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In an effort to keep people in their homes and encourage more home purchases, the Federal Reserve’s actions to reduce interest rates have been a success. Many homeowners have taken advantage of low rates and have purchased homes or refinanced their current mortgage. However, prospective homeowners who have not taken advantage of the savings should consider acting soon because many industry analysts say the low interest rates may soon end.

Mortgage rates have seen an astounding drop to as low as 4.5 percent after President Obama’s mortgage refinance stimulus plan was announced as well as the Federal Reserve announcement last November about their plan “to buy as much as $500 billion of securities backed by Fannie Mae (FNM.P), Freddie Mac (FRE.P) and Ginnie Mae.” Mortgage experts are now warning that the low interest rates for mortgages are not going to last. Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania says, “The downward trend we have seen in mortgage rates will not last beyond the first half of this year.” She continued to say, “By then, the Federal Reserve’s program will have run its course and other issues will move to the forefront that could push mortgage rates higher.” Chen also said, “By the first quarter of 2010, rates should be at 5.87 percent.”

The reasons the interest rates will start to increase include an increase in government debt and a positive outlook that the economy is beginning to rebound. This may be the perfect time to secure a mortgage or refinance an existing mortgage because as the economy begins to recover, interest rates will begin to rise. For instance, economic analysts have recently reported that “last year, the yield on the 10-year treasury was only about 2%. Recently, there has been an increase to over 3.5%.” The result will be that interest rates on loans and mortgages will start increasing again. As well, 30-year loan rates have seen a jump. Recently, the average interest rate rose to 5.27%. This is up from about 4.75%.

Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida, says, “Expectations of a 30-year fixed-rate mortgage at 4.50 percent are too ambitious. Inflation worries may begin to spook investors and that could send Treasury yields higher, which would cause a corresponding move in higher mortgage rates.”

Cameron Findlay, chief economist at online loan broker LendingTree.com in Charlotte, North Carolina, says “mortgage rates at 4.50 percent remained possible, but not probable.” As well, Moody’s Economy.com has forecasted interest rates at “4.5% by mid 2009 after dipping to a low of 4.37% in the second quarter. In the third and fourth quarter, rates are expected to rise to 4.57% and 5.18 %.”

If the increase in rates continues, people who are considering refinancing an existing mortgage, buying a new home, or selling their new home, may miss out on a great deal if they wait too long. This may be the best time to lock into a low interest rate mortgage.

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Mortgage Rates FAQ:

Question: How do current mortgage rates help new home builders?
I’d like to buy new construction as a result of the great mortgage rates right now. However, by the time I’d close on my house in December, it could be a totally different ballgame and rates could go through the roof. It seems to me, then, that low mortgage rates only help people refinancing or buying an existing house.

Answer: Most economists predict that interest rates and home mortgage rates will remain low for some time to come. There may be some slight increases later in the year as the economy and the housing market improve but the rates are at record lows and now is the perfect time to buy a new home.

Have you spoken with a lender? It is possible to lock-in a rate for a small fee and thereby guarantee that you will not see substantial increases.

Question: What is the best way to shop for mortgage rates?
I have been pre-approved by a local very large bank known for their mortgages of which I am a customer. I know the lender. Once my short sale is approved I will get my first rate & points from him. Then is it best to shop on the internet or go in person to other banks? Do credit unions or online mortgage companies offer better rates and less points than nationally known banks?

Answer: Good luck getting your short sale to the closing table, about 10% get there, which is pathetic. Do not go to internet lenders, they promise all sorts of stuff up front, but the final package is usually much different than originally discussed. Go to different mortgage brokers and compare fees. Make sure they don’t run your credit every time. Just tell them you are shopping for a loan and see what they have to offer. Banks like Bank of America will only have one way to give you money and that is their way. Mortgage brokers work with a lot of different banks. Keep that in mind when shopping around.

Question: What are the current mortgage rates like and are there any signs of the mortgage rates changing soon?
I’m looking to get the best current mortgage rates available because me and my wife are looking for our first home purchase. Can anyone point me in the right direction?

Answer: There is no such thing as a standard rate as there was 20 and 30 years ago. The rate you get depends on your credit rating, the type of loan you want, the down payment you put down, the points you pay up front to buy the rate down and other things.

The very best thing you can do is ask friends and family that have gotten mortgages recently and is happy with the service. Even large mortgage companies have crooks working for them- use someone local, competent, and recommended. The rates are very similar between companies because they are all getting their money form the same source.

