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Your Guide to the Housing and Mortgage Markets; The Martini Factor (August 29 – September 5, 2022 Economic Update)

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The Martini Factor is curated by Certified Mortgage Advisor and Raleigh Mortgage Broker Kevin Martini to provide a glimpse of what is likely to impact Raleigh mortgage rates this week.  

The top 2 items likely to impact Raleigh mortgage rates this week

The ongoing market reactions to Powell’s speech last week.

Federal Reserve Chairman Jerome Powell gave a speech last Friday(August 26, 2022) at the annual Jackson Hole Economic Symposium indicating his very hawkish view and that the Fed’s fight against inflation is likely to cause pain throughout the economy. He also indicated that rate hikes will continue until inflation subsides. Stocks plunged on Friday, and mortgage bonds opened this week sharply lower. In fact, bond yields are at their highest levels since 2007. This indicates that mortgage pricing will likely worsen this week, as bond investors continue to process this news.

The Economic Reports this week.

This week’s economic calendar is quite full. The crescendo will be Friday’s always-important jobs report. The jobs report came out much stronger than market expectations last month, and investors are expecting the job numbers to cool a bit this month. It will be interesting to see whether that happens, and how the market will react. In the meantime, the JOLTS Job openings report is scheduled for release on Tuesday, along with the Consumer Confidence report. Any of these reports could trigger a market reaction.

Oh by the way…

It is never too early to start to explore your homeownership options and you are not too late either.  The first part of the homeownership journey is the loan and then after you have the certainty and being armed with price and cost clarity, the second step is to go find your home. The Martini Mortgage Group offers trusted advice with a frictionless digital mortgage process that provides certainty.  To contact Mortgage Strategist with the Martini Mortgage Group simply call: (919) 238-4934.

How does the Capital Gains Tax work by Kevin Martini

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There are four things to you should know and understand about the Capital Gains Tax; what is the Capital Gains Tax, how is the Capital Gains Tax calculated, what is the the tax rate for Capital Gains Tax and the potential way to avoid or defer Capital Gain Tax. 

(IMPORTANT NOTE: This article is provided for information purposes ONLY and does not constitute legal, tax or financial advice. Please consult with a qualified tax advisor for specific advice pertaining to your situation.  For more information on any of these items, please reference IRS PUBLICATION 523 for Primary Residence or IRS PUBLICATION 527 & IRS PUBLICATION 544 for Investment Properties.)

WHAT IS THE CAPITAL GAINS TAX?

The Capital Gains Tax is a tax paid upon selling a capital asset (e.g. stocks, bonds, jewelry, real estate) based on the amount the capital asset appreciated during the period of ownership of the capital asset.  

The Capital Gains Tax is a tax that you pay on the profit from the sale of any capital asset, including real estate.

Raleigh Mortgage Broker Kevin Martini

HOW DO YOU CALCULATE CAPITAL GAIN?

To understand the Capital Gains Tax, one must first understand “basis.” Basis, as it related to real estate, is the cost of buying, building, or improving a property. For illustration, if you paid $500,000 for a property, and spent $100,000 in improvements over time of ownership, your basis would be $600,000. If you sell the property for $1,000,000 and pay $80,000 in closing costs, your profit on the sale of the property would be $320,000. You would then need to pay capital gains taxes on that profit.

WHAT IS THE CAPITAL GAINS TAX RATE?

The long-term Capital Gains tax rate for the 2022 tax year are 0%. 15% or 20% of the profit.  For most tax payers, the Federal Capital Gains Tax rate is currently 15% however it is 0% if you’re in the lowest income tax bracket and 20% if you’re in the highest income tax bracket. 

In the example previously mentioned (i.e. you sold a property for $1,000,000 and your cost basis was $,680,000 and you profited $320,000) you’d need to pay $64,000 in taxes if your Capital Gains Tax rate is 20% or $48,000 if your Capital Gains Tax rate is 15%.  In addition, you may also have to pay a state tax and a 3.8% federal Net Investment Income Tax (NIIT). Again, this article is provided for information purposes ONLY and does not constitute legal, tax or financial advice. Please consult with a qualified tax advisor for specific advice pertaining to your situation.

