Mortgages and More

Mortgages and More

If you have a mortgage or are contemplating purchasing a primary residence, second home, or even an investment property, you might be pleasantly surprised to learn rates near 3% are becoming commonplace for many mortgage structures.  

Generally, mortgages come in two flavors:  fixed rate or adjustable rate.   Fixed rate mortgages have rates that don’t change (i.e. are fixed) for the entire length of the loan.  Typically, fixed rate mortgages range in lengths of 10, 15, 20 and 30 years.  Adjustable rate mortgages (ARMs) are amortized over 30 years with a fixed rate for the initial period of the loan (generally 3, 5, 7 or 10 years) and then the rate adjusts annually for the remaining years. 

Mortgage Strategies

Selecting the most appropriate mortgage depends on how long you intend to keep the mortgage.  For instance, you may plan on paying down your mortgage or you may plan to own the mortgaged property for a specified length of time.  Generally speaking, the longer a mortgage has its rate fixed, the higher the interest rate.  If possible, keep the rate fixed for a period at least as long as you intend to keep the mortgage.  Remember, an ARM is a 30-year mortgage but can be fixed for a certain period, say 10 years.  If your plan is to stay in your home for a while and then move within 10 years, a 10 year ARM would be an appropriate loan structure to consider.  It is also important to consider the costs of refinancing including title, escrow, appraisal and recordings.

Mortgage Interest Tax-deductibility

Interest on mortgages remains one of the few expenses you can still deduct from your taxes.  However, the interest is only deductible for the first $750,000 of the mortgage if married and $375,000 if filing separately.  Of course, you can have a larger mortgage but only a portion of the interest is deductible.  The Tax Cuts and Jobs Act of 2018 did provide a “Grandfather” clause that allows higher interest deductibility limitations ($1 million and $500,000) for indebtedness incurred prior to December 16, 2017.  Importantly, this higher limitation is also extended to the refinancing of the grandfathered indebtedness.

Conforming Mortgages versus Jumbo Mortgages

As the name suggests, conforming mortgages have very specific characteristics including loan size and structure as well as property type and credit score.  If your loan does not meet the specific criteria, then it is non-conforming.  Jumbo loans are a type of non-conforming loans with loan values above conforming loan limits.  The size of your mortgage matters as does the location of your property.  Conforming loans have size limits based on the property’s zip code.  The national standard loan limit is currently $510,400 for a single-family home though, in high-priced zip codes, limits could be as much as 150% higher or $765,600. 

We Can Help You

Covington’s expertise in investment management is well known.   However, perhaps it is less known that we help our clients with all aspects of their financial lives including financial planning, trust and estates, tax strategies, business planning and yes, borrowing needs such as mortgages.  We can review your existing mortgage and help navigate the complexities of selecting the most appropriate mortgage for you.

A key benefit for Covington clients is access to our dedicated banker at Schwab Bank who, in conjunction with Quicken Mortgage, has created a premier experience for the borrower.  Schwab provides very attractive mortgage products with low closing costs and Quicken provides a dedicated team to handle the loan application, document gathering and approval process.  Schwab also offers discounts up to three quarters of a percent off base mortgage rates based on your account values held at Schwab (excluding retirement accounts such as IRAs).

Now may be a great time to analyze if it makes sense to refinance.  We welcome the opportunity to help and look forward to talking with you regarding all of your financial needs.