Bob Howe
Senior Loan Consultant
Residential First Mortgage
(949) 852-0400 ext. 219
bhowe@OrangeCountyLender.com
www.OrangeCountyLender.com

U.S. Treasury Bonds
Maturity Yield Last
Week		  
5 Year 4.59 4.54
10 Year 4.71 4.65
30 Year 4.89 4.84

Treasury Market Summary: 

 

Coasting on Fumes into Weekend : The market ends the week on a disappointing note as trade stalled just below yesterday's highs & spent the rest of the session trying unsuccessfully to grind its way off unchanged. GDP hit near the low end of estimates but that was not enough as prices were looking for something even less. Throw in a popping, pesky core PCE & longs had seen enough to head for the exits, putting the recent uptrend on the shelf for awhile. The 2-10-yr yield spread held around 1.7 through the afternoon as curve trade sits on its hands while the data sorts itself out. The dollar came into the day well offered but around the London fix currencies went a little wacky. The buck rocketed, knocking the euro down about 65 points from its lifetime highs to 1.3599, leaving dealers scratching their heads. It has since recovered, albeit tentatively so, to 1.3643. Though no clear accounting for the move has surfaced, rumors made the rounds of a hedge fund liquidation or maybe a little creative position squaring by central banks. Such is the nature of currencies though & speculators beware. Spot gold is up at 681.45 (+6.70) while crude oil spiked up to 66.43 (+1.37). The week ahead brings payrolls on Fri as the marquee calendar event, rounded out by personal income/spending, ISMs, productivity while the Fed calendar has Chicago's Moskow up early Mon.
 
 

 

Economic Indicators for this week that could impact the mortgage or real estate markets include...

Turn Your Mortgage Into An Asset

 

Conventional wisdom says investors should focus on their assets and carry as little debt as possible. Many individuals are now learning that to build net worth, "Managing what you owe" is as important as "Managing what you own." Therefore, your home-financing strategy should be a key component of your financial plan to ultimately help you build your net worth.

Did you know that your mortgage is one of the largest financial transactions you will ever make? That's why it is important to select the mortgage program that not only meets your home-financing needs, but that also has a potentially positive impact on your financial plan. Traditional 15- and 30-year fixed-rate mortgages are not the only options available, and in many cases, are not the best choice in today's financial environment. The appropriate integration of home financing strategies into your financial plan can actually turn your mortgage into an asset. The right mortgage can help you reduce interest expense, maximize potential tax deductions and avoid disrupting a well-planned investment strategy to help your net worth.

When does Paying Off a Mortgage Early Make Sense?

Paying off a mortgage early is often more of an emotional goal rather than a sound financial strategy. Paying down principal early may be financially correct for those who are heavily invested in short-term investments, such as certificates of deposit and money-market funds, if the mortgage interest rate is greater than the return on such investments. From 01/01/26 to 12/31/96, the S&P 500 index had an average annual return 10.7%. T-Bills have averaged a 3.7% return, U.S. Govt. Bonds a 5.1% return and Mortgages have averaged an 8.125% cost.

Compare your mortgage interest rate with the rate of return of an investment portfolio. Continue making standard monthly mortgage payments when your investment return rate is higher than your mortgage interest rate. Pay off your mortgage early when your investment return rate is lower than your mortgage interest rate. However, since mortgage financing is generally one of the least costly sources of funds available, mortgage prepayment may not be financially correct for long-term, active investors. Always compare investment earnings with the interest paid on borrowed funds, and keep in mind that earnings on most investments are taxable, while mortgage interest is generally tax-deductible.

There are now mortgages that allow you to pay only the interest portion for a period of time. A disciplined investor can take advantage of these programs to:

  • Lower monthly payments.
  • Maximize potential tax deductions.
  • Invest or use the payment savings for other purposes.

It's better to be early than to be smart in investing. That's the conclusion of a study by Neuberger & Berman Management, a mutual fund firm. Neubeger & Berman calculated the results that would have been achieved by two hypothetical investors in the stock market following two different strategies. One investor, Early Bird, invested $20,000 via 10 annual $2,000 purchases from 1967 to 1976. Early Bird's timing was terrible, since he invested his $2,000 every year at the market's high. In other words, his market timing was the absolute worst it could be.

The other investor, Late Bird, put up $40,000 in 20 annual increments of $2,000 each from 1976 to 1995. Late Bird was a much better market timer. Indeed, her annual $2,000 was invested at the market's low point ever year - a perfect 20-year timing record.

So which bird had the bigger nest egg at the end of 1995 (using the Standard & Poor's 500 as a yardstick)? Surprisingly, Early Bird's portfolio had a value of approximately $320,000, compared with Late Bird's $270,000.

BOTTOM LINE: It's hard to overstate the importance of time in an investment program. Even with investing twice as much and having perfect timing each year for 20 years, Late Bird came out in the short end because of a later start.

One should consult with a qualified mortgage planning professional prior to implementing any mortgage planning strategies. If you are a real estate planning, insurance, estate, tax or financial planning professional receiving this newsletter, please call our office and introduce yourself to us.  We are always seeking to grow our referral network and expose more service professionals to our client base.