APR vs. Interest Rates

Clients often tell me they heard about an amazing interest rate advertised online or on the radio. They ask me, "Why can't my lender give me that rate?"  I then ask, "Did they mention what the annual percentage rate (APR) is?"  

Often these attractive rates can be misleading. They assume you have perfect credit and no outstanding debt. More importantly, they don't always reveal the "real" cost of the loan which is expressed in the APR.  

There are many costs associated with taking out a mortgage:

  • The interest rate
  • Points
  • Fees
  • Other charges 

The interest rate is the cost you will pay each year to borrow the money.  It can be a variable or fixed rate, but it’s always expressed as a percentage. It does not reflect fees or any other charges you may have to pay for the loan. The interest rate is almost always lower than the APR. 

An annual percentage rate (APR) is a broader measure of the cost to borrow the money. Also expressed as a percentage, it reflects not only the interest rate but includes points, mortgage broker fees and other charges that you pay to get the loan. These extra fees can vary from lender to lender.

This is why lenders and banks usually advertise the interest rate and not the APR (which can significantly impact your mortgage payment). With all of this to consider, it is important to find a lender you trust and who will explain which loan package is best for you.

Using a Broker vs. a Direct Lender

If you’re in the market for a new home, one of your first steps will be to get pre-approved for a loan.  Your home financing options can include working with a mortgage broker or a direct lender.  There are some important advantages to working with a direct lender that you should consider when deciding which financing option is best for you.
Middle Man vs. Actual Lending Source:
Mortgage brokers serve as middle men for a variety of lenders and match you with the loan they believe best fits your needs. Once approved, you may deal directly with the service provider or loan originator.  With a direct lender, the person taking your application has a role in making the final decision and, in many cases, can serve as an ongoing point of contact for your loan.
A broker is bound by guidelines set by the individual lender and they do not have the discretion to waive certain requirements to gain your business.  Direct lenders set their own qualification guidelines which means that they have the flexibility to waive them under certain circumstances.
The fees charges by brokers tend to be higher than those charged by direct lenders, because this is how they make their money.  It’s the same as purchasing an item retail versus wholesale.
Working with a broker who has little control over the processing of our loan and the disbursement of your funds, usually means a slower turnaround. With a direct lender, everything is typically processed in-house, meaning a faster turnaround.
Many people have the misconception that a broker can offer better rates than direct lenders.  The reality is that rates are driven by what occurs in the secondary market. Which means that every lender bases interest rates on similar information.
Lastly, with direct lenders, the officer typically does not receive a commission based on the rate or fees associated with your loan.  This allows them to focus on securing the best loan option and rate for you.

What to Make of Measure S

As most of you know, Angelenos will be hitting the polls this Tuesday, March 7th. There has been a lot of talk about Measure S and a lot of confusion about it. Essentially, the measure calls for a two-year moratorium on development requiring an amendment to the city's general plan which backers say are out of date and have too many loops holes.

Proponents say the city's general plans need updating and they should halt development until they can be overhauled. I'm all for updating the city's general plans and cutting out loopholes. That is something we can all agree on, but Measure S would not necessarly stop by-right projects nor any project not requiring a General Plan Amendment (GPA) or Zone Change. In addition, there have been multiple attempts by the city to update these plans in the past, with the most recent changes being in 2012, but these changes were overturned in 2013 following a lawsuit filed by the same backers of Measure S. 

Opponents are concerned Measure S will exacerbate the already unsustainalbe housing shortage. Rents and home prices are already at record highs and halting development will only make things worse.  According to one recent study, the housing stock in the L.A. metro area grew by only 20% between 1980 and 2010, compared with 54% in the typical U.S. metro area.

It is estimated that the city’s population eclipsed 4 million for the first time in its history in 2016.  This puts the city on pace to grow more between 2010 and 2020 than it did in the previous two decades combined. In order to accommodate all those new residents, the city must build new housing.

I'm concerned Measure S will exacerbate much of what it claims to solve — increasing homelessness and evictions, driving rents higher, shifting development pressures into lower-density communities and destroying jobs along the way.

For further reading, please take a look at the articles below.

Making sense of Measure S, the latest battle in L.A.'s long war over development

Measure S: 8 things to know about LA’s anti-development ballot measure

Got Leaks?

Rain, rain, and more rain! Los Angeles has been hit hard by recent storms. I’m sure many of you are discovering leaks you didn’t even know existed. But weather isn’t the only source of water intrusion. Structural issues like pipe leaks can be just as destructive. Water damage is one of the most common problems homeowners face. In fact, homeowners are seven times more likely to experience water damage than fire damage, and six times more likely to experience water damage than a burglary. Below are a few tips to help prevent household leaks. 

1. Check hoses & faucets on a regular basis:
Inspect on an annual basis and replace every 5-7 years.
2. Check showers and tubs:
Make sure caulking is watertight. If there are cracks, replace it.
3. Know where and how to shut off your water main:
In most situations, shutting off the water main will stop the flow of water from a leak.
4. Install floor pans:
Consider installing floor pans under your appliances. These can prevent damage from small slow undetected leaks.
5. Consider purchasing point-of-leak water alarms:
When water is detected in a specific area, an alarm is triggered, warning you of a water threat.
6. Consider purchasing a water flow monitoring system:
The system works by measuring water flow into your house. If it detects continuous water flow beyond the normal stopping and starting of your every day appliances, it stops the flow of water into your house automatically.

