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Mortgage Rates, Loans And Financing
30/03/10
Very low mortgage rates have been instrumental in increasing the purchasing power of millions in the US, Europe and around the world. For one year mortgage rates are on the rise and home prices leveling out. Foreclosures are becoming more common, especially in the American Midwest, but it is still on a low level. We can now expect a gradual rise in mortgage rates the coming year. The 30-year rates will likely continue to rise in the upcoming months, but should not go past 7% in the US. In Europe the 5 year interest rate is around 5-6%. So if you plan to get a fixed rate loan, you should act quickly because mortgage rates are predicted to push past 7% in the US over the next few weeks.
The second mortgage rates on high loans to value loans above 90% on real estate investment properties can come close to 20%, even if you have a very good score. It might be a good time now to refinance your home or get a mortgage loan with attractive rates. Search the Internet and you will find a lot of online companies offering low mortgage rates all over the country.
A survey that was performed recently shows that there is a increase of foreclosure rates and delinquent mortgage payments across the country. Also lenders, just like consumers, feel the effects of a slowing economy and rising mortgage interest rates. No wonder we hear lots of discussions about rising mortgage interest rates.
A forty-year mortgage rates offer lower monthly installments, which suits the needs of first time home buyers as well as borrower who otherwise do not qualify for any other option. Of course there are many factors that can affect the mortgage rates but mortgage rates should be relatively stable for the foreseeable future.
Some persons prefer to have a fixed mortgage payment to maintain their peace of mind. Then you should have it and if you took the loan a couple of years ago you certainly made the right choice. For others there are a wide range of options currently available.
With an adjustable rate, the rate of interest is linked to factors like the Prime Rate. There are also other variations of the adjustable interest rate. As said before, if the market appears to be on a longer rise, locking in a fixed rate now can save you money in the future.
It is impossible to mention the rates individually, as there are a wide number of factors and statistics involved and they vary from day to day. It also depends on when you happen to read this article. Often the credit companies are also skeptical in offering the forty-year mortgage rate option to their customers as there are other existing ways of reducing monthly payments.
Searching on the Internet, using lowest mortgage rates as keyword, will provide you detailed information on Compare Low Mortgage Rates, Lowest Commercial Mortgage Rates, Lowest First Mortgage Rates, Lowest Fixed Mortgage Rates and more. That is an excellent way to get the basic facts for the time being and will give you a better understanding of which plan to choose.
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Adjustable Rate Mortgage Snafu
30/11/09
Unfortunately we are all aware of the mortgage industry scandal and the sub-prime loan issues. I get a little upset when they try to hang the blame on independent mortgage brokers. Personally, I think it is the banking industry’s attempt to put the independent broker out of business. The broker surely didn’t write the lender’s guidelines. So, … who’s fault is it?
A single parent of 4 kids, working in the medical profession, refinanced their loving home. The financing was an adjustable rate mortgage and her payments, to start, were around $1700 per month. Later, as stated in the contract, the rate adjusted up and her new payments were about $300 more per month. There was no real problem at this point other than just a tightening of the budget. Unfortunately, a few months later she was laid off from work. Now she is about to lose her home. She claims she did not know she was in an adjustable rate mortgage and she claims she did not know how adjustable rate mortgages actually worked.
This woman is in the medical field and obviously doesn’t mop floors if she qualified for a $1700 mortgage payment. She knew she was in an ARM. There are mandatory disclosures that must be signed on all adjustable rate mortgages plus an ARM Handbook from HUD that must be given to the borrower. There is no doubt in my mind that she did understand how adjustable rate mortgages ADJUST! The only thing she didn’t count on was losing her job.
Country Wide Financial Corp. came out with some interesting data about their foreclosures. During the first 10 months of 2007 60% were of the foreclosures were caused by a loss or drop in income, 20% was due to divorce or illness. What I find really interesting is that under 2% were actually caused by the borrower’s new/adjusted rate.
Let us think about this. The Government has a plan to freeze adjustable rates on mortgages taken out between January 05 and July 07. This plan will be addressing less than 2% of the problem. The real issues are drop in or loss of income, divorce, and illness. Eighty percent of the problem is American Jobs (where have they gone?) and health care.
The lenders, not the brokers, created this problem and they should be held accountable. And, … why does the government always want to take control of things and spend our tax dollar to bail people and organizations out?
I do not believe the banks should be bailed out of this and I don’t think we should bail out the buyers who made bad choices. It is obvious to me that this was not caused by the mortgage broker. Sad will be the day for the consumer when the independent mortgage brokers are put out of business. There will be no more competition of rates and loan fees. Interest will be totally controlled by the Feds and large, for profit, banking institutions.
So much for the American Dream! Without the independent mortgage broker the average American won’t be able to afford the home their family dreams of. Any small credit glitches and a bank will either turn them down or charge them very high interest rates. The sub-prime market issues of today will pale in comparison to what these organizations will do when there is no more competition.
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Recently, the 50 year financings enters the market with a bang. It all started on San Bernardino of Southern California. Now, a handful of mortgage lenders offer this mortgage option. It is merely a few cycles after the re-incarnation of 40 year mortgage. The 40 year financial debuts available the 1980s.
Due the soaring piece of real estate prices, there were demands for longer mortgage. The house prices went up so excessive at Southern California. Consequently, the above average house prices stop the American dream. We all want to own something called home in our lifetime. So, the cash-strapped structure buyer wants to opt for longer mortgage. In fact, mortgage lenders get oodles of phone enquiries about 50 year mortgage.
