Closing costs – What are they really?

Closing costs – What are they really?
By Meredith Caruso

March 20, 2017 – During the course of a transaction, it’s fairly common for a seller to offer a certain amount of money towards the buyer’s closing costs – and many Realtors feel that adding a quick, simple line about this change in the contract’s additional terms section is sufficient.

Often, however, it isn’t that easy, and ambiguous contract language tends to create conflict.

For example, adding a line like “furniture is included” is not helpful to the parties. It isn’t specific enough to identify what is being conveyed, and referring generally to “closing costs” can also be confusing.

As a result, it’s important to understand what the term “closing costs” means. It isn’t always limited to costs associated with a buyer’s loan.

So how does a Realtor know what a party’s closing costs are? Look to the terms of the contract. If using a Florida Realtors/Florida Bar contract, potential closing costs are covered in paragraphs 9(a) and 9(b). For the CRSP contract, look to paragraphs 5(a) and 5(b).

The costs listed in these sections are considered closing costs for the respective party – costs that either the buyer or seller must pay for the parties to close. This is not an exhaustive list, however. Other sections of the contract may also obligate a party to pay for an additional item.

If a seller wishes to only give credit towards certain types of closing costs – only the buyer’s loan expenses, for example – then the seller should specifically limit it to that item in the contract.

Additionally, issues can arise over whether the amount being credited is a set amount. For example, if the seller is crediting X amount towards a buyer’s specified closing costs, but the closing costs are less than X, does the buyer receive the balance or is it returned to the seller? The answer depends on the wording used in the contract and possibly the buyer’s lender, since some won’t allow the buyer to walk away from closing with the full amount of cash described in the contract.

To avoid last-minute conflicts and closing delays, make sure that the language about closing costs is specific – that it includes the amount covered and addresses what will happen if the costs are less than the amount to be received.

If the parties have any questions regarding the legal sufficiency of language being added to a contract, they should speak with their personal attorney.

Meredith Caruso is Manager of Member Legal Communications for Florida Realtors

© 2017 Florida Realtors

30-year mortgage rates rise again: 4.30%

Mortgage Rate Trend Index

Most (90%) industry experts polled by Bankrate.com this week think rates will keep going up over the short term; only 10% foresee stability – none predict a decrease.

WASHINGTON (AP) – March 16, 2017 – Long-term U.S. mortgage rates rose this week for a second straight week, posting new highs for the year. The markets were anticipating an increase in a key interest rate by the Federal Reserve, which the Fed announced Wednesday.

Mortgage buyer Freddie Mac said Thursday the rate on 30-year, fixed-rate loans climbed to 4.30 percent from 4.21 percent last week. The benchmark rate stood at 3.73 percent a year ago and averaged 3.65 percent through 2016, the lowest level in records dating to 1971.

The rate on 15-year mortgages increased to 3.50 percent from 3.42 percent last week.

The Fed’s move marked the second time in three months that the central bank has raised its benchmark interest rate. The Fed also forecast two additional hikes this year. The Fed action reflects a consistently solid U.S. economy and will likely mean higher rates on some consumer and business loans.

The key short-term rate is rising by a quarter-point to a still-low range of 0.75 percent to 1 percent. The Fed said in a statement that a strengthening job market and rising prices had moved it closer to its targets for employment and inflation.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged this week at 0.5 point. The fee on 15-year loans also remained at 0.5 point.

Rates on adjustable five-year loans rose to 3.28 percent from 3.23 percent last week. The fee held at 0.4 point.

AP Logo Copyright © 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Homeowners’ insurance Q&A

ERIE, Pa. – March 16, 2017 – How much to do you know about the homeowners’ insurance policy protecting what is probably your biggest investment?

Robin M. Margosian, owner of Laskowski Insurance Agency in Harborcreek, has been in the insurance business for more than 25 years, and she shared some advice on insurance issues:

Question: Does homeowners’ insurance cover possessions? Is there a rule of thumb for how much insurance coverage you should have?

Typically, homeowners’ insurance is a package policy that provides property coverage to your home and contents as well as providing liability coverage. Usually the coverage on contents is 50 to 75 percent of the dwelling amount. You can, of course, buy higher coverage or insure specific valuable items such as jewelry, guns, collections, fine art, etc.

Question: What is the biggest mistake you see people make when buying homeowners’ insurance?

