Mortgage Rates Take a Dip This Summer 2011

According to Washington, the “Great Recession” has been over since June of 2009. Many have scoffed at this pronouncement, feeling it a bit presumptuous on the government’s part. With unemployment still above 9%, interest rates on your savings still down around the 1.2% mark, and the housing market still in an apprehensive state, some believe the government jumped the gun on announcing the end of the recession.

Worse yet, there are signs that we are about to enter a new recession. The forecasts change ceaselessly, one month mortgage rates show a slight increase, the next month the average slips back. What next month will bring is anybody’s guess, but one thing is for certain: if you have been considering purchasing a home over the last year, even with the slight increases and declines, mortgage rates are at an all-time low. Mix that with the considerably diminished asking price of the average house and you have a homebuyer’s heaven.

The 30 Year Mortgage Interest Rate for June 2011 averaged 4.51%, down 13 basis points from May 2011 rate of 4.64%, and 23 basis points lower than the June 2010. If this downward trend continues we could see rates as low as a tantalizing 4.38% by summer’s end. This drop in the interest rate is at least mirrored by the decrease in the cost of purchasing a new home.

Home prices have fallen greatly, over their peak five years ago. According to CNN, the first quarter of this year saw a drop of 5.1% compared to the same time the previous year. Foreclosures too are abundant, a fact also working to keep housing prices down and prospective buyers naturally gravitate to these often-inexpensive options. With all these low cost homes available and such low interest rates on home mortgages, one can’t help but wonder why the American public is giving a collective “no thanks,” to the housing industry. A good guess would be fear.

In 1992’s Presidential election, the Clinton camp used the phrase, “It’s the economy, stupid!” against opponent George Bush. That phrase pretty much sums up the current housing market. It defies logic that consumers would pass on a cheap house at an all-time low mortgage rate, but as every day we are treated to more bad economic news, it makes a lot of sad sense.

Economists and commentators alike seem always to be spouting reports of impending doom, the perpetual dark cloud that may or may not drift in and ruin your financial life. For the better part, their warnings have been on target; but for little sparks of hope here and there, the economy is still far from recovered, as are the rates on unemployment. Furthermore, mix that with the fact that it is now a global issue! In contrary to what the nightly news would have you believe, not everyone has lost, or is in fear of losing their jobs.

For those with steady employment in a more reliable industry, now is probably the best time to purchase a home. Think of it as a big sale on houses, and your mortgage a super-low interest rate credit card. While everyone hopes for the best, that the economy will pull itself out of this rut (or whatever the politicians would have us call it). When it does, it will probably be a long time until home-ownership is this affordable again. Look realistically at your financial picture, and if it’s feasible to become a homeowner, now is the time to act.

Many current homeowners are taking advantage of these low mortgage rates to refinance their homes, saving thousands of dollars in the process. Refinancing a mortgage currently represents two-thirds of all mortgage activity. It may not be long until interest rates are up again and while our savings will grow quicker, plus we will once again see great deals on CD rates, it’ll be too late! The sale on houses will be over!


Federal Reserve Dooms Higher Interest Rates For Savers

For those of us who are waiting for the Federal Reserve to increase interest rates that banks have to pay to borrow money, our waiting has gotten much longer, at least two years longer. Since the Fed’s rate-setting committee decided to hold interest rates at the current record lows until ‘at least through mid-2013’, we cannot see interest rates increasing on any investment vehicle such as Certificates of Deposits, Savings Accounts or any other investment that relies on the interest banks pay.

What does this mean for savers?

Banks will continue to borrow money at near zero percent interest and basically will have an endless supply of cash from the Fed. Why would a bank pay a higher interest to its savers/investors if it can get the same amount of money from the Fed at 0%-0.25% interest? Since these interest rates will be held at or near zero percent until at least mid-2013, savers get the short end of the stick!

What does this mean for mortgage rates?

The only good news about interest rates staying at record lows goes to those of us buying houses, cars or other items that require a loan of some type. The whole idea of keeping interest rates low is to encourage people to buy bigger houses and cars, and to encourage businesses to hire and expand their businesses. Neither of these scenarios has been working. The real estate market continues to struggle, more and more people are losing their homes to foreclosure and less people are able to qualify for a refinance on their current home mortgage, thus missing out on these record low mortgage rates.

