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It's Tax Time

Headlines in large point type on the front page of today’s Bend Bulletin newspaper (www.bendbulletin.com) proclaimed that “Deschutes land values soar”. The article by reporter David Fisher, citing tax records of Deschutes county’s tax assessor and billings which are now being mailed out, reports land value increases of more than 30% over the prior years billings.

According to Fisher, this is the largest increase in eight years - and amounts to a total additional tax valuation of $7.4 billion. This total increase divides up between additions of new properties to the county’s tax rolls of $1.9 billion and $5.5 billion for existing properties, a 26% valuation increase for this later group. All figures for valuation are as of January 1, 2006, reflecting gains over the previous year (1/1/2005 – 1/1/2006.)

While the increased tax valuations for all existing properties amounts to a hefty 26%, the good news for those owners is that Oregon law limits to 3%, the amount that any individual property’s tax can be increased in one year. As of this years billings, existing properties valuation increases averaged just 2%.

But Deschutes county land and real property is not immune to recent market downturns at the national level. Locally, sales prices do continue to rise, but more slowly than 2005 levels. And the volume of home sales is also down.

From a long term view of tax valuation nationwide, there is a widening gap between real market value (what properties are actually selling for) and assessed values. This phenomenon is caused by a number of factors, one of which is rapid appreciation and a lag in reassessment by tax authorities. Another, as mentioned earlier, is local and state laws placing caps on property assessment valuations. In Deschutes county the gap is currently such that only about 52% of the county’s total market value is reflected on tax bills.
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Article by Yon Olson, President of Accelerated Capital, Inc. – A Bend Oregon loan and mortgage company specializing in home and commercial real estate loans for all credit types. Call Yon at 541.617.0876 or visit us online for your Bend Oregon mortgage http://www.acc-cap.com/

Understanding Debt Coverage Ratio

A debt coverage ratio, also known as the debt service coverage ratio, is a popular benchmark used in the measurement of an income-producing property’s ability to produce enough revenue to cover its monthly mortgage payments. To calculate a property’s debt coverage ratio, you first need to determine the property’s net operating income. To do this you must take the property’s total income and deduct any vacancy amounts and all operating expenses. Then take the net operating income and divide it by the property’s annual debt service, which is the total amount of all interest and principal paid on all of the property’s loans throughout the year.

If a property has a debt coverage ratio of less than one, the income that property generates is not enough to cover the mortgage payments and the property’s operating expenses. A property with a debt coverage ratio of .8 only generates enough income to pay for 80 percent of the yearly debt payments. However, if a property has a debt coverage ratio of more than 1, the property does generate enough revenue to cover annual debt payments. For example, a property with a debt coverage ratio of 1.5 generates enough income to pay all of the annual debt expenses, all of the operating expenses and actually generates fifty percent more income than is required to pay these bills.

Let’s say Mr. Jones is looking at an investment property with a net operating income of $50,000 and an annual debt service of $30,000. The debt coverage ratio for this property would be 1.2 percent and Mr. Jones would know the property generates 20 percent more than is required to pay the annual mortgage payment.

If you want to purchase an income property, chances are your lender is going to require a minimum debt coverage ratio. The debt coverage ratio allows the lender to see if a property generates enough income to cover the property’s operating expenses and debt service. To a lender the higher the debt coverage ratio, the less risk there will be with the investment. Debt coverage ratio requirements vary from lender to lender with some being as low as 1.1 and others charging as much as 1.35. Most lenders will accept a debt coverage ratio of 1.2 or above.
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Article by Yon Olson, President of Accelerated Capital, Inc. – A Bend Oregon loan and mortgage company specializing in home and commercial real estate loans for all credit types. Call Yon at 541.617.0876 or visit us online for your Bend Oregon mortgage http://www.acc-cap.com/

Assessing an Adjustable Rate Mortgage

When a homebuyer is looking into an adjustable rate mortgage, it is not uncommon for lenders to try to sell the borrower on one aspect of the loan while ignoring the points that really should matter. If you want to ensure you are getting the mortgage that’s best for you, there are a few things you need to know and some questions you have to ask.

COFI, Libor and MTA

When a mortgage broker starts talking jargon with words like COFI, Libor and MTA it can be quite overwhelming. What you need to know about these terms is that they refer to the interest rate index the loan uses. While the index of a loan is definitely an important factor, it is by no means the only thing you should base your loan decision on.

Initial Rate Period and Adjustment Periods

In addition to paying attention to which index an adjustable rate mortgage is linked to, you should look into the mortgage’s initial rate period. The longer the initial rate period, the longer your initial rate will be locked in. Also look into the subsequent adjustment period. The further apart adjustments are, the less havoc they can wreak.