I think that rates will remain low for a while. But when we start recovering from this recession I think inflation will jump quickly and the mortgage rates will also.

Question: What are mortgage interest rates based on and how do I estimate what my ARM rate will be when it adjusts?
My 5-1 ARM adjusted last year and went to 6.25%. It will adjust again this November. Are mortgage rates based on the feds fund rate? Or something else? How can I estimate what my new rate will be?

Answer: There are multiple indices that are used by mortgage holders to adjust a mortgage rate. Some are tied to t treasury bills, some are tied to the LIBOR rate. You will need to check with the mortgage holder, (or just check your original mortgage contract) and find out what index your mortgage is tied to, and what the”spread” is. (The spread is the additional % added to the index).

Question: What caused the home mortgage rates to sky rocket, causing people being unable to pay their monthly mortgages?
The recession was caused by people being unable to pay back their home mortgages because the mortgage rates were too high? Banks were not getting their money back from home owners, causing a credit crunch, thus they were unable to lend money to big businesses. Big businesses then had to cut back on expenses and began to lay people off the the thousands. So what caused the mortgage rates to go up so high that started this financial mess in the first place?

Answer: A simplified answer is that during the Clinton admin, there was a Dem push for making banks loan money to underqualified minorities, called the Community Development Act. Barney Frank and Chuck Shumer, both dems pushed Fannie Mae and Fannie Mac to underwrite these types of extremely risky loans. Eventually, the financially underqualified loans resulted in the foreseeable; you shouldn’t loan money to people who you know thru history will not be willing or able to repay it..and the bubble burst.

Question: Why do mortgage rates go up when the term goes up?
I’m looking at mortgage rates for closed term, ranging from 6 months to 10 years, and I’ve noticed that the rates actually increase as the length of the term gets higher. Why is this the case?

Answer: The general “rule” in banking and in finance is that the longer the loan, the higher the interest rate. The reason is that the lender takes on more risk with longer term loans. For example, if the lender commits to a fixed rate 10 year loan to you, but rates rise sharply within 3 years, they lose out on getting that higher interest rate. (conversely, if rates fall, then the bank wins on that fixed 10-year loan to you).

Question: Is it true that Mortgage rates go up usually in summer and come down during the end of the year?
I am planning to get a home in Bay Area. Is it true that Mortgage Rates usually go up in summer and eventually calm down during the end of the year?

Answer: I suppose in theory the demand for housing may be heavier in spring and summer in some areas, and someone is trying to say that housing demand influences mortgage rate in some way, but I doubt it’s true. Certainly not everywhere and at all times.

Mortgage rates fluctuate according to the bond market — supply and demand of money and credit. Predicting the Bond Market is almost as impossible as predicting the Stock Market. Professionally, baring unforeseen circumstances (a HUGE qualification, BTW) , I would hazard to guess that tomorrows market will look a lot like to days market. Beyond that, only a fool would make a prediction backed by serious money..

Question: How does the unemployment rate affect mortgage rates?
From regression analysis I found that there is a strong positive relationship between the unemployment rate and mortgage rates. I can’t figure out why. Any thoughts?

Answer: You need to be careful, mortgage rates are prospective rates and unemployment data is retrospective data. Data collected at time t may in fact reflect time t-1 and forward rates at time t+359. Further, the mortgage market has itself changed over time being deposit funded and insurance reserve funded twenty years ago and mutual fund owned today. That creates different owners with different liabilities.

Finally, time series regressions are very difficult to do correctly. It is an entire field in itself.

Unemployment is related to bond prices because higher unemployment levels tend to result in lower inflation, which makes bonds safer and permits higher bond prices, so there should be a positive relationship with prices but a negative relation with rates. However, a mortgage could be thought of as 360 forward obligations and the current unemployment level does not reflect future beliefs about the economy in a direct manner.

If you find a positive correlation that is very strong, there is also a possibility that you have a unit root problem and your t-tests are misspecified. The significance could be spurious. It partly depends upon whether the relationship is stationary or not. If you are running your tests using an ordinary statistics package, it is likely your correlation method is invalid.

Yes, it’s true. Due to the economy and the general decrease in income in the American household, the feds have a program that can cut your mortgage rate to 2% in order to make your payment 31% of your gross income. However, it seems that qualifying for this program will take some pretty fancy maneuvering. Here are some tips to give you a general idea if you can qualify, and what to do to get the loan to the closed and funded status.

