation to inform the reader of any changes that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or any other advice, and readers should consult their advisors concerning the application of tax laws to their particular situations.

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2018 US Economic Outlook

He’s back! Each January, Barry Habib, Founder and CEO of MBS Highway and mortgage & real estate market expert returns to unveil his economic outlook for the year.

Barry’s newest economic outlook explains what dynamics are in place for 2018, where the stock and bond markets are headed, the future direction of interest rates and housing, and how the new composition of the Fed will affect the markets.

2018 Economic Outlook Dynamics

  • Possible stock market pullback – How would this effect housing and rates? Housing will have a bit of a headwind. If people start to see their stocks investments dwindle some they’re less like to make big investments.
  • The new look of the Fed – Fed officials have expressed a range of views about the frequency of rate hikes in 2018 – with opinions ranging from 2-4 hikes. They are also scheduled to further unwind their balance sheet. How will this impact mortgage rates?
  • Rates are set to rise in year ahead – How much and what will the impact be?
  • Housing & Tax Reform – Can housing continues its impressive run and will tax reform be a drag?

Key Areas To Consider This Year

1. Stocks

Stocks appear toppy and a bit vulnerable. We’re entering 2018 with extremely high investor optimism, in fact the US is at a 30-year high in optimism. This is often a dangerous sign.

We’re in the most expensive stock market on a price of a stock to sales on the S&P ratio ever. The last time we saw a run this high was in 2000. While he’s not saying we’ll will experience the same type of downturn we did then, it’s something to be concerned about and we could see a cooling off period.

As we begin the new year, we have seen over a 100-month consecutive expansion without a recession. The current market cycle, started back in early 2009, is the 3rd longest expansionary stretch in history. The current market cycle started back in early 2009 and has been chugging along for over 8 years. (the first was 120 months ending in early 2000’s), so we may begin to see a slowing in this cycle.

Barry’s Prediction: There will be a significant stock market pullback during 2018 after such a big 2017.

2. The Fed: Changing Of The Guard

With a new sheriff in town and all the appointments that need to be made, this will be a very different Fed than we saw in 2017. Jerome Powell will succeed Janet Yellen as the new Fed Chairman when she steps down on February 3rd. Powell, viewed as a centralist, is expected to follow Yellen’s cautious approach to interest rates.

Trump may need to appoint up to 4 Fed Governors in 2018, including replacing Vice Chairman Stanley Fischer and NY Fed President, William Dudley. Also out are two of the monetary doves Neel Kashkari and Charles Evans.

The bigger impact to rates, however, will come from the unwinding of the Fed’s balance sheet. Last October they began to reduce their reinvestment of mortgage bonds by $4 billion/month. (Prior to that they were buying back $25 billion in mortgage bonds, and even more than that in treasuries.) They’ve been very active in bond market to keep yields lows. This month they’re doubling their curtailment to $8 billion, buying back $17 billion in bonds. Each quarter will see another $4 billion reduction – ending the year at a $5 billion buy back.

Without the Fed in the market to keep up that buying could make for an interesting 2018. The purchase of mortgage bonds needs to replaced somewhere, the question is, how much do rates need to move up to entice that? That’s the biggest reasons Barry thinks rates will move up slightly in 2018.

Barry’s Prediction: If we see a stock market pullback we expect 1-2 hikes. Probably with the first in March and the second in September. There may be another one in December, but unless Trump appoints a very hawkish Fed, we probably won’t see it.

3. Rates

The main driver of rates, inflation, should remain tame as the Fed won’t be as active. Rates will move higher, but not by too much.

As we discussed in the last section, the Fed reinvesting less in mortgage bonds less will be the main reason for an increase in rates.

On the opposite side, since both stocks and bonds compete for the same investment dollar, a pullback in the stock market could help rates.

Barry’s Prediction: The 10-year Treasury Note Yield will trade between 2.18% and 2.64% for most of the year. Mortgage rates will move .375% higher on average.

4. Housing

We closed out 2017 with incredible numbers both on new construction and existing and this is a market has an incredible amount of momentum and strength going forward. Some of the drivers are:

  • Low Inventory
  • Rents rising at 4% per year
  • A modest move higher in rates won’t derail housing market
  • Demand remains strong

Although tax reform did reduce the deductibility of a mortgage from $1 million to $750,000, that will hurt more on the high end. Since the standard deduction has been doubled, there’s a bit less of an inventing to buy to get the deduction, which makes renting more attractive from a tax perspective.

Barry’s Prediction: 4.5% – 5.5% Appreciation (U.S. Average)

 

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How The Homebuyers Savings Account Helps First Time Buyers

Owning a home is part of so many American dreams. For some though, it inches further and further out of reach as real estate prices rise at a much faster rate than their income grows. The First-Time Homebuyer Savings Account Act (FHSA) was passed in Colorado to help people who dream of buying their first home – and it all starts with a homebuyers savings account.

Today we’ll be laying out some facts to help you decide if it might be helpful for you.

What’s The Idea Behind The FHSA?

It makes a key change to the federal tax code to create 529-style homebuyer savings accounts for those who want to buy their first home. This 529 plan model has been very successful and continues to provide parents a tax-advantaged option to help save for their children’s college education. Now, this same idea can be applied to saving for a first home (this includes single‐family houses, condos, coops, townhouses, or mobile homes). It was signed into Colorado law in 2016; Virginia and Montana have similar laws.