Not understanding what they are buying. There is a big difference between “guaranteed replacement cost,” “replacement cost” and “market value.” Guaranteed replacement cost will replace your home to its pre-loss state regardless of the cost. Replacement cost will replace your home, however it will not exceed the coverage limit listed on your policy (many companies have a penalty if your home was not insured to at least 80 percent of the actual replacement cost). Market value is the current market value of your home, which is typically based on how much homes similar to yours in your neighborhood are selling for.

Question: What are some ways people can reduce their insurance costs without sacrificing coverage? What corners should they never cut?

I recommend homeowners take the highest deductible they are comfortable with to save money on premiums. Taking care of the small claims under your deductible will save you in the long run. Consumers should never skimp on coverage. When insuring your home, the value should reflect the amount it would actually cost you to rebuild your home, not the market value of the home.

Question: What are the consequences of filing a claim? Do insurance companies always raise your insurance after a claim?

Unfortunately, most all companies do increase premium rates after one or two losses. The type of claim and the amount paid may affect what the increase will be. It is best to contact your insurance agent for advice before filing a claim.

Question: What would people be surprised to know about homeowners’ insurance?

Homeowners’ insurance policies do not cover flood damage. Because floods can be devastating, insurance companies are not able to cover flooding at reasonable rates. The federal government offers it through the National Flood Insurance Program.

Question: What about renters? Are possessions covered under the landlord’s policy?

No. Renters’ insurance is highly recommended. It is very affordable and, in addition to protecting your belongings, a renter’s policy also provides some liability protection and may pay for additional living expenses, too.

Heather Cass is the publications manager at Penn State Behrend.

Copyright © 2017, Erie Times-News, Heather Cass, publications manager at Penn State Behrend. All rights reserved

The Fed hiked interest rates. What happens to mortgages?

WASHINGTON (AP) – March 16, 2017 – Are mortgage rates headed up? How about car loans? Credit cards? How about those nearly invisible rates on bank CDs – any chance of getting a few dollars more?

With the Federal Reserve having raised its benchmark interest rate Wednesday and signaled the likelihood of additional rate hikes later this year, consumers and businesses will feel it — if not immediately, then over time.

The Fed’s thinking is that the economy is a lot stronger now than it was in the first few years after the Great Recession ended in 2009, when ultra-low rates were needed to sustain growth. With the job market looking robust, the economy is seen as sturdy enough to handle modestly higher loan rates in the coming months and perhaps years.

“We are in a rising interest rate environment,” noted Nariman Behravesh, chief economist at IHS Markit.

Here are some question and answers on what this could mean for consumers, businesses, investors and the economy:

Question: I’m thinking about buying a house. Are mortgage rates going to march steadily higher?

Answer: Hard to say. Mortgage rates don’t usually rise in tandem with the Fed’s increases. Sometimes they even move in the opposite direction. Long-term mortgages tend to track the rate on the 10-year Treasury, which, in turn, is influenced by a variety of factors. These include investors’ expectations for future inflation and global demand for U.S. Treasurys.

When inflation is expected to stay low, investors are drawn to Treasurys even if the interest they pay is low, because high returns aren’t needed to offset high inflation. When global markets are in turmoil, nervous investors from around the world often pour money into Treasurys because they’re regarded as ultra-safe. All that buying pressure keeps a lid on Treasury rates.

Last year, for example, when investors worried about weakness in China and about the U.K.’s exit from the European Union, they piled into Treasurys, lowering their yields and reducing mortgage rates.

Since the presidential election, though, the 10-year yield has risen in anticipation that tax cuts, deregulation and increased spending on infrastructure will accelerate the economy and fan inflation. The average rate on a 30-year fixed-rate mortgage has surged to 4.2 percent from last year’s 3.65 percent average.

After the Fed’s announcement Wednesday of its rate hike, the yield on the 10-year Treasury actually tumbled – from 2.60 percent to 2.49 percent. That decline suggested that investors were pleased that the Fed said it planned to act only gradually and not accelerate its previous forecast of three rate hikes for 2017.

Question: So does that mean home-loan rates won’t rise much anytime soon?

Answer: Not necessarily. Inflation is nearing the Fed’s 2 percent target. The global economy is improving, which means that fewer international investors are buying Treasurys as a safe haven. And with two more Fed rate hikes expected later this year, the rate on the 10-year note could rise over time – and so, by extension, would mortgage rates.

It’s just hard to say when.

Behravesh forecasts that the average 30-year mortgage rate will reach 4.5 percent to 4.75 percent by year’s end, up sharply from last year. But for perspective, keep in mind: Before the 2008 financial crisis, mortgage rates never fell below 5 percent.