The program that I am speaking of is the Making Home Affordable program. This program only applies to the mortgages held by Freddie Mac and Fannie Mae. These are the giant mortgage holders that were taken over by the government about one year ago. They are cutting rates on mortgages to as low as 2% in an attempt to get the payment at or below 31 % of borrowers gross income.

First, you need to know if one of these two agencies owns your mortgage. Even if you got your home loan at a bank, it may be owned by one of these lenders now. These two large companies buy loans from commercial banks; they own a major portion of the nation’s home loans.

To find out if Freddie or Fannie owns your mortgage, you will need to visit both the lenders web sites and fill in the requested information about your residence and yourself. Remember, you may not know if either of the two agencies owns your loan. The bank that you received the loan from may still be servicing the loan even though Freddie or Fannie may own the loan. So you need to check no matter what you think. If they don’t own your mortgage, well, you don’t qualify.

To estimate if you qualify, figure the amount of your mortgage payment (including principle, interest, taxes and insurance) and figure what percentage this amount is of your gross income. There are two reasons you know that you have and excellent chance to qualify.

You may have taken out an adjustable rate mortgage that has skyrocketed in interest and the payment has gotten almost twice what it was in the beginning. The second would be that one of the two of you as income earners has either lost their job or has had hours worked cut back considerably.

There is a trick to qualifying, you have to convince the bank that your are in dire straights but with the help of the mortgage payment reduction, you will be stable financially. You will not qualify with a large savings account, this is the biggest dis qualifier. You cannot spend 45% of your income on private schools or golf club dues.

You cannot be in to bad of position ether, for example, you won’t qualify on unemployment income that is considered a 6 month income, and the requirement of employment is a strong chance of continued employment for 9 months or more.

You get the picture, the window for qualification is small, and one Lender stated “it would not hurt to go delinquent by 1 or 2 months, I feel terrible saying that but that will get the banks attention”.

There is help on the inter net to see if your qualify, contact HUD, or another non-profit, Homeowner’s toolbox who claim they can estimate the probability of approval for you.

It’s a great time to be shopping for a house with exceptional mortgage loan rates available from reputable credit unions. For extra financial security, have a look at fixed GIC rate products.

Mortgage Rate FAQ:

Question: For a 100k home loan, would you pick Wells Fargo or Bank of America? Considering Mortgage Rates, Closing Costs, etc.

Answer: Wells Fargo for sure, they are wonderful to work with and easier to get a loan through them.

Question: New mortgage applications had their lowest week since 1997?
Sounds like not even the 8,000 dollar tax credit and 5% interest rates are making a difference? Have we hit bottom in real estate?

Answer: The housing business will probably be one of the last parts of the economy to return to normal. I wouldn’t expect it for another 2-3 years, regardless of what happens now. There is no easy way for a working class with no capital to save up the down payments now that savings accounts are running dry.

Question: What are my mortgage options?
I have a mortgage that has a ridiculous interest rate. The amount I owe on the loan is MORE than what my house is worth now, and I have no idea what I can do because I am having trouble making payments. Do I have any options at all? I’ve been turned down for refinancing numerous times, including one from the VA.

Answer: Depending on the type of loan you have now, you may be eligible for one of the mortgage relief programs designed to lower rates on homes that are worth less than the amount owed. eg. Hope for Homeowners, HARP, etc.

Otherwise many people in your situation are walking away from the mortgages. I don’t recommend it. Many borrowers were tricked into accepting ARMs for mortgages. Sure, they could afford the payments in the first 2-3 years, but not a chance after that. Everyone was betting against the market – they lost. Borrowers, lenders, investors.

I would offer my lender an option. Refinance my balance to a 30 yr fixed at 6%, or I’ll walk away. If you don’t have the money, what’s the difference?

Question: Where can I get a £75,000 mortgage in the UK when I earn £13,500?
Basically I just need a mortgage that allows me to have up to £75K on a wage of £13.5K .I didn’t think it would be that difficult when interest rates in some banks aren’t so high and you can have them for up to 25-35 years but no one is offering what I need on there sites. I fall short by 10 to 16 grand.

Answer: Try for an interest only mortgage over 20-25 years, and say in about 5 years look for a fixed mortgage. Financial Advisors will shop around for you, but will charge you £1000 plus upfront.

Question: Can I get a mortgage loan with a poor credit score rating?

