Inflation heats up!
May 20, 2008
Inflation is on its way up as evidence in the recent government releases reports regading PPI and CPI. The core level of inflation in the PPI report has risen over six percent in the past twelve months and .4 percent for the month of April. Inflation is very dangerous for mortgage rates as this challenges the net return on a mortgage bond and typically results in investors wanting a higher yield, thus driving up mortgage rates.
The economy has slowed down considerably in 2008, but the market is clearly struggling with rapidly rising oil prices that are effecting everything from travel to food prices. As inflation continues to increase the pressure will mount on the Federal Reserve to begin considering lowering the rate on the Fed Funds rate. The Fed has been agressive in cutting the Fed Funds and Fed Discount rate this year in an effort to stabalize the credit markets and spur home buying. The dollar has fallen sharply over the past 12 months and this is also having an effect on oil prices and inflation. Mortgage rates for purchase and refinance home loans are firmly near six percent for long term fixed mortgages and these rates have held firm since the early February but could be on the way up with more pressure from inflation.
Housing market to be focus for stock market this week
May 18, 2008
The stock market has enjoyed a nice rally over the past month despite rapid rising oil prices. The national association of Realtors will report existing home sales for the month of April on Friday of this week. The market has written off the idea that the real estate market will recover significantly in 2008 and most economists, home builders and mortgage companies are now stating that they think it will be well into 2009 before the market begins a true correction.
The significance of Friday’s report is mostly about the psyche of the American home buyer, if the report shows a glimmer of home this may help to provide some long awaited positive pr for the real estate market. The number of potential home buyers sitting on the sidelines anticipating further price drops may decide that the market does not have much further to fall and begin the process of looking for a home. Mortgage rates remain very attractive and recent changes with both Fannie Mae and FHA are allowing home buyers to get into homes with as little as 3% down payment.
The market could use a lift, if the home sales figures are better that anticipated the stock market could rally and the only downside is this may pressure a rise with mortgage rates which remain firmly near six percent.
Arm rates resetting lower than current market rates
May 15, 2008
Home owners who have mortgages that may be adjusting in the next few months could be pleasantly surprised to find out their mortgage rates may actually be adjusting down. Their has been a great deal of speculation that the large number of arm’s scheduled to reset in 2008 would have a crippling effect on the housing market.
The Federal Reserve has worked agressively to try and restore the credit markes by reducing the Fed Funds rate down to 2%. While this has no direct correlation to mortgage rates, their is a correlation to other economic indexes such as the LIBOR. Most arms are now utilizing the LIBOR as the index of choice for future adjustments. This is good news for millions of home owners as the rates on the LIBOR have dropped in conjunction with rates on the Fed Funds rate. The LIBOR has several indexes including 1 year, 3 months, and 6 months. All three of these indexes are now under three percent. Most adjustabe rate mortgages have margins (amount added to index to determine new rate) of 2 to 3 percent. This essentially means that most home owners with arms will be adjusting under six percent if the market does not move significantly in the near future.
Long term fixed rate mortgage are still hovering around six percent so it would probably make sense to explore refinancing your mortgage if you plan to stay in the home beyond the next 12 months and want to have payment certainty for the long haul.
Consider a home equity line of credit
May 13, 2008
Yes, it is hard to imagine that lenders still offer second mortgages even after the mortgage crisis that has been seen within the market over the past six months. Their are a number of major lenders that will still offer home equity loans and fixed second mortgages, up to 90 or 95% of your homes value.
So who should consider a home equity loan?
Anyone who has equity in their home and may have a fixed mortgage rate lower than six percent should examine both refinancing their entire mortgage or applying for a second loan. A good way to analyze this is through a blended rate assesment. With prime hovering near 5% most borrowers should be able to qualify for a home equity loan with very favorable rates compared to first mortgages. The major advantage is that home equity loans often come with reduced fees and you pay only on the balance you owe. If you are consolidating debt or adding a home improvement and the loan amount is less than 20% of your overall loan balance than a second mortgage/home equity loan may make the most financial sense. A good lender should help you navigate all of your loan options to make the best financial decision based on both your short and long term goals.
Jumbo Loan Options Expanding
May 11, 2008
Millions of Americans have started to receive their rebate checks from the government in the mail over the past few weeks. This part of the economic stimulus package has received the most attention in the news, however there is another key benefit of the program that has also begun to trickle through. The legislation has also allowed for home owners hwo have jumbo loans to refinance these loans under conventional financing terms.
This new alternative should be welcome news to anyone who has a mortgage that is over 417k. The spread between conventional loan rates and jumbo loan rates has been in excess of two percent form the better part of the past six months. The secondary market for jumbo loan financing has all but disappeared and the result has been a dramatic increase with the mortgage rates on jumbo loans. Lenders such as CitMortgage, Countrwide and IndyMac are now able to qualify home owners in select counties for loan sizes up to $729,000 and have their loans underwritten and sold to either Fannie Mae of Freddie Mac. This is welcome news for anyone owning a home above $450,000 as this should help to bring some home buyers into this marketplace and provide realistic refinance options for home owners who may have chosen an adjustible rate mortgage a few years back.
