Happy January!
Cheers to 2023! A new year is a new opportunity, full of possibility, hope, and potential. Wishing you a great start to 2023, and health and happiness all year long.
Read on for seasonal tips and discover lifestyle trends to kick off 2023.
Real Estate in the News
2023 Colors of the Year
Thinking about making some vibrant changes to your home this year? Consult the paint companies’ Color of the Year for some inspiration. Find something that fits your style, whether you’re looking to make a bold statement with Pantone’s Viva Magenta, prefer a softer vibe with Redend Point by Sherwin-Williams, or the new neutral aesthetic of Spanish Moss by Krylon. Check out all the top colors for the 2023 to amp up your home decor.
Courtesy of Better Homes and Gardens
Local & Team Events
Be sure to check out our Team events. Might win a prize!
Indianapolis Home Show
JAN 20 – 29, 2023 | Indianapolis, IN
Do your new year goals include revamping old cabinets or installing new flooring? Perhaps you’re into interior design. Whatever it may be, this exhibit is sure to satisfy your home improvement needs.
Click here for more information.
Devour Indy Winterfest
JAN 23 – FEB 5, 2023 | All Over Indy
Enjoy Indy’s city-wide dining experience. Between downtown, east, midtown, north, south, and west Indianapolis, over 100 restaurants will be offering three-course, mouth-watering, value-priced menus for all to devour.
Click here for more information.
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Market Update
Financial Corner
Eight Part Series of Mortgage Rates
Part 1: What is a Mortgage? & Part 2 Basic Parts of a Mortgage
Part 1: What is a Mortgage?
When people want to buy something now, but don’t have (or don’t wish to spend) the cash to buy it outright, they can instead use a loan (aka financing, borrowing, debt). This typically involves an agreement between the consumer and a lender.
A mortgage is simply the financing of a home.
A mortgage allows the consumer to legally own the underlying asset (home). Mortgage paperwork allows the lender to take back or “repossess” the underlying asset (aka “collateral”) if the consumer doesn’t pay as agreed, although the process is much more complex and time consuming. The idea is that if a consumer isn’t willing or able to honor the agreement, the lender can recoup some or all of their initial investment by taking the collateral (i.e. home, car) back and selling it.
What’s in it for the Lender?
Lenders make money by offering loans because there is typically an interest rate attached to the loan.
Interest is additional money beyond amount borrowed that allows the lender to profit from the transaction. In the mortgage world especially, interest and interest rates are fairly complex topics. Other articles in this series will help you learn as much as you want to know about mortgage rates.
Part 2: Basic Parts of a Mortgage
Key Concepts
- Mortgage rates are interest rates on home loans
- There are really TWO mortgage rates: the interest rate (or “note rate”) applied to your loan amount (or “principal”) and the rate implied by certain upfront costs (the “effective rate”).
- APR (Annual Percentage Rate) attempts to convey that “effective rate.”
- Understand the tradeoffs between upfront costs and payments over time
Principal (Definition): the current balance of a loan/mortgage. In the absence of any additional costs or fees, the initial principal balance of a mortgage is whatever was borrowed to buy the home. Let’s say you buy a $200,000 home and are able to make a $10,000 down-payment (an upfront payment that reduces the amount of money borrowed). The principal in this case would be $190,000.
Principal also refers to the remaining balance after a mortgage payment. Each payment is typically contains some interest for the lender and can also contain property taxes, homeowners insurance and mortgage insurance. Whatever is left over goes toward reducing the principal balance (the amount you owe, which is slightly different from a “payoff balance”). In other words, as you make payments, the amount you owe decreases. When that amount reaches zero, you own the home outright!
Payoff vs Principal: If you’ve refinanced or sold a home before, you may have noticed that the amount required to pay off the old mortgage was slightly higher than the principal balance on the mortgage. This occurs because your monthly mortgage payment covers interest charged during the previous month. If you pay-off your loan in the middle of any given month, the lender hasn’t yet collected interest for that month. They’re not going to charge you for the entire month, however, only the number of days between the 1st of the month and the payoff date.
For example, your mortgage payment on June 1st would cover interest for the month of May. If you pay off your loan on June 10th, the lender has not yet been paid interest for those 10 days, and will add them to your payoff amount. This is true for both purchases and refinances. Many lenders charge a small additional fee to obtain the payoff balance for administrative costs associated with an early payoff.
Mortgage Rates are simply the interest rates applied to the principal balance, but there is an important distinction. What most people refer to as “mortgage rates” are actually only part of the equation. The more accurate term would be “note rates.” This refers to the interest rate on the promissory note (an official document that you’ll sign during the mortgage process).
Think of the promissory note and the note rate as a sort of baseline for the overall cost of financing. While it’s true that the note rate is 100% responsible for determining the monthly mortgage payment, it’s typically NOT the only cost of financing. Most mortgages have an “upfront cost” component.