Answer: Sometimes, but it depends on the specific loan. Usually because of the low credit score, your interest rates will be higher.

Question: What does an interest rate mean on your mortgage payment?
I have a conventional loan of 218,400 at 6.375. My monthly payment is 1904.99. On my last statement, $239.66 went to principal, while the rest to interest. We are at year 4 of our mortgage. I get the whole pay more interest at the beginning and at the end you pay more to principal. My main question is what does that 6.375 mean? How does that affect my payment. For instance, on a credit card the lower the interest rate, the lower you give to the company. But right now about 12-15 percent is going towards principals.

Answer: You are paying 6.375% interest per year (divided by 12 months) on the current balance {recomputed every month} of what you owe the bank. That is why so much of your fixed payment goes to interest, and a smaller amount to principal in the first few years. But as the loan balance comes down over time, you will be paying less interest and applying more of the payment to the loan (which means your balance will come down faster, less interest, more principle,……repeat until loan paid off.)

If you refinanced to a lower rate, you would have a smaller monthly payment. But unlike variable credit card interest rates and payments those amounts are fixed/set with a mortgage (but you can pay more principal; which is like investing your $ at 6.375% for the life of the loan while building up equity, and the payback period will be shortened, and you will pay less in overall interest.)

Question: What is the least amount of time you need to build credit to buy a house?
I have lived in an apartment for the past 6 years and my lease is up in 5 months. I have never had a credit card, and i show up on credit reports as having NO credit. I am getting a credit card this weekend, and I’m wondering if 4-5 months is enough time to get a good interest rate for my mortgage?

Answer: 4 or 5 months is not going to be great. You will have what’s called a “thin file” and it may get declined. Unless you have a nice down payment lets say 25% to 35%. You will need 5 to 7 years of SOLID credit history to get a good rate.

Question: What is so bad about being “under water” on your mortgage?
I know that 1 in 4 people owe more on their house then what it’s worth but I don’t understand how that can be bad if you have a regular mortgage payment (fixed) and you haven’t lost your job.

I understand why people who have adjustable rates are upset about it being worth less then they paid but I don’t understand what it affects if your still in ok shape financially. I mean, other then not being able to sell your house any time soon, I don’t understand.

Answer: The problem with that is that even when you sell the house for what it’s worth you still owe money on it and will continue to make payments on something that you don’t even own anymore.

It really only becomes a problem when the bank forecloses on it or if the homeowner has to sell. If the homeowner likes the house and keeps up on the payments it means nothing, the value should increase eventually. Over time, real estate always increases because of inflation.

And it’s incredibly silly to expect that you will always have a job and that the bank will be stable enough to not call up your loan. Stuff happens to everyone.

Taking out a mortgage on a new home is a very big step in your life. If you are obtaining a mortgage loan for the first time, there are a few things you should consider.

Before you search for a new mortgage loan, you first need to know what type of loan is best for you. There are many types of loans available on the market to choose from. Some mortgages are very traditional and straightforward, while others might be a little more difficult to complete understand.

If you are buying a home for the first time, an FHA loan might be just right for you. FHA loans are obtained through a regular mortgage lender, but they are backed by the U. S. Government. Qualifying for an FHA loan is easier than other loans because lenders know that the loan is secured by government funding.

The most traditional loan on the market is the fixed rate mortgage. With a fixed rate mortgage, you choose the length of time you want to pay off the mortgage, as well as the interest rate. Fixed rate mortgages usually have a payback period of 10 to 30 years. During the life of the loan, the interest rate will remain the same.

Adjustable rate mortgages are similar to fixed rate mortgages in that you choose the length of time you want to pay on the loan, as well as the interest rate. The difference with this type of loan is that the interest rate will change during the life of the loan. As the prime lending rate goes up and down, the lender has the option to raise or lower the interest rate on your loan.

Veterans of the U. S. Military have an option that other borrowers do not have. Many veterans will be able to qualify for a V. A. Loan. Most mortgages require the borrower to have a down payment to purchase a home. The V. A. Loan is different in that no down payment is required for qualified borrowers.

There are a number of newer loan types on the market today that look very attractive to borrowers. Many loans look like there is a lot of flexibility in the way they can be paid. Watch out! If you take the time to read the fine print on some of these mortgages you will see the hidden truth. Some of these loans require a balloon payment. Balloon payments require the borrower to come up with a very large amount of money to finish paying off the loan.