How could Yahoo stock effect mortgage rates
May 5, 2008
The stock market could be under pressure from the fallout of the Yahoo & Microsoft merger. So what does this have to do with mortgage rates? The connection is strictly tied with investment dollars and decisions. When the stock market is doing well and investors are purchasing equities you tend to see mortgage rates increase as investors pull their money out of the safer bond market and invest in equities such as stocks.
The flipside of this analogy is that when investors are concerned about the direction of their equity investments or perceive higher risk in the stock market they tend to invest into the bond market. When this happens you tend to see mortgage rates decrease. Their is not always a direct correlation between the ten year bond and mortgage rates but this is a common index that investors follow when they are trying to follow the direction of which mortgage rates are heading.
Home owners or potential home owners who are shopping for a mortgage and must determine whether or not to lock or float their interest rate can use the stock market to help gauge what direction interest rates are heading but should be cautious that no one can predict where rates are moving and economic and investor news comes out on a daily basis that can change the markets direction.
Fed cuts key rate
May 1, 2008
The Federal Reserve as expected cut the fed funds rate by .25% lowering the key rate down to 2%. This translates over to a prime rate of 5%. The move was expected by most economists who recognize that the fed is facing an increasingly difficult task of balancing rates and economic growth.
The fed was non committal on whether they would continue lowering the fed funds rate this year. Despite a struggling real estate market the fed is now faced with record oil prices and must juggle the impact this could have with inflation. Additionaly, the fed is under pressure as the U.S. dollar continues to decline. The economy has been quite resiliant despite the struggles in the housing industry. Mortgage rates typically do not move when the fed cuts the fed funds rate, however yesterday after the announcement their was a slight decline in the bond market which would be good news for mortgage rates and those considering a refinance.
Countrywide Drops & Foreclosure Filings Rise At Record Paces
April 29, 2008
The bad news for the U.S. economy continues to come out in mass. On the eve of another meeting by the FOMC, the countries largest mortgage lender reported losses totaling near 800 million dollars. Countrywide is continuing to be hit hard by the fall out in the real estate markets and their is little hope that the market will improve any time soon. There is a strong possibility that the U.S. housing market will continue deteriorating at record paces as the number of foreclosed homes on the market grows. RealtyTrac today announced that foreclosed home filings are now at the largest level in history and that they were up over 25% from the fourth quarter of 2007.
It is becoming more apparent that the U.S. housing market will not rebound simply based on lower mortgage rates. This puts the government in a tough position as they are going to be left with two choices allow the market to continue to fall until all of the bad loans have worked their way through the system (potentially 2-3 years from now) or offer a true stimulus package that will provide the necessary components to help the market. If the government offers a stimulus package it will need 3 key ingredients. Financial incentives for lenders to offer loan programs for lower qualified applicants (increase demand base), tax incentives for purchasing foreclosed homes, and a true strategy for dealing with home owners facing foreclsoure.
Mortgage rates continue to trend around six percent and the balance of the economy is still producing above expectations, but one is left to wonder how long this can last.
Ten common refinance mistakes
April 26, 2008
The window to refinance your existing mortgage for a low fixed rate home loan is still available. There are some simple things every home owner should know to ensure they get the best loan for their refinance scenario. Some of the most common mistakes made by home owners who want to refinance their loan are as follows:
- Not knowing what their credit (Fico) score is
- Avoiding calling their existing loan servicer
- Increasing their house payment by shortening their loan term. ( you can always add extra on a 30 year term)
- Focusing too heavily on the rate and not examining the cost and loan apr
- Shopping with multiple lenders, but not calling them on the same day
- Trying to find a deal that does not exist in the market
- Accepting a loan with a prepayment penalty
- Ignoring the benefit of buying down the mortgage rate through discount points
- Failing to eliminate ineffecient debt (credit cards/revolving debt)
- Not working with a professional who establishes a plan and review your goals in detail
This list could certainly go on and on as home owners have discovered over the years that shopping for a mortgage can certainly be a stressful process. The best advice to anyone who may be considering refinancing their mortgage is to start with a complete review of their finances, closely examing all of their debts and establishing a long term financial plan for their debts as well as growing their assets.
Refinance Rates Moving Up!
April 20, 2008
This year has provided a unique opportunity for home owners to refinance their mortgage into fixed mortgage rates at levels last seen in 2003. In January of this year fixed mortgage rates reached their lowers levels of the past five years and were around 5.25% as the yield on the ten year bond dropped to 3.33%. This brief opportunity to lock into near historical low levels did not last long as mortgage rates jumped shortly their after.
Since early January the market has been under enormous stress following further fallout in the credit markets. Mortgage interest rates have been under pressure due to the tightening of the credit markets and the spread in mortgage securities has increased as investors are looking for a larger premium to hold mortgage loans. This larger spread has elevated the rates on mortgages, even as the yiled on bonds has declined with the turbulent movements in the stock market.
The market is now under further strain as rising oil prices are adding enormous strain on the markets through inflationary pressure. The yield on the ten year bond has moved well above the January lows and mortgage rates are now trending above six percent. The Federal Reserve will be meeting again in a few weeks and may further reduce the Fed Funds rate which would be good for home owners with adjustable raete mortgages or home equity loans, but it is unlikely to aid in helping bring down the rates of fixed rate mortgages. Those homeowners who have been on the fence when considering a refinance should explore locking into a fixed mortgage or securing a fixed mortgage with a float down option.