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On Tuesday, November 8, voters chose Donald Trump to be their President of the United States. Throughout his campaign, he stressed that the Dodd-Frank Act has made it impossible for bankers to properly do their jobs.Screen Shot 2016-12-28 at 11.03.21 AM

Trump argued that under the Dodd-Frank ACT, the regulators run the banks. In October, he told The Hill: “The bankers are petrified of the regulators. And the problem is that the banks aren’t loaning money to people who will create jobs.”

The 2010 law—named the Wall Street Reform and Consumer Protection Act—deals with the oversight and regulation of financial institutions. While it is unclear whether Trump intends to dismantle the act, what is clear is that changes are in store under a Trump presidency.

So, what can the financial sector expect?

Georgetown Law Professor Arthur Wilmarth predicts that smaller banks—including credit unions and community banks—may benefit from regulatory relief under President Trump, resulting in stronger financial footing.

If true, that’s good news for Kerndt Brothers Bank and you, our customers. Since 1856, when Franklin Pierce was President, we’ve been helping small businesses and individuals across Iowa succeed and prosper. As one of our many services, we offer very competitive mortgage loans. Therefore, we are monitoring the impact of the election and upcoming administration on mortgage rates.

One day after the election, Mortgage Stanley strategists claimed that a Trump victory would cause volatility in the mortgage market. They also claimed he is likely to change or privatize huge government players like Fannie Mae and Freddie Mac.

Brad Hunter, chief economist for HomeAdvisor.com., foresees three potential changes under the Trump administration. He believes the president-elect may (1) appoint new governors to the Federal Reserve Board, including a new Fed Chair. Why? According to the New York Times, Trump has advisors that are critical of the Federal Reserve. Hunter also predicts that the president-elect could (2) cut taxes which may increase interest rates, and he may (3) renegotiate the federal debt. He believes each change—or all three—would increase mortgage rates.

Though the mainstream media posited that a “Trump effect” raised mortgage rates last month—to nearly four percent—there is no direct tie between his election and this increase. As the saying goes: Causation does not imply correlation. What is real?

Nationwide, there is a shortage of homes for sale. It’s a seller’s market. This deficiency in listings has bumped up the price of homes. However, according to Zillow.com, increasing mortgage rates after Trump’s election have not had any adverse impacts on U.S. home purchases.

As most investors know, mortgage rates tend to fluctuate with yields on the 10-year Treasury note. BankRate.com reports that:

• The benchmark 30-year fixed-rate mortgage rose 2 basis points to 4.15 percent. The benchmark 15-year fixed-rate mortgage inched up 1 basis point to 3.4 percent.

• The average 5/1 adjustable-rate mortgage fell 3 basis points to 3.45 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

• Mortgage applications fell 0.7 percent from a week ago (per Mortgage Bankers Association).

It’s important to note that inflation is not necessarily a bad thing. It’s usually the result of an active and booming economy. In a cost-push type of inflation scenario, the cost of doing business boosts prices. That’s true in the housing sector too.

Rather than contend with climbing rates, some experts suggest refinancing now to lock in rates. Rick Sharga, executive vice president of Ten-X, believes that mortgage rates will rise as the Federal Reserve lifts short-term interest rates.

“The likelihood of Fed rate increases over the next 15 months, means that you should jump off the fence now,” he adds.

At Kerndt Brothers Bank, we’re here to help. We offer three different types of refinancing mortgages to replace your current loan. On average, refinancing your mortgage costs between 2-3 percent of the total amount you are financing. We’ll discuss how long it might take for you to recoup your closing costs through reduced monthly payments.

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Refinancing makes sense if you wish to change loan types, want a lower monthly payment, or would like to change the term of your loan. Talk with one of our experienced mortgage lenders to see which of the following types of loan might be best for you.

1. Rate and term refinance: Our mortgage lenders will write a new loan to replace your current home loan. A refinance loan may offer you a lower mortgage rate, shorten the total length of your loan (i.e. from 30 years to 15 years) so you can build up equity more quickly, change your type of loan (fixed to adjustable, or vice versa) or all three. If you plan to stay in your house for at least five more years, a rate and/or term refinance loan makes sense. We’ll help you lock in a lower interest rate and guide you toward paying off your house more quickly.

2. Cash-out refinance: If you’ve already built up considerable equity in your current home and you need cash for other expenses (for example, home improvements or education), a cash-out refinance may be a good option for you. Let’s say your home is worth $200,000 and you’ve already paid half that amount. That means you have $100,000 in equity. However, when you do a cash-out refinance, you can refinance for more than the $100,000 you owe. This allows you to pay off your existing mortgage and closing costs and gives you extra money for other purchases. Roughly 80 percent of homeowners who refinanced received cash back at closing, according to Freddie Mac.