The 50 year mortgage permits another loan to sole mortgage, and adjustable rate mortgage. During the astronomical house prices time, the cash-strapped home buyers opt for interest only mortgage, or adjustable market value mortgage. Naturally, the mortgage payment is lower covet the interest easily mortgage, or adjustable rate mortgage.
In loan clearly mortgage, the home owner only pays the interest. The principal stays the same thru out the life of the mortgage. In adjustable rate mortgage, the home owner pays same funding payment on a regular basis. Some part of adjustable rate funding payment goes to pay out the principal. In specific instances, adjustable rate mortgage payment does not cover payment on principal. This is greater number of commonly known as negative amortization. This happens when the interest rate goes up.
The home owners still step ups home equity. This is the main advantage of 50 year mortgage over the interest only mortgage and adjustable point mortgage. However, the home owner gains a larger amount of home equity quicker with shorter term mortgage. Not to mention, the home owner pays more interest at the maturity of the mortgage.
Mortgage bankers actually prefer a shorter mortgage like 15 year mortgage. Generally, the longer go mortgage has more odds which the residence owner will be in financial trouble. Fifty percent of the first-time home buyers are on 30 years old or older. The mortgage matures around at the age of 80 years old. That is for a long while after the likely retirement age.
50 year mortgage is riskier kind of financings to mortgage lenders. So, the bankrolling mortgage servicers would usually charge a higher interest rate. Even although the mortgage lenders charges ideal interest rate, the financing payments are in reality lower as opposed to shorter strive mortgage.
The residential structure households can opt to buy higher priced home with 50 year mortgage. Or, the home buyers can save or invest the money of savings of the lower mortgage payments. This may be a even greater idea for unstable structure rate when there is a chances for homes to depreciate.
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The capital that makes up your mortgage/ loan can come from a number of sources including other people’s deposits and savings, stored up in the bank and other investors, all of which make up the Capital Markets. Of course, there isn’t enough cash in the general consumers accounts to make up the capital needed for the mortgage markets so the majority comes from investors looking to buy debt instruments, which in this case are bonds.
The buyers of these bonds are looking for a good return on their investments, which is of course completely opposite to people looking for a low rate mortgage. In effect, you’re borrowing money from an investor at a given rate (for you an interest rate and for the investor a rate of return). Of course, the investor is only willing to invest a certain amount of capital in such low yield bonds.
Now, the rates on a mortgage fluctuate from month to month and this rate is determined by how well ‘mortgage bonds’ are selling. A rise in sales will see a drop in yield and a drop in sales will see a rise in yield, thus attracting investors back into the market. The result of the average mortgage holder will be the opposite though. When investors leave the bond market, they will see a rise in mortgage interest rates.
Of course, the mortgage market is driven by a number of external factors, such as supply and demand but the greatest factors is that of inflation. Where inflation is low, the return for the investor is high, but when inflation increases, it devalues the investment and at the same time the mortgage. Suddenly a $120,000 mortgage can seem far less of a burden.
Inflation is kept under control by raising or lowering interest rates. When inflation is rampant, interest rates are raised, resulting in a rise in mortgage repayments.
Recent sub-prime mortgage lending issues in the US have had a knock on effect throughout the world. Billions of US dollars have been lost, simply because many of the associated bonds were bundled up and sold on to banks throughout the world. These mortgages were in effect over-subscribed in the states, with many people only able to afford a house with one of them. Unfortunately, the mortgages were being defaulted on and, having been sold on to UK, Hong Kong, German, French banks, they could not be easily recouped. The collapse in this market left many banks in serious problems. Losses could not be recouped and the bond market dried up as investors fled. New mortgages became difficult to find and their rates were much higher than previous. Interest rates have now been dropped so as to stimulate the market. Lenders have maintained bond rates at a higher level, giving them greater yield and the result will be a higher return for what is now percieved a greater risk.
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Three or four years ago, interest rates on home loans dropped to levels not seen since the 1960′s. Millions of Americans took advantage of the favorable rates, which bottomed out near 5% for fixed rate, 30-year loans. For adjustable rate mortgages, they rates were even lower. Many buyers passed on the opportunity to lock in at fixed rates and gambled on the lower payments afforded by adjustable rate loans in order to buy either larger or more expensive homes. That worked out fine at the time, as the rates kept the monthly payments affordable. Unfortunately, the sixteen increases in the Federal interest rates since 2004 are about to have a dramatic effect on those buyers, many of whom many find out that they can no longer afford to pay for the homes in which they live.
Many adjustable rate loans are set up in such a way that the interest rate is fixed for the first three years of the loan’s repayment schedule. After that, the interest rate adjusts regularly, based upon prevailing market rates. For the millions of homeowners who gambled and took out these loans in 2003, the Big Adjustment is going to come soon, and it isn’t going to be pretty. As the rates adjust to current rates from the low rates of 2003, many homeowners are going to be shocked to see that their monthly payments rise by as much as 50%. Some will be fine with that, having anticipated this increase for some time. Others will suddenly find themselves unable to pay for a house that they have long thought they could afford. This will undoubtedly lead to an increase in the foreclosure rate, which is already some 60% above the rate of last year. In Michigan, the rate is up by 90% over last year, as hundreds of owners have walked away from their home loans.
What can you do if you have an adjustable rate loan that is about to become unaffordable and may yet become even more so? Your best bet may be to refinance and take out a 15 or 30-year, fixed-rate loan. The benefit of doing so is the security that comes with knowing that your payment will remain stable over a long period of time, no matter what happens to the interest rates in the marketplace. If you cannot afford your loan now and refinancing with a fixed-rate loan will still leave the payments unaffordable, you may have no choice but to sell the property and move to something smaller and/or less expensive. You will not be alone.
