Palos Verdes Source

Buyers of Palos Verdes homes often ask what a loan point is.  My clients who are refinancing also have the same question.  Here is a very concise explanation provided by a Bank of America loan officer:

What exactly are “points”?  What tax benefits accrue from “points”?  What is the “APR” and in what ways is it important?  And what are the benefits to home sellers who may consider paying a buyer’s “points”?  We look at the basics here, urging you to take your specific questions to your tax advisor, while hoping to help you better formulate those questions.

Traditionally, a “percent” is often expressed as one or more “points.”  Thus, if you pay two percent of the loan amount to originate a loan, you are paying two “points.”  It realy isn’t any more exotic than that.

If the loan is a mortgage, the total origination fee will be a combination of points and fees for services, like the appraisal fee, the escrow fee, the recording fee, and other costs.  If the mortgage is for the purpose of buying a home, known as a “purchase money loan,” then the points are deductible on your tax return for the year in which the home was purchased.  The other fees are not deductible.

Further, points paid on a refinanced mortgage are not fully deductible in the year of the transaction.  Instead, the deduction is spread (or amortized) equally over the full life of the loan.

This raises an important question.  What happens when you refinance a mortgage that has already been refinanced; that is, what happens when you refinance a second or third time?  The points paid for the prior refinanced loan become deductible in the year of the newly refinanced loan.

Points are considered prepaid interest.  They are one part of the overall interest you pay on your loan.  That is why we can deduct them against our ordinary income on our personal tax returns (remembering that the deduction schedule is different, depending on whether the loan is a new purchase money mortgage or a refinanced loan).

Understanding what points actually are and the basics of how they work can open up a world of possiblities.  Consider this: if the stated interest rate on a mortgage is surprisingly low, the lower interest rate may often be counter balanced by higher points.  Thus, one loan may bear an interest rate of 5.5% and another 5.625%.  The first loan obviously looks better than the second – until you look closely at the origination points.  Often the first loan requires slightly higher points, and the difference in the life-of-loan interest costs for each loan could be minimal as a result.

In order to make certain that consumers are aware of the expense that higher points can add to a loan, the government long ago required lenders to provide an “APR” calculation on loan settlement papers.  The Annual Percentage Rate (APR) blends the interest cost of the points and other fees into the potential life-of-loan interest payment, and then provides a new, “adjusted” interest rate that takes into consideration the loan points and associated fees.  This sounds confusing because, frankly, it is.  At best, it provides a way of comparing two loans and seeing which will cost more in the long run.

What makes far more sense is the fact that you can often pay higher points in order to pay down your loan’s interest rate, and make your monthly payment smaller.  You will want to discuss such possibilities with your Mortgage Loan Officer, tax advisor and financial advisor.  You may also want to look at the life-of-loan savings you can create with an accelerated pay-down of your mortgage, adding to each month’s principal payment and thus, if it is a fixed-rate loan, decreasing both the number of years in which you make loan payments or, if it is an adjustable rate mortgage, potentially lowering the monthly payment when the loan adjusts.  In either case, you an lower the life-of-loan interest that you pay.  (Keep in mind that an amortization schedule simply adjusts each payment so that is pays all of the interest owed on the loan balance if paid in monthly payments.  Lower the loan balance by making larger payments to the principal balance of the loan, and you will owe, and pay less interest towards the principal.)

Also worthy of discussion, when you are selling your home, is the possibility of helping the buyer by paying the points on his or her purchase money loan.  Not only is the seller allowed to do this, but the tax deduction for those points can be taken by the homebuyer, which provides a large value incentive for them.  The home not only meets the home buyer’s needs, it also costs less to purchase and decreases the buyer’s tax liability.  Again, be sure to discuss these options with your tax and financial advisors.

Remax Palos Verdes/Execs has formed a new alliance with Bank of America which will benefit our clients in several ways.  We now have access to the largest lender in the jumbo market.  Bank of America will loan 80% up to a $2,000,000 loan to qualifying borrowers.  This will help buyers (and therefore sellers) of Palos Verdes real estate.   Remax Palos Verdes/Execs clients will be given priority and our agents will be given a source code so that we can track the loan through all stages.