If you find the loan you want, but the interest rate is not as low as you would like, you can change the rate. Lenders allow you to pay points to lower the interest rate. A point is a percentage of the loan amount, usually 1%. By paying points, you will be able to lower the interest rate. This is a particularly good option for fixed rate loans.

Finding a good mortgage loan is easy these days. If you search the Internet, you will find many mortgage lenders doing business online. Do a little research first, decide what type of mortgage is right for you and you will have no trouble finding the mortgage loan that is right for you.

When you’re deciding to buy a house, some of the factors that you have to take into account are mortgage rates. As mortgage rates are important for home-buyers, GIC rates are important for investors. If you’re interested in a customized financial plan, remember to visit us.

Mortgage Loan FAQ:

Question: How do I calculate the principal into the mortgage loan?
If I put $3500 a year to the principal payment of my mortgage. How do I calculate the rest of the time in loan if I dump the allotted amount to the principal only? How many years would I knock off the total mortgage? I have about 24 years left at a little over 7% interest on $224,000.

Answer: You need an amortization calculator. It requires the original mortgage amount and original term but If you assume the mortgage is starting now, say it is 25 year mortgage for $224000, an extra $292/month ($3504/year) will save almost 8 years.

Question: Can I get a mortgage loan with less than 2 years of employment history?
I have been employed for 8 months, and a full time student for 14 months, unemployed before that. I want to know if I could get a mortgage loan? Will a down payment help?

Answer: If you have been in school or trade training immediately prior to entering your employment, and get can verification of such, then it is a possibility. The lender will probably require a written verification of employment from your current employer, to verify hours you work and rate of pay. Down payments always help. 20% would be phenomenal.

Question: I have a 360 month $80k mortgage loan with Bank of America. I have about 340 months payments left?
My grandma died and I inherited $20k. Can I pay $20k towards the mortgage and have BOA re-adjust my mortgage payments to a 340 month pace? What is that process called? What do I tell the Loan Officer?

Answer: You can find any number of mortgage calculators on line or use an excel spreadsheet to determine what impact of paying down your principal. Your mortgage papers will say if there is any prepayment penalty or not. You send in the check with the instructions to apply it to the principal.

But if I were you, I would talk with a independent financial planner. What is best to do with the money depends on your financial situation. Do you have adequate cash savings? (3 months of income minimum). Do you have retirement savings? You might have a better investment result and tax reduction by setting up an IRA.

Question: If you have bad credit but a first time buyer is it possible to obtain a decent interest rate with fixed mortgage if you have a bad credit history?

Answer: The only way to purchase with dinged credit and still have a decent interest rate is via FHA. You need a 640 credit score and will get a very good interest rate, in the 5% range for a 30 yr fixed.

If you don’t have a 640 then you need to begin working on your credit via credit repair and credit improvement.

Question: Using VA Loan for house mortgage, but how to get by the company’s refusal to qualify me?
I’m approved for VA loan on the mortgage. The owner and myself are trying to keep it from foreclosing. But the mortgage company has been difficult to deal with and might just say I don’t qualify. How do I know that isn’t BS and fight for my rights to refinance and continue payments?

Answer: If you’ve been approved for the amount of money that the home seller wants, then the only one who will disqualify you will be the Veterans Administration – the homeowners mortgage company wants to get their money, they don’t care from where.

Question: If I want to add my own name as the primary account holder to my mortgage loan, is it possible?
I want to take my deceased husband’s name off and make me the primary holder. I know I probably need to mail in the death cert. but what else will the mortgage company do?

Answer: If it was a joint mortgage, the death certificate should be enough in the US. If it was his sole mortgage, it will probably need to be refinanced. Start with a call to your loan officer.

Question: What reasons would a mortgage company have for calling a loan?
Is it the mortgage company or the bank that calls the loan?

Answer: The death of the primary borrower, default on payments, balloon payment, loan fraud are some reasons. Typically any breach of the contract terms or severe loss of the property. (say it burns down, they can demand payment) Additionally, problems with the local government may initiate this, such as not paying your property taxes or health and safety issues for the community.

Question: If your mortgage loan states that you’re using your home as a primary residence are you allowed to rent it out if you move out of the house?

Answer: No that could void your loan and the lender can demand payment in full. You need not get permission from the lender. Most people do not notify their mortgage company and just keep paying. Also your home owners insurance policy would be void so you need to buy a commercial policy.