IS THERE ANY WAY TO AVOID OR DEFER PAYING THE TAX?

Perhaps. If the property is your primary residence, and you’ve lived there for 2 out of the past 5 years, you may be able to exclude some or all of the capital gain from taxes with what is called a Principal Residence Exclusion. With a Principal Residence Exclusion, a certain portion of the capital gain is excluded from tax. In the 2022 tax year, married couples can exclude $500,000 of capital gain from tax. Individuals or married couples filing a separate tax return can exclude $250,000 of gain from tax. 

In the example mentioned previously (i.e. you sold a property for $1,000,000 and your cost basis was $,680,000 and you profited $320,000), the entire $320,000 would be excluded from tax if this was your primary home and if you were married, filing a joint tax return. This means that you could save up to $76,160 by using this exclusion (no capital gains tax and no 3.8% NIIT)! 

If the property is an investment property, you may be able to defer the tax by using a 1031 Exchange. With a 1031 Exchange, A 1031 Exchange you may be able to defer the capital gains tax on the sale of investment property if you roll over all the sales proceeds into a new investment property.

1031 Exchanges are ideal for long-term real estate investors

Raleigh Mortgage Broker Kevin Martini

GET MORTGAGE HELP FROM THE MARTINI MORTGAGE GROUP

If you have additional questions on Capital Gains Tax or anything mortgage, let us connect. Unlike other mortgage companies, the Martini Mortgage Group takes a fiduciary approach. That means that the advice and products we offer exist to serve your interests ahead of ours. Give us a call: (919) 238-4934

What is “APR” and why does it matter?

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What is “APR” (Annual Percentage Rate), when is it useful and when is it not useful? 

APR is simply one of many measurement of the cost of your loan and it may not be the most accurate measurement in your situation since it is calculated a borrower will  pay over the life of the mortgage term. 

Kevin Martini, Certified Mortgage Advisor

WHAT IS APR?

The federal government requires all Raleigh mortgage lenders to disclose the “annual percentage rate” (APR) whenever they advertise a loan program. APR is calculated by adding some of the costs you pay at closing to the total interest that you’ll pay over the life of the mortgage. An annual interest rate, (a.k.a. APR) is then calculated based on that total number. 

What included in APR calculation?

 Origination Charges and Points, Processing and Underwriting Fees, Mortgage Insurance (monthly and upfront), Closing Agent Fees Retained by Mortgage Company, or Closing Fees in Excess of What You’d Be Charged if You Paid Cash, Tax-related Service Fees, Administrative and Wire Transfer Fees, Pre-paid Interest

What is NOT included in APR calculation?

Application Fees, Appraisal Fees, Credit Report Fees, Title Fees & Title Insurance, Pest or Flood Hazard Inspection Fees, Stamp and Transfer Taxes, Pre-paid Escrows for Taxes, and Insurance

WHEN IS APR USEFUL?

When you’re trying to compare two loan programs that may have different interest rates and/or closing cost scenarios, APR can help you turn the scenarios into an “apples-for-apples” comparison. For example, if one loan has a higher interest rate and lower closing costs, is that a better deal than another loan program with a lower interest rate and higher closing costs? Comparing the APR on both programs may be useful in that scenario.

WHEN IS APR NOT USEFUL?

The main problem with APR is that it doesn’t take into account how long you will keep the mortgage. Most people don’t keep the same mortgage for its entire term of 30-years. Chances are that you’ll probably refinance or sell your home at some point before the loan ends in 30-years. Therefore, when you compare your mortgage options, it’s probably smarter for you to look at what your total costs will be over 5, 7 or even 10 years vs. focusing entirely on comparing the APR. Remember, APR is simply one measurement of the cost of your loan and it may not be the most accurate measurement in your situation.

CERTIFIED MORTGAGE ADVISOR KEVIN MARTINI BOTTOM LINE 

Your mortgage is most likely your single largest debt, and your home is most likely your single largest investment. APR may not be the proper metric to measure is you have the lowest cost of borrowing. The best way to avoid traps and make smart choices is to work with a Certified Mortgage Advisor with the Martini Mortgage Group. Contact us so we can get started!