Using Today's Low Mortgage Rates To Consolidate Debt | by Jim Catalano

Using Today’s Low Mortgage Rates To Consolidate Debt

Even though interest rates have slightly risen over the past year, mortgage rates are still near historic lows and much lower than most credit card rates.

This is great for homeowners who want to get rid of high-interest credit card debt.

Almost 10 percentage points separate the average cash-out 30-year mortgage rate from the average credit card interest rate. This is because credit card debt is perceived as riskier than mortgage debt, and credit card companies charge interest accordingly.

One way to do this is to perform a cash-out refinance. A cash-out refinance allows you to turn the equity you have in your home into cash that you can use for whatever you like. Most people use it to pay off high-interest debt, fund a large purchase or finance a home improvement project.

Many people like to consolidate credit card debt using a cash-out refinance because they can make fixed payments on it over a set period of time, rather than paying a revolving balance every month.

For Your Information

1. WE WEATHERED THE STORM - Over a 30-day period beginning 9/07/08, the government took over Fannie Mae and Freddie Mac in anticipation of as much as $200 billion of mortgage defaults, the largest bankruptcy in the history of the USA took place (Lehman Brothers), the $700 billion“Troubled Asset Relief Program” (TARP) was signed into law by President George W. Bush, and a bailout of the nation’s largest insurance company (AIG) gave the government 80% ownership of the firm (source: BTN Research).

2. IT ALL RAN TOGETHER - During the 30 years ending 8/31/18, the best 12-month performance and the worst 12-month performance for the S&P 500 occurred over a single 24-month period.  The worst 12-months (a total return loss of 43.3%) was the 1-year from 3/01/08 to 2/28/09 and the best 12-months (a total return gain of 53.6%) was the 1-year from 3/01/09 to 2/28/10.  The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation.  It is a market value weighted index with each stock's weight in the index proportionate to its market value(source: BTN Research).

3. NONE - As of the end of 2017, 19% of Millennials and 12% of Baby Boomers had no money (either pre-tax or post-tax) invested in the stock market.  Millennials were born between 1981-97 and were ages 20-36 in 2017, while the Baby Boomers were born between 1946-64 and were ages 53-71 in 2017 (source: Vanguard).

4. BEAR THEN BULL - Over a painful 6-months from September 2008 through February 2009 (i.e., 9/01/08 to 2/28/09), the S&P 500 lost 41.8% (total return), including a drop of 16.8% in just the month of October 2008.  The index bottomed less than 2 weeks later on 3/09/09 and began a bull market on 3/10/09 that continues to this day (source: BTN Research).

5. MORE CONCENTRATED - America’s 5 largest banks control 47% of all banking assets, up from 29% in 1998 or 20 years ago (source: Federal Reserve Bank of St. Louis).

6. A NEW HIGH - After adjusting numerical data from the past for the impact of inflation, the median household income in 2017 ($61,372) is the highest ever recorded in the United States, besting the previous record for median household income ($60,309) set just the year before in 2016.  Before 2016, the peak for median household income was $60,062 set in 1999 (source: Federal Reserve Bank of St. Louis).

7. TAX BREAK - US corporations had until 9/15/18 to contribute to their company’s defined benefit pension plan and still deduct the amount against 2017 income, a tax break that took advantage of last year’s top corporate marginal tax rate of 35%.  The top corporate marginal tax rate in 2018 is 21% (source: Tax Cuts and Jobs Act).

8. BLANK CHECK - An estimated 44.4% of all US individual taxpayers will legally pay zero federal income tax for the tax year 2018 on their Tax Form 1040 that is due 4/15/19 (source: Tax Policy Center).

9. LESS HELD BACK – The $1.74 trillion of excess reserves held by US banks at the 12 regional Federal Reserve banks as of 8/29/18 is down $470 billion from the $2.21 trillion held a year earlier.  Excess reserves are funds held that are above and beyond the federally mandated reserve requirement amounts (source: Federal Reserve).

10. BONDS - There is less outstanding municipal bond debt today ($3.8 trillion) than there was in 2010 ($4.0 trillion).  Over the same time period, outstanding Treasury debt has increased 69% to $14.9 trillion (source: SIFMA).

11. PAID FOR HOW? - The state of New Jersey invested $3.2 billion during the current 2019 fiscal year (i.e., the 12 months ending 6/30/19) to fund the defined benefit pension plans of state employees.  That amount is projected to more than double to $6.6 billion by the fiscal year 2023 (source: State of New Jersey).