Upfront costs are charged by multiple parties (examples include: lender, appraiser, credit bureau, local government taxes, homeowners insurance companies, attorneys/title company, etc.) Most of these costs will not change regardless of the loan type or the lender, but some will.
Upfront lender-related fees are common. They add to the overall cost of financing. Therefore, the NOTE rate differs slightly from the actual or “effective” rate you’re paying on your money.
The Truth In Lending Act stipulates that lenders must quote that effective rate in the form of APR or annual percentage rate. If you don’t read anything else on APR, it’s important to know that not all lenders calculate them the same way, and APR can’t necessarily be trusted as an apples to apples comparison between two or more lenders.
For the purposes of understanding mortgage rate building blocks, we’ll simply use the term “upfront costs.” Whether we’re talking about the interest portion of your mortgage payment or upfront lender-related costs, it’s all money that ends up going from your wallet to the lender. In most cases, you have some say in dividing up the lender’s upfront income versus their income over time.
For instance, you will typically have the option to pay more upfront in exchange for a lower interest rate. The industry has long referred to this type of extra upfront payment as “points” or “discount points.” Despite any negative connotation from certain financial media pundits, points are neither good nor bad–simply a choice to pay now or pay later.
Only you can decide which way makes most sense for your scenario. The only thing that really matters is the trade-off between the two choices.
If you invest your extra cash and earn a certain rate of return, you may be better off minimizing your upfront costs and putting that money into your investments.
If, on the other hand, you wouldn’t be earning a great return on that money and you know you’ll have the mortgage for a long time, it may make sense to “buy down” the rate with additional upfront cost.
Your lender should be able to show you the difference between those options in terms of the number of months it will take to break-even on the additional upfront cost. For example, you would pay $1200 in extra upfront costs and $14 less per month in scenario B. It would take 86 months to break even because $1200/$14 = 86.
SCENARIO A: Upfront costs: $5000 Payment: $2000 per month
SCENARIO B: Upfront costs: $6200 Payment: $1986 per month
86 months (or 7.16 years) is a fairly typical break-even time frame when you buy-down your rate. Break-evens vary from lender to lender and from rate to rate. In cases where the break-even time frame is 4-5 years or less, it’s an increasingly compelling option for people who plan to keep the new mortgage for a long time and who don’t have a great place to earn a high rate of return.
The bottom line is that it’s your choice and there’s no right or wrong way to do it.
In terms of understanding mortgage rates, the important concept is that of “upfront cost” vs “cost over time.” For any interest rate you hear about or see online, there are certain assumptions underlying that quote. It could be based on higher upfront costs than you had in mind or a higher credit score than you have (read more about how credit and other individual factors can affect rate. You won’t ever be able to know the actual rate until you know what those assumptions are.
NOTE: In lieu of choosing a mortgage with a higher rate and lower upfront costs, you may be able to increase the new mortgage balance in order to pay the costs–sometimes referred to as “rolling in.” This would keep the interest rate the same, but the payment would still be slightly higher because the loan balance is slightly higher. You’d also need to consider the fact that you’ll have more principal to pay off when it comes time to sell or refinance. Even then, this can sometimes be a more appealing option than raising the rate to cover the costs–especially if the upfront cost savings happens to be minimal between the quoted rate and the next rate higher (remember, they vary from rate to rate and lender to lender).
Lifestyle Tips and Tricks
10 Bathroom Design Trends We’ll See In 2023
Ensure your bathroom is a space of calm and relaxation. Refresh your full bath or powder room with timeless hardware details or colorful sinks and tiles. See if any of these new bathroom trends fit your design goals.
11 Best Places to Travel in Winter
New year, new vacation! Though festivities may have passed, there’s still plenty of opportunities for you to keep up your spirits with a weekend—or a week—away. From cold weather activities to sun-filled adventures, there’s a trip waiting for you.
10 Winter Flower Arrangements to Brighten Up the Season
Holiday wreaths and trees may have come down, but you can still keep your home full of florals. Surround yourself with texture, color, and aroma all winter long with easy table top and front door flower ideas.
Courtesy of HGTV
The 30 Must-Read Books This Winter
Start the new year off with a full bookshelf! 2023 has a lot of promising new titles that are sure to keep you turning pages all winter long. Browse the collection of thrillers, romance, short stories, biographies, memoirs, and more!
Featured Listings
Stunning property on 15 acres of land, waiting for a new owner!
2357 East County Road 400 South
5 BD 5 BA 3350 SF $849,900
7320 Wood Duck Court
3 BD 3 BA 2000 SF $289,900
SOLD
Happy January!
Cheers to 2023! A new year is a new opportunity, full of possibility, hope, and potential. Wishing you a great start to 2023, and health and happiness all year long.