We have a local Legacy Bank of America office which has their own loan processing center and underwriting department.  This is very beneficial as a local person is making a decision about a local property which means the file won’t be “rubber stamped” but given personal attention based on our local market.  No more dealing with a loan center half way across the country.  And our clients are promised a better loan rate!

The current rate for a 30-year fixed conforming loan (up to $417,000) is 4.625%;  a jumbo conforming loan ($417,000 to $729,750) is 4.75%; and for a jumbo loan to $1,500,000 the rate is 5.5%.

There were 18 homes on the September 29, 2009, Palos Verdes real estate Broker’s Tour. We currently have 248 active single family homes for sale in Palos Verdes ranging in price from $750,000 in Rancho Palos Verdes to $18,900,000 in Rolling Hills (the low in Eastview is $565,000). There are 60 townhome for sale price between $218,000 and $1,500,000. My favorites were:

Steven Watts’ 3820 Via Palomino, Palos Verdes Estates, (above left) is a 4 bedroom 4 bath, 3,750 square foot home for $2,395,000. This Cape Cod style Valmonte home was completely remodeled in 2000 and features a private office and separate family room. Robin Debraal’s 1904 Via Estudillo, Palos Verdes Estates, (above right) is a 5 bedroom, 3 bath, 3,062 square foot home for $1,625,000. This Lunuda Bay home is within walking distance to all 3 schools and features a remodeled kitchen.

Luis Kim’s 30471 Camino Porvenir, Rancho Palos Verdes, (above left) is a 4 bedroom, 3 bath, 3,323 square foot home for $1,950,000. This remodeled Country Club home has spectacular 180 degree ocean views, gourmet kitchen and pool. Jodi Ann Keel’s 2641 Via Pacheco, Palos Verdes Estates (above right) is a 3 bedroom, 2 bath, 1,503 square foot home for $1,275,000. This lower Lunada Bay home was completely remodeled; house was taken down to the studs.

Photos courtesy of MRMLS

In Washington and beyond, the discussion is stirring as to whether to extend the First Time Home Buyer Tax Credit of $8,000 which is set to end November 30, 2009. I believe extending this credit will benefit homeowners across the board including owners of Palos Verdes Real Estate.

At first glance, it may not look beneficial to owners of Palos Verdes real estate because the applicant’s income cannot exceed $75,000 (or $150,000 for married couples) and property values here begin in the $700,000s. However, there is the trickle up theory. A Palos Verdes home may be sold to a family (Family A) moving from another community with lower prices. And in order for Family A to purchase in Palos Verdes, they must first sell their home. Family B that is buying the Family A home may be a first time buyer who will be assisted with that purchase ultimately benefiting a seller of Palos Verdes real estate.

“Through July, the tax credit spurred about 175,000 home sales according to an analysis by Mark Zandi, chief economist at Moody’s Economy.com. That trend would lead to nearly 375,000 such sales through Nov. 30, he said.” according to a September 25, 2009, Los Angeles Times article.

In the last six weeks interest rates for Palos Verdes real estate have remained fairly steady. The interest rate for a 30-year fixed mortgage going down 1/4 point to 4.75% for a conforming loan and remaining at 5.785% for a jumbo loan. A 5/1 Year ARM is 3.75% for a conforming loan and 5.125% for jumbo loans. A 5/1 Interest Only conforming loan has a 3.75% interest rate and a jumbo loan has a 5.25% interest rate.

Demand is up for U.S. Treasury Bonds. Yesterday there was 3 times as much demand compared to supply for sales of 2-year Treasury notes (investors bidding at 1.035%) . Interest rates for home mortgages have remained low. Conventional wisdom says that when bond rates go up, interest rates usually go down but at this time both are fairly low which is a mixed signal. These are interesting times.

Statistics for the month of August for Palos Verdes real estate are now available an for the third month in a row, the numbers are looking better. As you will note from the graph above, the number of active residential properties for sale in Palos Verdes have fallen from 434 August 2008 to 325 in August 2009. Additionally, for August 2009 both pending sales and sold/closed escrows have almost doubled (88 Pending and 75 Sold) from August 2008 (49 Pending and 38 Sold).