“Rates are still incredibly low,” Behravesh said.

Even if the Fed raises its benchmark short-term rate twice more this year, as it forecast on Wednesday that it would, its key rate would remain below 1.5 percent.

“That’s still in the basement,” Behravesh said.

Question: What about other kinds of loans?

Answer: For users of credit cards, home equity lines of credit and other variable-interest debt, rates will rise by roughly the same amount as the Fed hike within 60 days, said Greg McBride, Bankrate.com’s chief financial analyst. That’s because those rates are based in part on banks’ prime rate, which moves in tandem with the Fed.

“It’s a great time to be shopping around if you have good credit and (can) lock in zero-percent introductory and balance-transfer offers,” McBride said.

Those who don’t qualify for such low-rate credit card offers may be stuck paying higher interest on their balances because the rates on their cards will rise as the prime rate does.

The Fed’s rate hikes won’t necessarily raise auto loan rates. Car loans tend to be more sensitive to competition, which can slow the rate of increases, McBride noted.

Question: At long last, will I now earn a better-than-measly return on my CDs and money market accounts?

Answer: Probably, though it will take time.

Savings, certificates of deposit and money market accounts don’t typically track the Fed’s changes. Instead, banks tend to capitalize on a higher-rate environment to try to thicken their profits. They do so by imposing higher rates on borrowers, without necessarily offering any juicer rates to savers.

The exception: Banks with high-yield savings accounts. These accounts are known for aggressively competing for depositors, McBride said. The only catch is that they typically require significant deposits.

“You’ll see rates for both savings and auto loans trending higher, but it’s not going to be a one-for-one correlation with the Fed,” McBride said. “Don’t expect your savings to improve by a quarter point or that all car loans will immediately be a quarter-point higher.”

Ryan Sweet, director of Real Time Economics at Moody’s Analytics, noted: “Interest rates on savings accounts are still extremely low, but they’re no longer essentially zero, so that may help boost confidence among retirees living on savings accounts.”

Question: What’s in store for stock investors?

Answer: Wall Street hasn’t been spooked by the prospect of Fed rate hikes. Stock indexes rose sharply Wednesday after the Fed’s announcement.

“The market has really come to view the rate hikes as actually a positive, not a negative,” said Jeff Kravetz, regional investment strategist at U.S. Bank. That’s because investors now regard the central bank’s rate increases as evidence that the economy is strong enough to handle them.

Ultra-low rates helped underpin the bull market in stocks, which just marked its eighth year. But even if the Fed hikes three times this year, rates would still be low by historical standards.

Kravetz is telling his clients that the market for U.S. stocks remains favorable, though he cautions that a pullback is possible, given how much the market has risen since President Donald Trump’s November election.

Question: Why is the Fed raising rates? Is it trying to slam the brakes on economic growth?

Answer: No. The rate hikes are intended to withdraw the stimulus provided by ultra-low borrowing costs, which remained in place for seven years beginning in December 2008, when the Fed cut its short-term rate to near zero. The Fed acted in the midst of the Great Recession to spur borrowing, spending and investing.

The Fed’s first two hikes – in December 2015 and a year later – appear to have had no negative effect on the economy. But that could change as rates march higher.

Still, Fed Chair Janet Yellen has said policymakers intend to prevent the economy from growing so fast as to boost inflation. If successful, the Fed’s hikes could actually sustain growth by preventing inflation from rising out of control and forcing the central bank to have to raise rates too fast. Doing so would risk triggering a recession.

Question: Isn’t Trump trying to speed up growth?

Answer: Yes. And that goal could pit the White House against the Fed in coming years. Trump has promised to lift growth to as high as 4 percent annually, more than twice the current pace. He also pledges to create 25 million jobs over a decade. Yet the Fed already considers the current unemployment rate – at 4.7 percent – to be at a healthy level. Any significant declines from there could spur inflation, according to the Fed’s thinking, and require faster rate increases.

More rate hikes, in turn, could thwart Trump’s plans – something he is unlikely to accept passively.

Under one scenario, the economy could grow faster without forcing accelerated rate hikes. If the economy became more productive, the Fed wouldn’t have to raise rates more quickly. Greater productivity – more output for each hour worked – would mean that the economy had become more efficient and could expand without igniting price increases.

AP Logo Copyright © 2017 The Associated Press, Christopher S. Rugaber and Alex Veiga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Veiga reported from Los Angeles.