The thought of keeping interest rates at record lows was to help the struggling economy, to help business create more jobs, to help the failing housing market, to increase consumer spending and to boost manufacturing outputs, but none have seen a boost or an increase in productivity. So why does the Fed keep doing the same thing by keeping record low interest rates until mid-2013? Not only does this do anything for the struggling economy but also hurts savers and investors alike. CD rates will continue to stay at or near record lows and mortgage rates will look to stay around record lows until inflation hits. We can see that both CD rates and Mortgage rates sticking around these low rates for a long time to come, unless if the US economy picks up, inflation hits or the Fed decides to change course.


Are CD Rates Going To Increase This Year – 2011

It has been 1 year since we wrote about the question “Will CD Rates Go Back Up In 2011” and so far rates have kept falling. Even mortgage rates are falling to their lowest levels in a year. As I write this post the United States has lost its AAA credit rating even though a default on its debt was diverted. The United States now has a credit rating of AA+ with a negative outlook, which means that the credit rating could drop again within the next 2 years unless if Congress reigns in on its overspending and debt problems.

Every program the Fed has enacted to build up the US economy has not translated into job growth or a pick up of the economy, which would translate into higher interest rates. When the Fed bought back billions of dollars worth of treasury bonds, it was speculated that interest rates would increase based on the growth of the economy and the increase of inflation. Once inflation increases so should interest rates.

In the past few weeks many CD rates were cut down a few basis points. Before the debt ceiling deal happened many were speculating that CD rates would actually increase because of Treasury yields being forced up by the small possibility of the United States defaulting. As Treasury yields increase so will interest rates, but right after the debt ceiling deal was passed, the stock market started crashing and Treasury yields actually started plummeting. Just this past week mortgage rates dropped close to 4.31%, down from 4.51% last week. It looks like CD rates will most likely continue their downward fall to record lows. How far will they go? Depends on multiple factors, but as long as the economy drags along there isn’t much hope for an increase in rates any time soon. I guess we should be asking the question “Will CD Rates Go Back Up in 2012” or more likely, ‘Will CD Rates Ever Go Back Up”. We thought last August 2010 that CD rates would surely be on the rise, since we haven’t created a magic ball and since no one can really predict the increase of rates, we made an educated guess that was completely wrong. We still have five months left in 2011 to see if rates will increase.

Here are some of the more active banks that consistently have some of the highest CD rates available nationally:

Bank of Internet cut its 12 month CD from 1.33% down to 1.20% and they also cut their short term 6 month CD rate of 1.15% down to 1.01%. The new leader for the 12 month CD term is now E-Loan at 1.26%.

First Internet Bank of Indiana currently holds the top spot for the 5 Year CD at 2.40% APY with a minimum deposit of $1,000. Discover Bank comes in second with a rate of 2.35% APY with a minimum deposit of $2,500.

If you are looking for the best CD rates, you might find better luck looking at your local credit union or a credit union that has no registration requirements like Melrose Credit Union out of New York.

You can always find the best cd rates here at bankaim.com.



The Worst Is Over – Mortgage Rates Going Up

After almost a year of economic crisis in the housing and real estate markets, it looks like the worst is finally over. The nation’s top housing officials have declared that the housing price slump is finally coming to an end, and it looks like mortgage rates will be going up this week.

The latest survey of mortgage rates from top banks have shown that all types of mortgages are going up. 30 year fixed mortgages now have an interest rate of 4.79 percent, which is higher by 8 points from last week. The 15 year fixed rate home mortgage also showed a rise with 3.9 percent compared to a 3.86 percent rate last week. Jumbo mortgage rates also went up by 6 points, coming from 5.21 percent to 5.27 percent.

Even adjustable rate mortgages are not left out with this upward swing. The 5/1 ARM went up to 3.49 percent, an increase of 4 basis points.

The secretary of the US Department of Housing and Urban Development also stated that “it’s very unlikely that we will see a significant further decline” with regards to home prices, as stated in n interview in CNN’s State of the Union show.