Fully Indexed Rate

It is also important to know the most recent index value and margin. If an index has a current value of 3 percent and a margin of 2.75 percent, the fully indexed rate is 5.75 percent. If the index changes during adjustment periods, your interest rate will change as well. For example, if the index’s rate goes up to 4.5 percent from 3 percent, the fully indexed rate will go up to 7.25 percent.

Rate Adjustment Caps

Rate adjustment caps play an extremely important part in an adjustable rate mortgage decision. The rate adjustment cap limits the amount an interest rate can change at any given time. Rate adjustment caps usually range from one percent to five percent.

Maximum Interest Rate

In addition to rate adjustment caps, the maximum interest rate is an important part of an adjustable rate mortgage. The maximum interest rate is the highest interest rate allowed on the ARM over the life of the loan. The maximum interest rate can vary drastically from loan to loan, so make sure you are getting a loan with the lowest maximum interest rate possible.

Article by Yon Olson, President of Accelerated Capital, Inc. – A Bend Oregon loan and mortgage company specializing in home and commercial real estate loans for all credit types. Call Yon at 541.617.0876 or visit us online for your Bend Oregon mortgage http://www.acc-cap.com/

Adjustable-Rate Mortgages vs. Fixed-Rate Mortgages

By Yon Olsen

Adjustable-Rate Mortgages vs. Fixed-Rate MortgagesBy Yon Olsen
Many people have a hard time choosing between an adjustable-rate mortgage and a fixed-rate mortgage. It’s not hard to understand why someone would be concerned. Do you opt for the lower up-front rate and hope for the best in years to come or do you go for the always-safe fixed rate that never changes? The answer to the question actually depends on your specific needs and circumstances.

Let’s say you’re purchasing a home that you only plan to stay in for one or two years. An adjustable-rate mortgage offering a lower initial interest rate than available fixed-rate mortgages would make more sense. However, if you plan on staying in the home for the rest of your life, an adjustable-rate mortgage can be quite a gamble. As people who took out adjustable-rate mortgages during the lending industry’s record lows a few years back can tell you, interest rates can skyrocket at the drop of a hat.

The best way to figure out whether you should choose an adjustable-rate mortgage or go with a fixed-rate mortgage is to estimate what will happen to the loan’s interest rate and payments in specific scenarios. By calculating worst-case scenarios, you can see if you would be at risk of losing your home should interest rates spiral out of control. Calculating “what-if” scenarios can also help you determine if a fixed-rate mortgage would actually give you a lower monthly payment than your adjustable-rate mortgage if interest rates take even a slight hike.

Let’s say you were buying a long-term home for $250,000 and you were thinking about taking out a 3/1 ARM with an interest rate of 5 percent but that rate would only hold for three years. After that three-year period, the rate would fluctuate according to the Treasury index plus a margin of 2.5 percent. On the other hand you could take out a fixed-rate mortgage with a 6.5 percent interest rate. What should you do?

You can take the adjustable-rate mortgage, but if your interest rate goes up just one percent a year, five years after you buy your home you’d be paying more for the adjustable-rate mortgage than you would have paid had you taken out the fixed-rate mortgage.

In the above scenario, a $200,000 30-year ARM with an interest rate of 5 percent would cost you approximately $1,075 a month. If that interest rate increases by just 1 percent during the first adjustment period, your monthly payment will jump to approximately $1,190. If the same thing happens at your next adjustment, your payment amount goes up to more than $1,300. One more time and your payment is already at about $1,430 a month. To make matters worse, the amount of your payment applied to principal is going down and the amount applied to interest is going up. If you would have opted for the fixed-rate mortgage with a 6.5-percent interest rate, your payments would have stayed at a steady $1,264 a month. Not a pretty situation.

While an adjustable-rate mortgage may be a better choice for short-term home purchases, people who plan on living in their home for many years to come may want to avoid the “what if” scenario and opt for a fixed-rate mortgage.

Article by Yon Olson, President of Accelerated Capital, Inc. – A Bend Oregon loan and mortgage company specializing in home and commercial real estate loans for all credit types. Call Yon at 541.617.0876 or visit us online for your Bend Oregon mortgage http://www.acc-cap.com/

Welcome to Bend Oregon Mortgage Update BLOG

Central Oregon, and especially Bend, is among the few areas nationwide that are still enjoying robust growth in real estate sales and property values. If you live in Central Oregon, or are considering locating or investing here, you will find this BLOG a big help in your efforts to keep abreast of the latest happenings. So, WELCOME to BendOregonMortgage.blogspot.com!

Please feel free to post your questions, answer other's inquiries, and leave any news or articles you come across in your own efforts to take advantage of this remarkable situation in our area.

I will be adding articles here ASAP, so keep checking back for more posts to keep you informed.

If you wish to contact me directly, my Email is acceleratedcap@yahoo.com.

Yon

P.S. I also have a website for my Accelerated Capital, Inc. - a Bend Oregon Mortgage brokerage. You will find additional news and articles there.