3. Cash-in refinance: If you have a lump sum of money, a cash-in refinance makes a lot of financial sense. Whether you’ve saved cash, gotten a large bonus, received an inheritance, have money sitting in a low-interest bearing account, or sold something of value, there are many ways options for investing your money. Why not put that money into your house? With this type of refinance, you bring money at closing to pay down your loan amount. This extra cash at the start may qualify you for a better mortgage interest rate, help you avoid paying private mortgage insurance (PMI) or reduce the overall term of your loan. Who wouldn’t appreciate saving hundreds of dollars each month or many thousands over the term of a loan?

According to the Federal Reserve, there are certain times when refinancing doesn’t make sense, including when:

1. You plan to move in the next few years. There are costs and fees associated with refinancing. While you may save money in the short term, the total savings may not be more than the total refinancing costs. At Kerndt, we’ll help you determine when you can plan to break even after refinancing. This will help guide your decision whether refinancing is a good option for you.

2. Your current loan includes a prepayment penalty. Some lenders charge you an extra fee for paying off your mortgage loan early. Weigh this fee against the amount you’ll pay to refinance.

3. You’re had the same loan for a long period of time. Why? As your loan begins to wind down, a larger chunk of your payments is applied to the principal. If you begin again with a refinance, you’ll lose that advantage. Instead, much of your monthly payment will be directed toward interest, not building equity. In other words, refinancing will extend the term of your loan and you’ll pay more interest over the life of the loan.

Since no one is certain what the market will do under the next administration, now may also be a perfect time to buy a home and lock in a lower interest rate. As a lender, we’re required by federal law to provide a “good faith estimate” within three days of receiving your loan application. Once you receive this information, we can discuss estimates for the loan closing costs.

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After the freewheeling and free dealing mortgage lending days of the 2000’s, banks and lenders are much more cautious about financing. Whether you’re a first-time homebuyer, upgrading your home, buying rental property, or purchasing a vacation home, it’s important you know as much as possible about the different types of loans we offer at Kerndt Brothers Bank.

Conventional Fixed-Rate

Fixed-rate home loans are just that, fixed. Once you lock in a rate, your interest rate stays the same for the remainder of your payment schedule. It is a secure, dependable type of loan. If you plan to stay in your home for more than 10 years, this type of loan makes a lot of sense. Depending on your monthly budget, you can choose from 15, 20, or 30 year mortgages. If interest rates fall—unless you refinance your loan—you’ll continue paying the higher fixed interest rate. Rates on 30-year fixed-rate mortgages averaged 3.97% prior to the last Fed rate hike on Dec. 16, 2015, according to Freddie Mac.

An important rule of thumb: The longer the length of your mortgage, the lower your monthly payments. However, if you take 30 years to pay off your home, you’ll pay more over the long haul. If you have the financial resources to do so, you may opt for a 15-year loan, pay more each month, and pay off your house earlier. The personal bankers at Kerndt Brothers Bank will sit down with you to determine the best fixed-rate home loan for you, your lifestyle, and your goals.

Balloon Mortgage

Not all properties or applicants will qualify for or want a conventional fixed rate mortgage. In that instance, we also offer an in-house Balloon Mortgage. This product offers more flexibility for non-conforming property types such as acreages, hobby farms and investment properties. If you plan to move before your loan matures—and you want low monthly payments—a balloon mortgage may be a good fit for you. Most balloon mortgages have a term of either five or seven years but are amortized over 30 years for a lower monthly payment.

At the end of that fixed rate period, a “balloon” payment comes due for the remaining principal and interest balances. You would then re-negotiate the interest rate for the next fixed rate period. The closing costs for this type of loan are typically lower than the conventional fixed rate mortgage.

First Time Homebuyer

For those who have not owned a home in the previous three years, there are various First Time Home Buyer programs available. These programs vary state by state. Here in Iowa, there are many options and resources.

This type of financing allows new home buyers, who do not have sizeable savings, to finance a home with a low down-payment. The terms usually include a 30-year fixed rate and some provide closing cost assistance. There are certain income restrictions and limits to how much you can borrow as these are backed by various government agencies.
A few disadvantages include:

• Price restrictions that may not allow you to buy the house you want
• A loss of program benefits if you sell your home too early
• A limited number of loan types from which to choose
• The possibility of sharing gains with the program if your home increases in value

However, there are also many benefits associated with these types of loans including deferred payments, grants, and long-term loan forgiveness options.

In summary, we’re not concerned about the change in leadership and look forward to the future. As we stated earlier, our bank began when Franklin Pierce was president. From the 14th president of the United States all the way to our current 45th POTUS, Kerndt Brothers Bank has been serving Iowans. Our service and commitment to you has never changed.

Whether you wish to refinance your existing property or purchase a new home, trust the friendly and experienced professionals at Kerndt Brothers Bank to answer all your questions. We’ll offer you flexible terms, low fees, and quick loan approval times. Trust our mortgage specialists to find the home loan for you.

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Disclaimer

The material provided on this website is for informational use only and is not intended for financial or investment advice. Kerndt Brothers Bank and/or its partners assume no liability for any loss or damage resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.