Average price per square foot for the last 11 months has been holding pretty steady with small ups and downs averaging $467 (August 2009 was $473). Average Days on Market in August was 78 days compared to 82 days in August 2008. Months of inventory (months it would take to sell existing inventory at the current rate of sale) for August 2009 was 4.3, the lowest it has been in two years! Entire charts can be accessed by clicking here or on the “Statistics” tab above.

Currently, there are 303 single family homes for sale on the Palos Verdes Peninsula. Additionally, 73 homes have pending sales, 58 homes are in escrow acccepting backup offers and 27 homes have sold/closed escrow in the first 11 days of September.

The Point Vicente neighborhood is located in Rancho Palos Verdes near the intersection of Palos Verdes Drive West and Hawthorne Boulevard. This is a small neighborhood of only a six streets and about a half a mile long. This is one of my favorite neighborhoods because nearly every home has ocean views. As you enter the homes, you are greeted by a full ocean view from the living room and dining room. There are also ocean views from the backyard. Point Vicente Elementary School is located in this neighborhood and a new Trader Joe’s is opening just down the street!

Currently, there are no active homes for sale in the Point Vicente neighborhood. The last two sales were $975,000 for a 4 bedroom, 2 bath, 1,670 square foot home and $1,200,000 for a 4 bedroom, 2 bath, 2,364 square foot home.

It was a fairly quiet week in the financial/mortgage area which is a welcome change from the last several months.

Rates are down slightly for all loans. The current interest rate for a 30-year fixed conforming loan is 5% and 5.875% for a jumbo loan. A 5/1 Year ARM is 3.625% for conforming loans and 5.125% for jumbo loans. A 5/1 Interest Only conforming loan has a 3.75% interest rate and a jumbo loan has a 5.25% interest rate. Jumbo loans (over $729,750) are down significantly since the beginning of the year.

“The typical monthly mortgage payment for Southern California buyers last month was $1,193, up from $1,052 in May. Adjusted for inflation, current payments are 46% below typical payments in the spring of 1989, the peak of the prior real estate cycle” states the Los Angeles Times on July 16th. I checked and in 1989, the average interest for a 30-year fixed mortgage was 10.32%. That is twice as much as today’s rates!

The current interest rate for a 30-year fixed conforming loan is 5.125% and 5.875% for a jumbo loan. A 5/1 Year ARM is 4% for conforming loans and 5.375% for jumbo loans. A 5/1 Interest Only conforming loan has a 4.125% interest rate and a jumbo loan has a 5.5% interest rate.

Federal Reserve Chairman, Ben Bernanke, commented yesterday that he thought rates were going to remain low. I hope he is correct as these low rates continue to stimulate our real estate market.

I have just earned the prestigious Certified Distressed Property Expert designation having completed extensive training in foreclosure avoidance and short sales. Although we have not experienced many of these sales in Palos Verdes real estate, more are expected in the future. In a nutshell, I learned how to assist homeowners who are either behind in their mortgage payments or are having trouble making those payments identify their options.

I have worked with both buyers and sellers of short sales in the South Bay. A short sale allows a cash-strapped seller to repay the mortgage at the price that the home sells for, even though it is lower than what is owed on the property. More and more lenders are willing to consider short sales because they are much less costly to the bank than foreclosures.

A homeowner cannot just be upside down on his mortgage (owes more than current value of property). A homeowner must show a valid hardship answering the question, “What material change has taken place in my life since I took out this mortgage that precludes me from paying it back?” The single largest reason in today’s market is a payment increase due to a mortgage reset/adjustment. But it might also be a loss of job, death of a spouse, relocation, reduced income or a number of other reasons.

Short sales can be a complicated process as the lender requires specific documentation and an entire package (typically more than 55 pages) must be submitted in its entirety before the lender will even consider the short sale request. The buyer must be very patient as the lender sometimes takes months to respond. Even though short sales are more time consuming, it is rewarding to be able to help sellers save their home from foreclosure.