Although prices are steadily rising in the real estate market, it is still yet to be seen whether the rise will be significant enough to be considered as a strong recovery. The National Association of Realtors also mentioned that there are now more pending contracts to buy existing homes. The number would even be greater if banks and other lending institutions would return to their normal standards, and allow credit worthy individuals to take on a loan.

So what does this mean to all of us? First of all, home and other property owners will now begin to see the light with regards to their biggest investment. And they can rejoice for the predicted increase in value of their homes. On the other hand, new home buyers will also be faced with higher mortgage rates and increasing prices of properties. This can only mean one thing, if you want to buy a property, now would be the best time to do it. It may take a while for the market to recover, but it’s already on it’s way there. Better start while you’re still ahead.


Fixed Mortgage Rates Down, ARM’s Up

Now would be a good time to seal that loan when it comes to getting a fixed mortgage. The average rate for 30 year fixed mortgage and refinance rates are down at 4.77%, comparing to last week’s 4.81%. 15 year mortgages are averaging this week at 4.08%, down from last week’s 4.11%.

30 year jumbo rates are going low at 5.29%, with last week at 5.35%. 15 year jumbo rates are averaging at 4.71%, .07 points down from the prior week’s average of 4.78%.

If fixed mortgage rate borrowers are rejoicing at the drop of rates, those who already have an adjustable rate mortgage can’t say the same.

Current refinancing and mortgage rate on 1 year ARM’s are at an average of 3.14 %, just a tiny bit higher from last week’s rate of 3.13%.

3 year ARM’s are experiencing a higher jump, going at 3.47%, compared to last week’s 3.37%.

5 year ARM’s are now at 3.18%, the only ARM rate that’s down this week, compared to last week’s 3.24%. 10 year ARM’s are also going down with 4.18%, with the previous week at 4.22%.

Interest only adjustable mortgage loan rates trend is variable with the loan term. 3 year interest only rates are up from 3.51% to 3.57% this week, while 5 year interest only ARM’s are significantly down from 3.48% to 3.29%. 7 year interest only ARM’s are also down from 3.95% to 3.75% this week.

Fixed rate mortgages are good to go this week with a consistent drop in rates. ARM’s and interest only ARM’s are seeing a peak with short term mortgages such as 1-3 year loans, whereas longer terms are seeing a drop in rates.


What You Should Know About Adjustable Rate Mortgages

Dying to move out of your apartment and into your first home? Getting a home loan can help you achieve your dream. However, when purchasing a house, it’s important to know about the ins and outs of the mortgage you’re planning to get.

One important factor that must be considered is the interest rate on the mortgage. Banks and mortgage companies usually have different payment schemes to entice buyers into getting a loan. Some of these loans might be structured in such a way where borrowers will pay only a little in the beginning, but will be obligated to pay more in the end. One such loan is the adjustable rate mortgage.

Adjustable rate mortgages or ARM’s are common in different banks and financial groups. This type of mortgage has interest rates that are based on an economic index. Common indexes are one, three or five-year Treasury securities. Aside from the index, the mortgage is also subject to the lender’s margin or markup. Lenders will place an additional amount to the index to profit from the loan that you’re getting.

An ARM has an adjustment period between potential interest rate adjustments. This period can differ in various ARM’s. You might notice ARMs being described as 1-1, 3-1, or 5-1. The first figure represents the period where your interest rate will stay the same as the first you got the loan. The second number represents how often an adjustment will be made after the initial period has ended. In the examples given, the second number means that rates will adjust annually.

Buyers who are not familiar with how an ARM works can be attracted by the initial rate of the mortgage which may seem very low compared to fixed rate mortgages. However, what they don’t know is that some indexes can be very volatile, resulting in frequent changes in interest rates after the adjustment period. This can subject buyers to having to pay higher interest rates than they are used to, getting them in a financial fix when it’s time to pay up.
Although ARM’s are not very advisable to the usual home owner, it does have its uses. ARMs are a good option for those who are planning to sell their home within the first few years. This could also be an option for those who are expecting an increase in salary or income in the near future. Real estate dealers who sell houses within months can also benefit from this type of loan.

