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Why bankers are so worried about their small business loan books

That means that 57 per cent of people whose home loan deferrals were due to expire in September – some 22,900 borrowers owing a total of $8.7 billion – felt they were now in a position to meet their loan repayments.

As a result, the Commonwealth Bank has seen a gratifying improvement in its home loan book in the past month alone.

At the end of August, 9.8 per cent of its giant home loan portfolio (measured in terms of value) consisted of loans in deferral. By the end of September, this had dropped to 8.0 per cent. (This translates into some 93,000 home loans, with a combined value of some $37 billion.)

What’s more, October is likely to see a further steep fall in deferred home loans, with deferrals due to expire on some 52,000 home loans (worth a combined $20 billion).

If more than half of home loan borrowers are confident enough to resume repayments this month, the Commonwealth Bank should see its basket of deferred home loans shrink by another $11 billion or so.

But investors will also be keenly aware of some worrying trends lurking in the Commonwealth Bank’s latest figures.

According to the country’s largest lender, the borrowers most like to resume loan repayments have been the lower risk borrowers: the owner-occupiers, who are paying principal and interest on their home loans and whose mortgages are below 90 per cent of the value of their home.

The trouble is that pushes up the risk profile of the home loans that are still subject to deferral. According to the bank’s figures, of the home loans deferred as at the end of September, 34.1 per cent are loans for investment properties, 16.3 per cent are interest only, and 14.2 per cent have a loan to valuation ratio

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How to land an ultra-low 15-year mortgage rate for your refinance

How to land an ultra-low 15-year mortgage rate for your refinance
How to land an ultra-low 15-year mortgage rate for your refinance

Thanks to this year’s historically low mortgage rates, refinancing remains a popular activity among homeowners — and it has taken on more urgency as a new refi fee threatens to push rates higher this fall.

A 30-year fixed-rate mortgage might be a borrower’s automatic first choice for a refi loan. But if you’ve been in your house a few years, refinancing to a 15-year mortgage can keep you from dragging out the debt and piling up massive interest costs.

The monthly payments on a 15-year home loan can be steeper, but the interest rates are lower: currently near an all-time low at an average 2.37%, which is one-half of 1 percentage point (0.50) below the typical 30-year mortgage rate, according to mortgage company Freddie Mac.

Some borrowers in 2020 have been able to score 15-year rates in the low 2s or even under 2%.

Could you? Here are four tips on how to get the very best deal when refinancing into a 15-year mortgage.

1. Run the numbers on 30- and 15-year loans

Most mortgage lenders offer both 30- and 15-year terms. Compare the current average rates between the two loan products, then zero in on a couple of lenders and see how their 30- and 15-year rates differ.

If 15-year mortgage rates don’t seem substantially lower, it may not seem worthwhile to accept the stiffer monthly payment that comes with the shorter-term loan.

Still, the long-haul savings can be considerable.

Freddie Mac says rates are now averaging 2.87% for a 30-year fixed-rate mortgage, versus 2.37% for the 15-year option. Let’s say you’re trying to decide whether to refinance a $200,000 mortgage balance for either 15 or 30 years at today’s average rates.

  • Your monthly payment would be $1,321

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Weekly High Frequency Indicators: Slow Improvement Has Continued

Purpose

I look at the high frequency weekly indicators because while they can be very noisy, they provide a good nowcast of the economy and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available. They are also an excellent way to “mark your beliefs to market.” In general, I go in order of long-leading indicators, then short-leading indicators, then coincident indicators.

A Note on Methodology

Data is presented in a “just the facts, ma’am” format with a minimum of commentary so that bias is minimized.

Where relevant, I include 12-month highs and lows in the data in parentheses to the right. All data taken from St. Louis FRED unless otherwise linked.

A few items (e.g., Financial Conditions indexes, regional Fed indexes, stock prices, the yield curve) have their own metrics based on long-term studies of their behavior.

Where data is seasonally adjusted, generally it is scored positively if it is within the top 1/3 of that range, negative in the bottom 1/3, and neutral in between. Where it is not seasonally adjusted, and there are seasonal issues, waiting for the YoY change to change sign will lag the turning point. Thus I make use of a convention: data is scored neutral if it is less than 1/2 as positive/negative as at its 12-month extreme.

With long-leading indicators, which by definition turn at least 12 months before a turning point in the economy as a whole, there is an additional rule: data is automatically negative if, during an expansion, it has not made a new peak in the past year, with the sole exception that it is scored neutral if it is moving in the right direction and is close to making a new high.

For all series where a graph is available,

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How you can buy a home with a low-down-payment FHA mortgage

Many people consider homeownership part of the American dream — but can’t dream of landing a traditional mortgage. That’s why FHA loans exist.

These loans that are backed by the Federal Housing Administration are popular with first-time buyers and those with lower incomes. While you might need a credit score of 620 for a conventional loan, you could be approved for an FHA loan with a score of 500. And you could be eligible for a down payment of only 3.5%.

They’re not just for new buyers, either. You can use your FHA loan to refinance your mortgage or even repair an older home.

Sound appealing? FHA loans do offer some attractive features, but they may not be right for everyone.

How do FHA loans work?

Jirapong Manustrong / Shutterstock

Congress established the Federal Housing Administration in 1934 to help borrowers get a mortgage, especially those who would otherwise have trouble qualifying.

FHA loans are insured by the government agency. So while the loans are issued by private lenders, the FHA is taking on the risk. If you can’t pay your debt, the government steps in to pay the lender.

With less risk involved, lenders have the confidence to be a bit more lenient with their underwriting standards. Even if they don’t have pristine credit, today’s borrowers can secure FHA loans with historically low mortgage rates and lower down payments.

But the FHA limits how much you can borrow, based on where you live.

The maximum FHA loan for a single-family home in a low-cost county is $331,760. But in more expensive housing markets, that number will rise higher toward the upper limit of $765,600. The Department of Housing and Urban Development (HUD) offers a search engine to help you find the limit in your area.

Mortgage insurance

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Key Income Tax Changes for Mortgage Interest

Congress keeps chipping away at itemized deductions like the one for mortgage interest. This includes the latest changes under the Tax Cuts and Jobs Act (TCJA) for 2018 through 2025. The good news: Generally, you can still deduct most or all of the mortgage interest you pay if you continue to itemize deductions on your personal tax return.

Background: Prior to the TCA, you could deduct the interest paid on either acquisition debt or home equity debt, or both, within generous limits.

  • Acquisition debt: This is defined as a debt where you use the mortgage proceeds to buy, build or substantially improve the home. Typically, acquisition debt represents the main part of a mortgage interest deduction. To qualify for the write-off, the loan must be secured by a qualified residence, such as your principal residence or a second home like a vacation home. The interest is deductible on loans up to a $1 million threshold.
  • Home equity debt: When permitted by state law, you previously could deduct the interest on home equity loans secured by a qualified residence, regardless of how the proceeds were used. With a home equity debt, deductions were limited to interest paid on the first $100,000 of debt. Furthermore, the loan amount could not exceed your equity in the home.

Along with other itemized deductions, mortgage interest deductions are claimed on Schedule A of Form 1040. They were subject to the “Pease rule” reducing itemized deductions of high-income taxpayers.

But the TCJA tightened up the rules, beginning in 2018. Notably, it imposed these three changes.

  1. The threshold for deducting interest paid on acquisition debt is lowered from $1 million to $750,000. This applies to loans originating after December 15, 2017 (or April 1, 2018 if there was a binding contract in place before December
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