Read on for seasonal tips and discover lifestyle trends to kick off 2023.
Real Estate in the News
2023 Colors of the Year
Thinking about making some vibrant changes to your home this year? Consult the paint companies’ Color of the Year for some inspiration. Find something that fits your style, whether you’re looking to make a bold statement with Pantone’s Viva Magenta, prefer a softer vibe with Redend Point by Sherwin-Williams, or the new neutral aesthetic of Spanish Moss by Krylon. Check out all the top colors for the 2023 to amp up your home decor.
Courtesy of Better Homes and Gardens
Local & Team Events
Be sure to check out our Team events. Might win a prize!
Indianapolis Home Show
JAN 20 – 29, 2023 | Indianapolis, IN
Do your new year goals include revamping old cabinets or installing new flooring? Perhaps you’re into interior design. Whatever it may be, this exhibit is sure to satisfy your home improvement needs.
Click here for more information.
Devour Indy Winterfest
JAN 23 – FEB 5, 2023 | All Over Indy
Enjoy Indy’s city-wide dining experience. Between downtown, east, midtown, north, south, and west Indianapolis, over 100 restaurants will be offering three-course, mouth-watering, value-priced menus for all to devour.
Click here for more information.
Market Update
Financial Corner
Eight Part Series of Mortgage Rates
Part 1: What is a Mortgage? & Part 2 Basic Parts of a Mortgage
Part 1: What is a Mortgage?
When people want to buy something now, but don’t have (or don’t wish to spend) the cash to buy it outright, they can instead use a loan (aka financing, borrowing, debt). This typically involves an agreement between the consumer and a lender.
A mortgage is simply the financing of a home.
A mortgage allows the consumer to legally own the underlying asset (home). Mortgage paperwork allows the lender to take back or “repossess” the underlying asset (aka “collateral”) if the consumer doesn’t pay as agreed, although the process is much more complex and time consuming. The idea is that if a consumer isn’t willing or able to honor the agreement, the lender can recoup some or all of their initial investment by taking the collateral (i.e. home, car) back and selling it.
What’s in it for the Lender?
Lenders make money by offering loans because there is typically an interest rate attached to the loan.
Interest is additional money beyond amount borrowed that allows the lender to profit from the transaction. In the mortgage world especially, interest and interest rates are fairly complex topics. Other articles in this series will help you learn as much as you want to know about mortgage rates.
Part 2: Basic Parts of a Mortgage
Key Concepts
- Mortgage rates are interest rates on home loans
- There are really TWO mortgage rates: the interest rate (or “note rate”) applied to your loan amount (or “principal”) and the rate implied by certain upfront costs (the “effective rate”).
- APR (Annual Percentage Rate) attempts to convey that “effective rate.”
- Understand the tradeoffs between upfront costs and payments over time
Principal (Definition): the current balance of a loan/mortgage. In the absence of any additional costs or fees, the initial principal balance of a mortgage is whatever was borrowed to buy the home. Let’s say you buy a $200,000 home and are able to make a $10,000 down-payment (an upfront payment that reduces the amount of money borrowed). The principal in this case would be $190,000.
Principal also refers to the remaining balance after a mortgage payment. Each payment is typically contains some interest for the lender and can also contain property taxes, homeowners insurance and mortgage insurance. Whatever is left over goes toward reducing the principal balance (the amount you owe, which is slightly different from a “payoff balance”). In other words, as you make payments, the amount you owe decreases. When that amount reaches zero, you own the home outright!
Payoff vs Principal: If you’ve refinanced or sold a home before, you may have noticed that the amount required to pay off the old mortgage was slightly higher than the principal balance on the mortgage. This occurs because your monthly mortgage payment covers interest charged during the previous month. If you pay-off your loan in the middle of any given month, the lender hasn’t yet collected interest for that month. They’re not going to charge you for the entire month, however, only the number of days between the 1st of the month and the payoff date.
For example, your mortgage payment on June 1st would cover interest for the month of May. If you pay off your loan on June 10th, the lender has not yet been paid interest for those 10 days, and will add them to your payoff amount. This is true for both purchases and refinances. Many lenders charge a small additional fee to obtain the payoff balance for administrative costs associated with an early payoff.
Mortgage Rates are simply the interest rates applied to the principal balance, but there is an important distinction. What most people refer to as “mortgage rates” are actually only part of the equation. The more accurate term would be “note rates.” This refers to the interest rate on the promissory note (an official document that you’ll sign during the mortgage process).
Think of the promissory note and the note rate as a sort of baseline for the overall cost of financing. While it’s true that the note rate is 100% responsible for determining the monthly mortgage payment, it’s typically NOT the only cost of financing. Most mortgages have an “upfront cost” component.