If you’re determined to get an ARM, it’s important to check three things. The first is the index. Look for an index that has remained fairly stable in the past five years. This will give you an idea of what range your future interest rates will be. Second, check how much the margin is. Third, look for a lender that has excellent customer service and request for a full disclosure on the terms of the ARM. It’s always best to be informed before signing that contract.

Remember that although ARM’s might have juicy initial rates, these rates can (and will) go up as time passes. Get an ARM only if you’re certain that you can pay up on future rates.


Does the Interest-Only Mortgage Sound Too Good To Be True? – Maybe It Is

In this day and age, getting a loan is as normal as buying a refrigerator for your kitchen. Everybody has one.

Loans have become a necessity. Without them, we won’t be able to buy our dream house, get that ideal car, or move in to that bigger apartment. We try to keep our credit record clean so we can get a lower interest rate for our mortgage. And when we see an offer that says “interest-only” or “no down payment required” it’s as if we’ve died and gone to heaven. But are these mortgages really as good as they sound? Or are we in for a financial ride?

An interest-only mortgage is a way to borrow money, and pay less on a monthly basis. It may sound like a good deal, pay only the interest now (resulting in a lower monthly payment) then pay the rest of the balance later when your financial situation improves. The problem is, you may be taking on a loan that is more than your bank account can bear, and you might find yourself in a rough spot in the future.

So what happens with an interest-only mortgage? First, interest-only is not the loan itself, but it is an option that can be attached to a home mortgage. Here, a borrower only pays the interest on the principal for a set period of time. When you’re paying only for the interest, your initial monthly amortization may appear to be quite low. However, since you have not contributed any amount to your principle, the borrower is not building any equity.

Interest-only loans can be dangerous for people who cannot really afford an increase in monthly payments. Although it may sound promising to start a loan on low monthly amortizations, the balance will eventually increase as time passes. The people who are expecting an increase in salary in the future may feel confident at present, but when things don’t go as planned, this mortgage may turn from being a dream to a nightmare.

Interest-only mortgages although dangerous for the average person, are still good for savvy investors who clearly know what they are up against. People who plan to flip their homes or refinance before the interest-only period is over, may also benefit from this kind of option to a loan.

When considering loan types, interest rates, and mortgages, it is best to do a thorough review on what the mortgage really means for you now, and in the future. This will allow you to save thousands of dollars, and it won’t leave you with a loan that’s too much for your checking account.


Mortgage Rates 2010 – January through December

Lets take a look back at 2010 interest rates from January through December according to Primary Mortgage Market Survey.  We are going to use the 30 year fixed rate.  The 15 and 5/1 ARM trended similarly, although there are some subtle differences throughout the year.

We started the year out with higher rates then we would reach throughout the rest of the year save the second week in April where rates spiked shortly and then return downward.

On January 7th the 30 year fixed was at 5.09%.  It held within a few bases points of 5% all the way through the first week of April.  4.93% was the lowest and 5.09% was the highest rates would reach within that 3 month stretch.

April 8th we saw rates hit the high point of the year at 5.21%  After again holding right around 5% through mid May we started seeing the downward spiral which would take the 30 year fixed nearly under 4% in just a few short months.

May 13th marked the beginning of the interest rate decline.  At 4.93% on the 13th rates ended May at 4.78%.

June was the same story.  Down down down.  By the end of June rates were at 4.69%.

July was a large decrease.  Rates ended July at 4.54%.

August we witnessed the 30 year dip below 4.5%.  On August 5th rates were 4.49% and by the end of August 4.5% seemed high as rates were 4.36%.

September and October just continued the downward trend which lead into November when we say rates hit their lowest point.  On November 11th the 30 year fixed rate was 4.17%, the very day that marked the turn around for interest rates.

From that day on rates started rising.  A week later they were 4.40%, then just one month after that on December 16th rates were sitting at 4.83% and ended the year at 4.86%.

January to December 2010 was a wild year for rates and mortgages.  In an economy which many homes across the nation are worth less than that which is owed on them refinancing was a difficult or impossible thing to accomplish with many homeowners.  On the purchasing side of the coin things haven’t been much better than this in decades.  Low interest rates and bottomed out house prices means many people got great deals in 2010 on the home they are now living in.

What does 2011 have in store for our nation? What does 2011 have in store for you?