How Does It Work?

An individual can deposit up to $14,000 in the homebuyers savings account each year. Married couples who file jointly may deposit up to double that amount each year (after taxes) into a first-time homebuyers savings account with a maximum lifetime investment of $50,000. They can even put their homebuyers savings account toward someone else’s first home – a child, grandchild, nephew, or even a friend.

This investment can grow up to $150,000 and any earnings on those funds — interest and capital gains — are completely free from Colorado state taxes (federal taxes still apply on the interest earned). There’s no time limit on how long the funds can remain in the account and these limits are adjusted for inflation. Keep in mind this homebuyers savings account can only be used to fund the down payment and any fees and costs (closing costs, inspections, lender fees, etc.) that come with purchasing a first home.

Who Qualifies As A First Time Homebuyer?

A first time homebuyer is someone who hasn’t purchased a home before. If you have owned a home, but did not purchase one – ex: if you inherited a home – you can still qualify. In addition, if you are divorced and previously have owned a home with your spouse, but haven’t been listed on a property title for at least three years, you qualify.

If you’re buying a home with someone who is previously owned a home, you’re still able to use your FHSA funds, as long as you qualify as a first time homebuyer.

How Are Homebuyers Savings Accounts Created?

These types of accounts are very simple to set up. And, bonus: first-time homebuyers can also designate just about any existing account as an FHSA. To create an FHSA, simply include the correct form when filing state taxes to indicate the account’s FHSA status – this will prevent any earnings (for instance, interest or capital gains) from being taxed.

Buying a first home is often not only a sound financial move for the new homeowners themselves, but has a much broader positive financial impact on our economy as a whole. Thanks to the FHSA, owning your first home might just be closer than you think!

Related Articles

Down Payment Strategies For Buying Your First Home

DISCLAIMER: This article is intended as an introduction to the First Time Homebuyers Savings Account. This is not an offer to extend credit or a commitment to lend.

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Should You Pay Off Mortgage Debt Early Or Invest the Cash?

How amazing would it feel to live a life free of mortgage debt? Depending on where you are in life, this might be very doable for you. But should you necessarily pay down your mortgage debt?

When you pay off your mortgage debt early, it will likely be at the expense of other financial goals and investment options, while impacting your tax situation. On the other hand, you’ll save money on the additional interest that would have come along with your regular payments. This savings can be significant and will grow with the prepayment amount.

Another reality, however, is that when you pay off your mortgage debt, those funds are no longer yours to invest. And if your interest rate is already low, you’ll benefit less from paying off your mortgage debt.

Let’s Consider An Example

Say the interest rate on your mortgage is 4% and you’re in the 28% federal income tax bracket. Your after-tax mortgage rate is around 2.9% – maybe even lower if you can also deduct the mortgage interest on your state income tax return.

For those who invest, their portfolios are built around a risk tolerance that carries a much-higher annualized expected investment return than 2.9%. For some people, a guaranteed 2.9% savings is more appealing than a higher expected market return, since it’s subject to greater volatility and risk. But for those with a much higher after-tax mortgage rate, paying off mortgage debt early will likely be a more enticing option.

So, how do you decide which path to take? Today we’re sharing 5 questions to help get you started.

1. What Is Your Tax Strategy?

Your ability to deduct mortgage interest might turn out to be very important. Think about whether you’ll still be able to itemize deductions without mortgage interest.

2. Will You Really Invest The Extra Cash?

It might sound like a great plan to invest the cash that used to go towards paying down your mortgage – but do you have the discipline to do that? If you suspect you’ll struggle with this, you’re not alone! There are great options to keep your plan on track, including direct deposits into your brokerage account or increasing your monthly 401(k) contribution.

3. Do You Have More Urgent Financial Goals?

It’s important to take a look at your entire financial story. If you’ve got student loans, credit card debt or still need to add money to your emergency savings, these things might take priority.

4. What Life Stage Are You In?

Whether it’s a solid decision to pay down your mortgage debt will hinge on your life stage and risk tolerance. If you’re nearing retirement you likely have an asset allocation that’s more conservative. In that case, investing the excess cash in the market might spell unnecessary risk for you. At the same time, being debt-free also becomes more important later in life.

5. How Long Do You Plan To Stay In Your Home?

If you plan to remain in your current home for the long run, it makes more sense to pay down your mortgage debt than if you never anticipate paying it off.

Mortgage Debt Looks A Little Different For Everyone

Still on the fence about which decision is best for you when you’re considering paying down your mortgage debt? For now, a healthy middle ground might be opening a dedicated savings account for any extra cash and reconsidering the decision six months’ time. When you separate these funds, you’ll be less likely to spend it on daily expenses in the meantime.

As you think through your options, remember to stick to realistic expectations. Choose a plan that keeps your original plans at the forefront. And always consider discussing this decision with your financial advisor or tax professional before you settle on a strategy.

*Disclaimer: Citywide Home Loans does not provide  financial planning services or any other service apart from lending. You should always consult with your legal, tax and financial advisors to determine which strategy is the most suitable for your specific circumstances.

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