Upfront costs are charged by multiple parties (examples include: lender, appraiser, credit bureau, local government taxes, homeowners insurance companies, attorneys/title company, etc.) Most of these costs will not change regardless of the loan type or the lender, but some will.
Upfront lender-related fees are common. They add to the overall cost of financing. Therefore, the NOTE rate differs slightly from the actual or “effective” rate you’re paying on your money.
The Truth In Lending Act stipulates that lenders must quote that effective rate in the form of APR or annual percentage rate. If you don’t read anything else on APR, it’s important to know that not all lenders calculate them the same way, and APR can’t necessarily be trusted as an apples to apples comparison between two or more lenders.
For the purposes of understanding mortgage rate building blocks, we’ll simply use the term “upfront costs.” Whether we’re talking about the interest portion of your mortgage payment or upfront lender-related costs, it’s all money that ends up going from your wallet to the lender. In most cases, you have some say in dividing up the lender’s upfront income versus their income over time.
For instance, you will typically have the option to pay more upfront in exchange for a lower interest rate. The industry has long referred to this type of extra upfront payment as “points” or “discount points.” Despite any negative connotation from certain financial media pundits, points are neither good nor bad–simply a choice to pay now or pay later.
Only you can decide which way makes most sense for your scenario. The only thing that really matters is the trade-off between the two choices.
If you invest your extra cash and earn a certain rate of return, you may be better off minimizing your upfront costs and putting that money into your investments.
If, on the other hand, you wouldn’t be earning a great return on that money and you know you’ll have the mortgage for a long time, it may make sense to “buy down” the rate with additional upfront cost.
Your lender should be able to show you the difference between those options in terms of the number of months it will take to break-even on the additional upfront cost. For example, you would pay $1200 in extra upfront costs and $14 less per month in scenario B. It would take 86 months to break even because $1200/$14 = 86.
SCENARIO A: Upfront costs: $5000 Payment: $2000 per month
SCENARIO B: Upfront costs: $6200 Payment: $1986 per month
86 months (or 7.16 years) is a fairly typical break-even time frame when you buy-down your rate. Break-evens vary from lender to lender and from rate to rate. In cases where the break-even time frame is 4-5 years or less, it’s an increasingly compelling option for people who plan to keep the new mortgage for a long time and who don’t have a great place to earn a high rate of return.
The bottom line is that it’s your choice and there’s no right or wrong way to do it.
In terms of understanding mortgage rates, the important concept is that of “upfront cost” vs “cost over time.” For any interest rate you hear about or see online, there are certain assumptions underlying that quote. It could be based on higher upfront costs than you had in mind or a higher credit score than you have (read more about how credit and other individual factors can affect rate. You won’t ever be able to know the actual rate until you know what those assumptions are.
NOTE: In lieu of choosing a mortgage with a higher rate and lower upfront costs, you may be able to increase the new mortgage balance in order to pay the costs–sometimes referred to as “rolling in.” This would keep the interest rate the same, but the payment would still be slightly higher because the loan balance is slightly higher. You’d also need to consider the fact that you’ll have more principal to pay off when it comes time to sell or refinance. Even then, this can sometimes be a more appealing option than raising the rate to cover the costs–especially if the upfront cost savings happens to be minimal between the quoted rate and the next rate higher (remember, they vary from rate to rate and lender to lender).
Lifestyle Tips and Tricks
10 Bathroom Design Trends We’ll See In 2023
Ensure your bathroom is a space of calm and relaxation. Refresh your full bath or powder room with timeless hardware details or colorful sinks and tiles. See if any of these new bathroom trends fit your design goals.
11 Best Places to Travel in Winter
New year, new vacation! Though festivities may have passed, there’s still plenty of opportunities for you to keep up your spirits with a weekend—or a week—away. From cold weather activities to sun-filled adventures, there’s a trip waiting for you.
10 Winter Flower Arrangements to Brighten Up the Season
Holiday wreaths and trees may have come down, but you can still keep your home full of florals. Surround yourself with texture, color, and aroma all winter long with easy table top and front door flower ideas.
Courtesy of HGTV
The 30 Must-Read Books This Winter
Start the new year off with a full bookshelf! 2023 has a lot of promising new titles that are sure to keep you turning pages all winter long. Browse the collection of thrillers, romance, short stories, biographies, memoirs, and more!
Featured Listings
Stunning property on 15 acres of land, waiting for a new owner!
2357 East County Road 400 South
5 BD 5 BA 3350 SF $849,900
7320 Wood Duck Court
3 BD 3 BA 2000 SF $289,900
SOLD
2729 Rothe Lane, Indianapolis, IN
3 BD 2 BA 1664 SF $219,900
122 Northwood Dr, Fishers, IN 46308
3 BD 2.5 BA 2164 SF $340,000
13217 Golden Ash Court
3 BD 2 BA 1336 SF $312,750
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