We hope great things!

Happy New Year!

Be financially wise in 2011.


Mortgage Rates Continue To Rise But For How Long?

For the 3rd week in a row mortgage rates increased.

As the economy shows signs of growth the bond yields become less attractive to investors and as the bond yields have risen the mortgage rates have followed.

Just last week mortgage rates hit a 3 month high and the mortgage rates continued on the upward trend.

December 2, 2010 30-Yr FRM 15-Yr FRM 5/1-Yr ARM 1-Yr ARM
Average Rates 4.46 % 3.81 % 3.49 % 3.25 %
Fees & Points 0.8 0.7 0.6 0.6

Last week rates were as follows:

  • 30 Year – 4.4%
  • 15 year – 3.77%
  • 5/1 – 3.45%

Does this mean Mortgage Rates will continue to move up?

As long as these trends continue the rates will continue to rise.  As the economy gets stronger there is no where for the rates to go but up.

Experts have been predicting the floor of the mortgage rates for quite some time and we could have finally seen it pass.

Check back often as we update the rates and mortgage information.


What is Yield Spread Premium (YSP) on a Mortgage?

Yield Spread Premium (YSP) is a factor of the loan which will affect either the rate you receive or the money going into the loan officers pocket.  There are many misconceptions about what YSP really is.  Many people think that YSP is a way for brokers or loan officers to simply make more money, and a ton of people have no idea what YSP is altogether.

When I was a loan officer I would always try to educate and inform borrowers about YSP and what it is.  I was surprised to find so many people really knew nothing about it.

Even though Yield Spread Premium is way loan officers can make money on a loan it is a much more powerful tool, that if you understand it can work in your, the borrowers, favor.  First of all let me clarify that YSP is completely legal as long as it is properly disclosed in your loan documents. Some loan officers will attempt to skim over the documents concerning YSP.  If a borrower does not understand YSP it can be difficult to explain it on the spot and this may be the reason they skim over it, or they are trying to make more money with the YSP and do not want you asking questions.  A good loan officer will explain the YSP and show you options with your loan.

YSP basically affects the interest rate of your mortgage. When shopping for a rate for you a loan officer will see something like this from the lender or bank.

RateYSP
4.5%0% (par rate)
5%.5%
5.5%1%
6%1.5%

The YSP percentage is what the bank will pay the loan officer if they sell the loan at that interest rate. So in this case say you sign a lock in agreement for 5.5%. The bank which is funding the loan will pay the loan offer/mortgage broker 1%. So on a $150,000 that equals $1,500.

How you can take advantage of YSP: Now that you know what YSP is you will need to know how to use it to the best of your advantage. Do not say to your loan officer “I know what YSP is and I don’t want to pay it.” YSP is very normal on a loan and using it to work for you is what you need to do. A good loan officer deserves 2% – 2.5% on the loan whether that is up front or on the back. “Discount” loan officers will usually cause you more headaches because of errors and a slow process.

Using the numbers above if you decide to take the 4.5% interest rate with 0% YSP that 1 % will be moved to the front of the loan.  Therefor your origination fee will be 2% instead of 1%.  Essentially you are paying up front to lower your interest rate to the lowest rate possible.  Many times this makes a lot of sense to do because you will save money in the long run by paying lower monthly payments with the lower rate.

You can determine how many months it will take to repay the 1% by doing a simple calculation.  Lets use these figures.

  • $150,000 Loan Amount
  • 5.5% with 1% YSP
  • 4.5% with 0% YSP

Hypothetically the payment on the $150,000 at 5% equals $700.  The payment on the 4.5% equals $600, but remember it cost you $1,500 up front by paying for that 1% on the front of the loan.  The difference between the payments is $100 which means it will take you 15 months to pay the difference of the $1,500.  If you stay in your house longer than 15 months then every month you are saving/earning $100.

Difference between YSP and Buying down points: This concept works the exact same when you want to buy your rate down with extra points.  The simple difference is that YSP is usually apart of a normal loan and you can learn to take advantage of points and dollar amounts that are already apart of the loan.  Buying down points usually means that you will pay an extra percent of the loan to get a rate under the Par Rate (Par rate is the Rate in which there is 0% YSP).

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