Monday, October 25, 2010
Thursday, April 29, 2010
How Iceland's Volcanoes Are Helping Mortgage Rates Fall
In the 7 days since Iceland's Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.
It's a drag on commerce that's spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table.
In trading circles, it's called "safe haven buying". When the market gets cloudy, investors often move their cash into relatively safe assets. This includes government-backed securities -- mortgage-bonds among them.
Demand for bonds rise, pushing up prices and driving down rates.
Conforming and FHA mortgage rates touched a 3-week low earlier this week.
Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There's literally thousands of influences on the U.S. mortgage market.
If you've been shopping for a home or floating a mortgage rate, luck's been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.
When that happens, mortgage rates will rise.
Therefore, use the seismic uncertainty to your advantage. Consider locking your mortgage rate sooner rather than later -- while rates are still low.
Wednesday, March 24, 2010
Don't Rush To Refinance That ARM -- It May Be Adjusting To 3 Percent Or Lower
If your mortgage is set to adjust this year, the smart move may be to let it. Today's conforming mortgages are adjusting lower than ever before -- as low as 3 percent. It may not be what you expected when you signed for your ARM several years ago.
The reason why ARMs are adjusting lower is because of how they're made.
When conforming adjustable-rate mortgages adjust, they adjust according to a pre-determined formula. The formula is the sum of a constant and a variable. The constant is usually 2.25 percent and the variable is a daily-changing interest rate called LIBOR.
The formula looks like this:
New Mortgage Rate = LIBOR + 2.250 percent
LIBOR is an acronym for London Interbank Offered Rate. It's an interest rate at which banks borrow money from each other. In Fall 2008, when Lehman Brothers fell and sparked a global banking fear, LIBOR spiked as the risk of inter-bank borrowing jumped.
Since then, however, LIBOR is down.
Normalcy is returning to banking and the timing couldn't be better for homeowners with ARMs. 15 months ago, a homeowner's ARM may have adjusted to 6 1/2 percent. Today, that same ARM falls to just above 3.
As a strategy play, it might make sense to let your ARM adjust. Or, because fixed rates are still near 5 percent, converting that ARM to a long-term fixed-rate product might make sense, too. The decision is a balance between how low do you want your payment, and how long might you live in your home.
The longer you stay, the more it might make sense to switch to fixed-rate, even though ARM rates are so low.
If you've got an adjusting ARM, talk to your loan officer about your choices. Once March ends and the Fed withdraws its mortgage market support, mortgage rates may rise and the fixed-rate option may be gone.
Friday, February 19, 2010
Mortgage rates will jump.
Mortgage rates poised to jump as Fed cuts funds
The Federal Reserve is poised to turn off a major money spigot that has helped sustain the ailing real estate sector, as an extraordinary program under which the Fed has pumped $1.25 trillion into the mortgage market is slated to end March 31.
"Housing has been on government life support, and without it the crash would have been much more severe," said Mark Zandi, chief economist with Moody's Economy.com in Pennsylvania. "This spring and summer as those policy efforts unwind, we most likely will see mortgage rates move higher and more house-price declines."
To read the full story, please click here.
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