Marc's Mortgage Matter's

Found on a popular California blog:

You can retire to New York City where...
1. You say "the city" and expect everyone to know you mean Manhattan.
2. You can get into a four-hour argument about how to get from Columbus Circle to Battery Park, but can't find Wisconsin on a map.
3. You think Central Park is "nature."
4. You believe that being able to swear at people in their own language makes you multi-lingual.
5. You've worn out a car horn - if you have a car.
6. You think eye contact is an act of aggression

Last weeks interest rate-moving announcement that the Federal Reserve will, in effect, print money to buy an extra $600 billion of Treasury bonds by next June. Their hope is that the move will make it cheaper for us to borrow money, take out mortgages or refinance our houses, and for businesses to borrow funds in order to expand. Higher inflation and lower unemployment seems to be the goal. The financial markets had been talking about, and had priced in, the Fed's move for weeks, and stock indexes didn't move much after the announcement. "The pace of recovery in output and employment continues to be slow," the Federal Open Market Committee statement said. It will help by raising asset prices, like stocks, which might make some folks feel better and go out and spend.

The nation's homeownership rate is at the lowest level in more than a decade. But really, is this a bad thing? Many would argue that it isn't. Earlier this week the Census Bureau announced that the percentage of households that owned their homes was unchanged at about 67% last quarter, unchanged from the 2nd quarter and matching numbers from back in 1999. For several years prior to 1999 it was running around 64%, and hit its peak in 2004 at 69%. But get this: almost 19 million homes, or 14.4 percent of all houses and apartments, were vacant, according to the government survey. Holy smokes!

Paying off a mortgage or even paying down the balance early might seem enticing to most borrowers. There’s the big savings in interest payments and the freed-up cash flow that can result, not to mention the emotional benefit of wiping out what for most people is the largest financial burden of a lifetime.

With interest rates as low as they are these days it may be easier to make those additional payments. But deciding whether to do so requires a careful balancing of math and psychology, financial advisers say.

Even an extra $25 a month toward the mortgage means having less money for emergencies that might crop up. It also translates into less money to plow into other investments, as well as a lower mortgage-interest tax break, since you’re paying less interest as you pay down the principal (or none at all, if you’ve paid it off).

The most important factor, according to Bill Losey, a certified financial planner and the owner of Bill Losey Retirement Solutions in Wilton, N.Y., is that if you can make more money over the long haul in other investments like stocks than you can by paying off your mortgage early, it’s probably not worth it.

“People look at things in black and white,” Ms. Losey said, “and I see a lot of people who say they want to be debt-free. So they plow money into their house, but don’t save as much. But I hate to see all your assets wrapped up in the equity of your house.”

“Right now, if you can earn better than 4.4 percent after taxes,” Mr. Losey said, “you’re probably better off investing the money than using it to prepay your mortgage.” Making extra mortgage payments is ill advised if you have large credit-card balances, which typically carry a higher interest rate. It’s better to pay off the higher-interest debt first.

And if there’s a chance you might lose your job or lose some of your income, pouring extra cash into a mortgage payment may also be a bad idea.

Biweekly programs let you get in an extra mortgage payment every year, reducing principal and interest sooner. But the consultants who set them up typically charge annual fees in the hundreds of dollars, as well as small transaction fees for each payment, which could cancel out any financial benefits.

If you do have a cash crunch once your mortgage is paid off, you’ll have equity to tap, but in the form of home-equity loan or a Heloc (home equity line of credit), which carries an adjustable interest rate, thus exposing you to higher payments on that loan if the market shifts.

After preparing the markets for the last several months, the Fed pulled the trigger this week on its latest plan to boost the economy. "Quantitative Easing II" or QE2, as it's being called, will see the Fed purchase $600 billion in new Treasury bonds by the end of the second quarter of 2011 -- and this in addition to the expected $250 to $300 billion it will also reinvest from the maturing mortgage portfolio it holds from the last monetary stimulus program.

The open question is, will mortgage borrowers benefit, and if so, by how much? Mortgage interest rates are already at rock bottom.

We begin a different era for monetary policy, one with uncertain benefits, unknowable outcomes and uncertain risks all around. Certainly, we hope that Fed is successful, that the economy revives to better levels, job growth picks up, inflation remains at bay, and the Fed can unwind these unusual methods without long-lasting market distortions. At the same time, we cannot help but remain concerned that there are fairly long odds of all this working out 100% favorably. We are going to walk this path, and may also need to consider that, if un- or only partially successful, we may have to walk it again in just eight months' time.

(The following can be used for either party, and does not necessarily reflect my views.)
An elderly man suffered a massive heart attack. The family drove wildly to get him to the emergency room.
After what seemed like a very long wait, the ER doctor appeared wearing his scrubs and a long face.

Sadly, he said, "I'm afraid Grandpa is brain-dead, but his heart is still beating."
"Oh, Dear God," cried his wife, her hands clasped against her cheeks with shock. "We've never had a Democrat in the family before!"