12. WE’RE IN A DROUGHT - 3 states (Arizona, California, and Nevada) along with Mexico receive water allotments from Lake Mead.  Under current water rights agreements, if the water level at Lake Mead falls to 1,075 feet (above sea level) at the end of any year, the federal government has the right to restrict water allocations to Arizona, Nevada, and Mexico.  As of last Friday, the water level was 1,079 feet (source:

13. COSTS MORE - 44% of 1,040 retirees surveyed in January 2018 report that their health care expenses in retirement are higher than they anticipated (source: Employee Benefit Research Institute).

14. MORE OUT THAN IN - The total cost of the Social Security program in 2018 ($1.003 trillion) is projected to exceed its total income ($1.001 trillion), resulting in the program’s first deficit since 1982 (source: Social Security).

15. LONE STAR STATE - The University of Texas is # 1 in athletic revenue generated ($215 million) of any NCAA school.  Texas A&M ranks # 2 on that list with $212 million of revenue (source: NCAA).

This Week's Economic News

This Week's Economic News

The stock market rebounded from the prior week’s losses following news Wednesday and Thursday that there would be a new series of trade negotiations with China plus an invitation from the U.S. to the Chinese government to discuss trade policy.  Investors are hoping the discussions will thwart the implantation of extensive tariffs from both sides and prevent an escalating trade war.  The strength in stocks helped to push bond prices lower with Treasury yields increasing despite soft inflation data during the week.

On the economic front, there were a couple of significant reports concerning inflation.  The core Producer Price Index (PPI) and the core Consumer Price Index (CPI) for August were both below consensus expectations.  The core PPI fell 0.1% when economists were expecting an increase of 0.2%, and the core CPI came in at a less-than-expected increase of 0.1%.  These tame inflation numbers worked to lessen concerns the Federal Reserve might have to raise rates more frequently than expected in order to cool off an overheating economy.  Despite this, the Fed is expected to raise rates by another 25 basis points at its upcoming September 25-26 policy meeting, with the probability of a rate hike at 100%.  Further, the probability of a 25 basis point rate hike at the December policy meeting currently stands at 80%.

In the housing-related news, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed a decrease in mortgage applications.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) declined 1.8% during the week ended September 7, 2018.  The seasonally adjusted Purchase Index increased 1.0% from the week prior while the Refinance Index decreased 6.0% from a week earlier, its lowest level since December 2000.

Overall, the refinance portion of mortgage activity decreased to 37.8% from 38.9% of total applications from the prior week.  The adjustable-rate mortgage share of activity increased to 6.4% from 6.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.84% from 4.80% with points increasing to 0.46 from 0.43 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond lost 34.4 basis points to close at $101.109 while the 10-year Treasury yield increased 6.10 basis points to end at 3.00%.  The Dow Jones Industrial Average gained 238.13 points to close at 26,154.67.  The NASDAQ Composite Index advanced 107.50 points to close at 8,010.04.  The S&P 500 Index added 33.30 points to close at 2,904.98.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 5.81%, the NASDAQ Composite Index has advanced 16.03%, and the S&P 500 Index has added 8.65%.

This past week, the national average 30-year mortgage rate rose to 4.74% from 4.71%; the 15-year mortgage rate increased to 4.22% from 4.19%; the 5/1 ARM mortgage rate remained unchanged at 4.02% while the FHA 30-year rate rose to 4.42% from 4.39%.  Jumbo 30-year rates increased to 4.37% from 4.36%.

Economic Calendar - for the Week of September 17, 2018

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Ecoomic Calendar for Week of Septembe 17, 2018

Mortgage Rate Forecast

The FNMA 30-year 4.0% coupon bond ($101.109, -34.40 bp) traded within a wider 42.2 basis point range between a weekly intraday high of 101.50 on Monday and a weekly intraday low of $101.078 on Friday before closing the week at $101.109 on Friday.  Mortgage bond prices declined below nearest support levels and are now taking aim toward the next major support level at the 100% Fibonacci retracement level located at $100.797.  Although the bond is deeply “oversold,” it could stay this way and could continue to gradually trend lower toward the 100.797 level.  Should this scenario play out, mortgage rates could slowly rise higher.

FNMA 4.0% 30-yr. Coupon Bond


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Rate lock or float recommendations are different for every loan. These are general recommendations and do not constitute a guarantee on what is right for your loan. Please consult with your mortgage professional. 

Are you ready to purchase or refinance a home? Let me help you, call Jim Catalano at 214-770-1499 or complete my online form below:

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