Stay dry out there! 

What's Hot In Home Improvement This Year?

If conquering a kitchen renovation or adding an outdoor living space has been on your to-do list, you’ll want to know what’s currently trending for home improvements and design.  After all, a well-planned update can add substantial value to your life and your home. Some of the leading must-haves among buyers include:

  • High-Tech Home Innovation
  • Pops of color
  • Seamless indoor-outdoor living concepts

With that in mind, consider these when brainstorming your next project.

Outdoor Cooking – Buyers are looking for spacious, open kitchens and seamlessly connected outdoor dining spaces.  And, on average, homeowners get a 130% return on their outdoor kitchen projects when time to resell.  Consider adding these appliances:

  • Pizza Oven
  • Easy-clean, smooth-top grills
  • Internet-connected refrigerator

Spice Things Up – By using a range of colors, textures and styles you can give a space new life.  A noticeable and sleek revamp will attract the most buyers.  If you're worried about it all coming together, utilize the creative mind of a professional interior designer.  On the trend:

  • Black stainless finish appliances
  • Farmhouse sinks, faucets, tubs and vanities in colors that pop
  • Antique art deco furnishings with a modern twist

Technology - High-tech innovation has come as far as giving people ultimate control and convenience right at their fingertips.  It's now possible to control home lighting, temperature and entertainment from your mobile smart phone.  Other home technology in high demand this year will be:

  • WiFi connected appliances
  • App integrated home security/surveillance systems
  • Voice-Controlled Speakers

Stay tuned for more home trends on the rise as the year progresses. 

How will the election impact housing?

Believe it or not, Donald Trump is going to be our next president. How will his presidency influence the housing market? Needless to say, opinions vary widely...

Jonathan Smoke, chief economist at Realtor.com, optimistically points to Trump’s business background as an indicator of what could be in store for the housing market. 

“If you are rooting for the economy to improve, you would hope that his background as a business person, as a real estate developer, would pave the way for more growth, more development and that would be a net beneficial for real estate,” Smoke said.

But Trump’s lack of housing policy proposals leaves others anxious.

“The president-elect has basically made his campaign oriented around uncertainty,” said Ralph McLaughlin, chief economist at Trulia. “He laid out a very uncertain policy landscape, and that uncertainty is going to have short-term effects that are more predictable than the long-term ones.”

The biggest short-term effect was on the financial markets, which reacted poorly initially before quickly recovering. Volatility in the financial markets tends to cause investors to flee to safety, which lately has been mortgage-backed securities. That’s helping keep mortgage rates low — great news for those looking to refinance.

“I’m more concerned about what happens to interest rates,” Smoke said. “We appeared to be on a gradual but upward trajectory on interest rates. Is the widely expected December rate hike off the table for the Federal Reserve? 

Trump's impact on the housing market will also vary on where you live. Home buyers in economically healthy states are more likely to be rattled by the election outcome. They might put off making a large purchase such as a home, causing a drag on the market.

In contrast, home buyers in economically stagnant states are more apt to be optimistic about a Trump administration’s effect on their economic prospects, creating a surge in their confidence about the future and interest in making a big purchase such as a home.

Historically speaking, most changes in administrations have had little effect on the housing market. Stay tuned...

Is It Worth It To Go Solar?

"Do solar panels on my roof make financial sense?" I get asked that question a lot. Well, unfortunately, the answer is, "It depends..." Below are a few things to consider when going solar.

How Solar Power Works

When you go solar you stay connected to the electric company via a two-way meter the solar company installs. That lets you buy electricity as needed. When panels produce excess wattage, it goes back into the grid, and you or the solar company are credited for the amount. The typical residential installation yields 75% to 90% of the household’s power needs. What makes the solar math work is a combination of high electric rates and financial incentives from your state and utility. 

How to Pay For It

Cash: A solar power system costs $10,000 to $30,000 after the federal tax credit—depending in part on the size of the system required. That investment yields monthly electric savings of $100 to $200.  So you should recoup your investment in five to 10 years. If you have the cash and plan to stay put, this gives the best return on investment.

Lease: A solar lease is an alternative that requires little or no money upfront. You pay the solar company a monthly fee or preset discount price for the power the panels generate. Though you can’t claim the tax break or any rebates, you’ll still save 10% to 20% on electric costs, typically $10 to $40 a month. Also, most leases include a maintenance contract in the price.

Finance: The newer option of a solar loan offers the perks of leasing—no cash upfront, sometimes a maintenance contract—with greater savings for most people. Interest rates range from 3% to 6.5% for 10- to 20-year loans. After factoring in loan payments, you’ll cut your electric bill by 40% to 60%, about $40 to $120 a month, assuming you put the tax credit toward your loan. You’ll reap even more once the loan is paid off, and panels typically last 25 years.

However you pay, install panels only on a fairly new roof, so they won’t have to come down for roof repairs—and make sure to do it before the write-off expires.