FED Cuts Federal Funds Rate by .25%

Contrary to what you'll be hearing in some of the media outlets, this .25% cut in the funds rates does not equal a .25% cut in long term interest rates. Yes, it will affect short term rates like the Prime rate (this is the rate a lot of the Home Equity Lines of Credit - HELOC and credit cards are based on) and the LIBOR.

In fact, since the announcement was made, the Mortgage Bonds are actually showing signs that fixed rates will be rising tomorrow. Additionally, the expected non-farm jobs report to be released on Friday, 11/2/07 at 8:30 am EST is expected to be stronger than estimates and could trigger long term rates to rise even more.

Here's a good article explaining what the FED talked about during their 2 day meeting and what their projections are for the economoy and inflation.

Home Mortgage Accelerator Programs - Do They Work?

I've been getting a lot of inquiries into these Mortgage Accelerator programs where you open up a Home Equity Line of Credit (HELOC) and use this as your day to day checking account. Your payroll deposits becomes your mortgage payment and then you pay all of your monthly expenses as you incur them from the same HELOC. Some programs would have you payoff your current first mortgage so that your HELOC is the only mortgage against your home. There are other programs that allow you to keep your first mortgage intact and then add a HELOC. The concept is similar to a bi-weekly payment program in that the way you come out ahead is by making additional principal payments to your loan balance over time.

The idea is by direct depositing your paycheck into this home equity account you start saving on your daily interest cost because most mortgages collect interest payments at the end of the month (i.e. your Nov. 1 payment is for the interest accumulated in October.) By paying at the beginning and/or the middle of the month, you are able to start reducing your daily interest calculations which compounded over time can add up to some savings but the significant savings comes from the prepayment of principal.

There are some significant assumptions with these programs. First, that you spend less than you make. Second, that all "extra discretionary" money will be used to help reduce the principle balance and third, that you are disciplined in your budget or finances. There's one program that you'll be hearing more about called the "Money Merge Account." This is offered through a "registered sales rep." from First United Financial. This program costs $3,500 and it's primarily a software program that you use in conjunction with a HELOC or a "Money Merge Account." Be sure to understand how much discretionary income the software is assuming that you'll be using toward your early payoff date.

Please ask for a second opinion before paying someone $3,500 for a software program plus whatever closing costs are incurred in opening up the HELOC. I know they will tell you that you can pay your 30 year mortgage off in 7 or 8 years and all of the numbers they show in their presentation and their flash videos will tell you that you it'll work but let's look at the numbers and discover how realistic the assumptions are.

One downside to these programs is that you will lose your tax deduction on your mortgage interest at a time when you may need it most. Also, if you have other higher interest rate debt like a credit card, department store card, and other loans, it may not make sense to payoff your lower tax deductible mortgage interest first.

As in all cases, you need to evaluate your own situation and evaluate whether this makes sense or not. Before you sign up for any program, take a day or two to look at the numbers, get a second opinion and don't succumb to the high pressure sales tactics for a product "whose time has come."

The Cashflow Coach

Mid-Michigan is Growing Despite the Rest of the State

We have been saying for months, that the mortgage market meltdown happening across the country right now is not Michigan's biggest problem. Our biggest problem is the loss of about 5,000 Michigan residents last year and thousands of jobs.

Now for the rest of the story....

1. The Accident Fund Company announced yesterday that they are planning on converting the old Board of Water & Light Ottawa Station into their national corporate headquarters. The plan is part of a redevelopment agreement reached with the city and state.

This move will create over 500 jobs and revitalize a much needed downtown business district. With the help of the Michigan Economic Development Corp. and the 21st Century Jobs fund this will be one of many more moves to continue to grow the Lansing area.

2. Michigan State University received a $50 million grant for alternative fuel research which is estimated to create 100 or more jobs between Wisconsin and Mid-Michigan.

3. General Motors is at full speed at their new Delta Township Plant with three shifts running full time and the demand for the crossover vehicles is rising.

4. GM suppliers like Android Industries, Bridgewater Interiors and Magna Powertrain combined want to hire more than 300 people, according to Capital Area Michigan Works, which is helping some suppliers find workers. (Source: Lansing State Journal)

5. Despite all of the doom & gloom in the media, did you know that the unemployment rate in the Lansing area is only 5.7% as of August. Compare that to Grand Rapid's rate of 5.9% and the rest of the state at 7.4% (source: BLS).

6. Home values in mid-Michigan are faring better than the rest of the state. From Aug. '06 to Aug. '07 the home values in Detroit declined 31.8%, Flint declined 10.1%, Lansing declined 3.6% and Grand Rapids declined 4.2% (source: Michigan Assoc. of Realtors) compared to a statewide average of -6.4% and a nationwide average of -4.2%.

What does all of this have to do with Real Estate? We believe that this is the best time to consider moving up. Yes, you may need to lower the price of your current home or look at selling later but let's quantify the loss AND the gain and see if it makes sense. A lot of our recent clients have gained a lot more than they've lost.

I have been helping my clients evaluate land contracts and lease to purchase options along with traditional methods to sell their home in order to take advantage of a discounted purchase. I can help you take all of the complexity of this type of situation and simplify it. Contact me to discuss your situation, it could be better than you think.

500 to 1,000 Jobs in Lansing

Michigan's biggest problem is not the mortgage market meltdown happening across the country right now. Our biggest problem is the loss of about 5,000 Michigan residents last year and thousands of jobs.

Now for the rest of the story....

1. The Accident Fund Company announced yesterday that they are planning on converting the old Board of Water & Light Ottawa Station into their national corporate headquarters. The plan is part of a redevelopment agreement reached with the city and state.

This move will create over 500 jobs and revitalize a much needed downtown business district. With the help of the Michigan Economic Development Corp. and the 21st Century Jobs fund this will be one of many more moves to continue to grow the Lansing area.

2. MSU received a $50 million grant for alternative fuel research which is estimated to create 100 or more jobs between Wisconsin and Mid-Michigan.

3. Suppliers like Android Industries, Bridgewater Interiors and Magna Powertrain combined want to hire more than 300 people, according to Capital Area Michigan Works, which is helping some suppliers find workers. (Source: Lansing State Journal)

Despite all of the doom & gloom in the media, did you know that the unemployment rate in the Lansing area is only 5.7% as of August. Compare that to Grand Rapid's rate of 5.9% and the rest of the state at 7.4% (source: BLS).

What does all of this have to do with Real Estate? We believe that this is the best time to consider moving up. Yes, you may need to lower the price of your current home or look at selling later but let's quantify the loss AND the gain and see if it makes sense. A lot of our recent clients have gained a lot more than they've lost.

Call my office and schedule an appointment to review your situation, we can help you evaluate all of your options.