Great Lakes, Great Times

Home Mortgage Rates in Michigan

Detroit Skyline Panorama.

Michigan real estate has faced a unique set of challenges given the recent fluctuations in the U.S. auto market. While the bankruptcies and bailouts of both Chrysler and General Motors have had a dramatic and far-reaching impact on the overall economy, these events also affected real estate prices throughout the state. Despite these unusual forces, the general prices levels, mortgage options and foreclosure procedures are important to understand before participating in the market. Through a thorough review of the various factors that affect Michigan real estate, you should be able to approach the market with confidence.

Michigan Real Estate Prices

University of Michigan in Ann Arbor.

Michigan is an interesting blend of price levels that ranges from the very high-end to low-income areas. Ann Arbor’s college ambience boasts vintage homes that raise the general price level, counteracting the depressed areas of Detroit that are on the other end of the spectrum. The result of this stark dichotomy is that the average price of level across the state is in line with the rest of the country. Overall, the recent average home price within Michigan is between $260,000 and $320,000. As way of reference, the average in both California and New York is upwards of $400,000.

While some experts believe that a recovery within the real estate market on a national level has begun, home prices have fallen by 30% or more in many Michigan neighborhoods. Furthermore, the poverty and devaluation present in Detroit has reached such extreme levels so as to warrant national attention; some reports of “homes” being sold for under $1000 have recently circulated. While these instances may be limited, and the conditions in Detroit are not indicative of conditions in the state as a whole, this anecdotal evidence provides a glimpse of some of the extremes that can be reached.

The Technology Push

Vintage Green Ford Pickup.

To counteract some of the affects of the meltdown in the automotive industry, and the resulting economic hardships that have been caused, Michigan has begun offering major tax incentives to technology companies that relocate to the state. The state seems to have multiple goals in making this push, with economic development being the primary objective. Additional goals include working to change the state’s image from one of old economy polluter to one of green-friendly tech haven. The Michigan political leadership seems to have taken on the task of trying to become home of the tech corridor of the Midwest.

To this end, the state has deemed this initiative “The Michigan Advantage,” and cites the following industries as the primary sources of growth in coming years: alternative energy, automotive engineering, life sciences, homeland security and defense, advanced manufacturing, and film. By focusing their efforts in these areas, the leadership hopes to attract new jobs to the state, and to create jobs for the large number of students that graduate from their universities each year. The important byproduct of this program is that it is already beginning to help with stabilizing prices.

Downtown Lansing, Michigan.

Available Mortgage Types in Michigan

Fixed Rate Mortgages – The 30-year fixed rate mortgage is the most common type of mortgage and is still the preference of many Michigan borrowers. Carrying fixed interest rates for the life of the loan, and occasionally available with maturities of 15 years, these are recourse loans (see the discussion on foreclosure procedures below). Rates in Michigan tend to be competitive with those throughout the Midwest and in line with the rest of the country.

Adjustable Rate Mortgages (ARMs) – While almost all ARMs have maturities of 30 years, there are two important time measure of which to be aware: the length of time for which the original rate will remain in effect before the original reset, and how often thereafter the loan can reset. The initial interest rate on this type of loan tends to be lower than those available on a fixed rate loan. This is true because with an adjustable rate, the lender has a degree of protection. If rates in the general market rise, the rate that the lender will receive will reset higher. While there are usually caps, an adjustable rate affords the lender a chance to keep their loans competitive as the market changes. This type of loan is most appropriate for borrowers who believe that rates will remain low or for those who believe that they will move before the ARM is able to reset high enough to make it the more expensive option.

Interest-Only Loans – Once much more common, under an interest-only option, the borrower is only responsible for paying the interest due on the loan. This lasts for a limited period of time – sometimes as long as ten years, while sometimes as short as three. After the initial period, the borrower then must begin making both principal and interest payments. This type of loan has both advantages and disadvantages. On the positive side, by front-loading the amount of interest paid by the borrower, taxes are reduced – interest paid on one’s principal residence is tax deductible. On the negative side, once the borrower enters the repayment phase, the monthly payment amount may increase to a level beyond that of what the borrower can afford. Loans like these helped to create much of the subprime problems that caused the real estate bubble to burst. These loans can be an attractive option if they are properly structured, creating an amortization schedule that keeps payments stable over the course of the loan.

Flexible Payment Mortgages – During the days when nobody, lenders included, believed that property values could decline, this was a popular option. With this type of mortgage, the borrower was allowed to skip a number of payments, to make a principal and interest payment, or to make only an interest payment. Mostly eliminated, this option is still occasionally available. The reason lenders, believing that property values could never fall, would make such a loan, is that they assumed that if they were forced to foreclose, their capital was safe.

Home Equity Lines of Credit and Loans (HELOC) – These two options allow a homeowner to borrow money against the value of his or her home. With a line of credit, the loan acts like a credit card that can be drawn upon and repaid on a flexible schedule. A home equity loan functions more like a traditional mortgage, providing the borrower with a single lump sum. These are often used alongside a large conforming mortgage, rather than a jumbo loan (amount greater than $417,000), because the blended rate of the two loans tend to be more attractive.

Grand Rapids.

Michigan Foreclosure Laws

Under Michigan law, both lenders and borrowers have certain rights and responsibilities in the foreclosure process. While every state has slight differences, most strive to balance the interest of each.

  1. Both mortgages and deeds of trust may be used by the lender when loaning money to a homeowner. Under a deed of trust, the lender is the beneficiary of the trust that is created by the document. The effect of this is that in the case of foreclosure, the trustee is allowed to proceed against the property without the need to involve the court. This is known as a non-judicial foreclosure.
  2. In Michigan, a trustee sale is referred to as a foreclosure by advertisement. This is the primary type of foreclosure used in the state. This is an example of one of the subtle differences or peculiarities that each state follows.
  3. Borrowers are permitted to redeem their loans after a foreclosure has taken place. This means that after a property has been sold by the lender due to a default by the borrower. For this to occur, the homeowner pays the lender the amount that the property was sold for, plus interest at the same rate at which the mortgage was originally written. Lenders do not like this feature because it leaves these matters open for longer than would otherwise be the case.
  4. Under either a judicial or a non-judicial foreclosure, the lender can collect any deficiencies that exist between the amount received by the lender from the sale of the property and the principal balance of the loan. This is the meaning of a recourse loan. If the lender uses a non-judicial foreclosure, its rights are significantly limited relative to when a judicial foreclosure is used.

As is the case in most states, legislators in Michigan are regularly looking for ways to both protect their citizens and to ensure orderly lending practices – this is evident from the major push that has been made under the Michigan Advantage campaign. The recent financial crisis has created new pressures to update laws from both the perspective of the lender and from the point of view of the borrower. As a result, homeowners are encouraged to keep on top of changes that may potentially have a dramatic impact on their rights and responsibilities, particularly in case something goes wrong in the lending process – there is no more powerful tool than knowing one’s rights. While this information is not comprehensive, it should give one a good baseline to begin a more thorough research process.

Detroit Skyline at Night.