Christina Dunham's Random Real Estate Musings

There’s no doubt about it – we are in a recession. With the holidays just around the corner, it’s more important than ever to tighten our belts and find ways to save money.

Annual income aside, there's not a person among us who wouldn't welcome the idea of having more money in their savings account. This is the money we use on everything from yearly vacations to family presents. Come holiday time, wouldn't it be nice to have an extra thousand or so dollars at your disposal?

Here are a few ideas that can help to make that possible. The best part is you'll hardly feel it!

Make Your Coffee at Home – How much do you usually end up spending at Starbuck’s or Pete’s? On average, people spend about $2.50 per cup. A pound of coffee, costing $10, makes about 45 cups. Assuming one cup of coffee every morning, that one pound bag can last you up to 9 weeks, and save you over $100 over the same period.

Bring Your Lunch to Work - The average person spends $6 when they buy their lunch yet only $2 when they pack it themselves. That's a potential savings of $20 a week or $1,040 dollars a year.

Durable over Disposable - Using products like Handi-Wipes (semi-disposable rags) as opposed to paper towels, and a rechargeable razor rather than the disposable kind, can save you up to $200 per year.

Hold an Annual Yard Sale - You should have no problem making at least a hundred bucks. Besides, you'll get rid of all that household clutter in the process. Whatever you don't sell can be donated to charity and used as a tax write-off (just be sure to ask for a receipt itemizing your donation!)

Ask for Discounts - From buying airline tickets to paying a medical bill, always ask if there's a discount to be had. The worst that can happen is you'll be told no.

Get a Library Card - As opposed to buying a book for $20 or renting a DVD for $4, get it for free. If you average 3 movie rentals a month, you'll save yourself over $140 a year.

Watch Those Utilities - Changing over to energy saving light bulbs and low flow showerheads is a great start. Also, most utility companies offer a home audit you can complete online. If not, go to http://hes.lbl.gov for a virtual inspection of your home. You may be surprised to learn how much energy (and money) you could be saving.

The good news is suggestions like these are merely a start. Only you know where your household may be wasting money. Find inefficient habits and figure out a solution. Remember, every little bit counts.

The final step is when you save money on something, put the savings into an earmarked account. Then leave it alone until it's the appropriate time to use it.

Do you have any tips on boosting your savings? If so, drop me an email at contact@christinadunham.com and tell me about them!

AND HAVE A HAPPY THANKSGIVING!!!

Both the Federal Housing Finance Agency and the Federal Deposit Insurance Corporation (FDIC) recently announced programs offering bounties to mortgage servicing companies for modifying troubled mortgages.

The FDIC announced last Friday that they have initiated a systematic loan modification program at IndyMac Federal Bank, the bank they seized in July earlier this year. To promote adoption of the program, servicers will be paid $1,000 to cover expenses for each loan modified. In addition, the FDIC would share up to 50% of the losses incurred if the modified loan re-defaults.

Only loans secured by owner-occupied properties and borrowers who are at least 60 days late on their payments are eligible under this plan. The new mortgage payment must be less than 31 percent of the borrower’s gross monthly income. Loan modification could include interest rate reduction, principal reduction, loan term extension, or a combination of all three items.

"Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow," the FDIC said. "It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures."

The FDIC expects that about 2.2 million loans may be modified under this plan at a cost of $24.4 billion, which could be paid from the U.S. Treasury’s $700 billion bailout budget.

Until next week, happy home loan shopping!

If you currently have an adjustable-rate mortgage (ARM), you may have noticed your payments slowly decreasing. This is because indices have been on a decline since October 2007 – one of the advantages of having an interest rate tied to an adjustable index.

An ARM has an interest rate that changes based on changing market rates and economic trends. If you currently have an ARM, there are two factors determining your interest rate – the Index and the Margin:

1. Index - the adjusting portion of the interest rate, and a very important feature of the ARM. Indexes fall into two broad categories: averaged indexes and spot rates.
• Averaged Indexes – most lenders use relatively slow-moving indices to protect borrowers from rapid interest rate increases. They include the Eleventh District Cost of Funds (COFI) and 12-Month Treasury Average (12 MTA).
• Spot Rates – Two of the most popular are the one-month LIBOR, or London Inter-Bank Offer Rate, and the Constant Maturity Treasury (CMT). Being "tied" to these index rates means that when those rates go up, your interest goes up with it. The flip side is that if they go down, your rate also goes down
2. Margin - the stable figure added to the index to determine the interest rate. The margin remains the same for the life of the loan. For example, if the index is 3.00% and the margin is 3.00%, then your interest rate is 6.00%.

If you are unfamiliar with the terms of your ARM, review the Mortgage Note you signed during your loan closing. This will outline your index, margin, initial interest rate, adjustment period, and interest rate caps:

- Initial Interest Rate – for some programs, such at the Option ARMs, initial interest rates can be as low as 1.25%.

- Adjustment Period. How often the interest rate adjusts is determined by the terms of the loan. There is usually an initial period of time during which the rate won't change. This might be anywhere from six months to several years. For example, a 5/1 ARM means the initial interest rate would stay the same for the first five years and then would adjust each year beginning with the sixth year, while a 5/6 ARM means the rate will adjust every 6 months after the initial 5-year fixed period.

- Rate Caps. To protect the borrower, there are CAPS, or limits to how high the interest rate can go over the life of the loan and how much it may change with each adjustment:

o Interim interest rate caps – this dictates how much your interest may change with each adjustment. This varies from 2% to 6%, so be sure to discuss it with your Mortgage Advisor.

o Lifetime interest rate cap - usually expressed as maximum rate, this protects you from possible future high rates for the life of the loan. Lifetime caps can be as high as 12%.

When the Fed Funds Rate goes down, other short-term rates typically follow. This spells relief for borrowers with Adjustable Rate Mortgages (ARMs) and Home Equity Lines of Credit.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with Bay Equity, an FHA Direct Lender. She may be reached at contact@christinadunham.com.