Mortgage Rate Instability

There is a lot happening in the mortgage industry today. This week U.S. mortgage rates edged slightly higher, veering away from all time lows that have held precedent lately. Total Mortgage Services wrote a great article on the rising mortgage rates and the article proves to be a great read for anyone interested in the mortgage industry. At the same time, Europe faces a large amount of economic instability, causing the mortgage industry to take a step back and be more cautious about writing loans. Bloomberg's report on the U.K. mortgage economy describes what is happening very well.
To sum up the two articles, mortgage rates in the united states are beginning to see an increase from their all time lows recently experience. Rates are increasing as lenders begin to see a recovery in the housing market. This recovery has been stimulated vigorously by low mortgage rates, as well as a loss of confidence in the stock market due to European woes. People are flocking to houses as an investment as opposed to keeping their money locked up on the stock market. This is a great sign for the mortgage and housing industry as it signals a return in confidence not seen since the crash of the housing market in 2008. But with rates increasing and still more economic distress to come, what is the best move to make?
Clearly in England for the banks the best move to make involves cutting the number of mortgage loans written. In the article by Bloomberg, the number of approved mortgage loans fell by 18% this past month. That number is staggering and comes on the tails of weak economic numbers and an overall negative outlook of the Eurozone economy. Clearly lenders in Europe foresee some turmoil in the housing market and have decreased their risk by writing less mortgage loans.
As for an individual living in the United States, rates are extremely low, housing prices still have not recovered fully, and the stock market is volatile. If you have the ability to invest in housing, now is the time to do it before the credit markets tighten up and the rates increase. There are many types of mortgage loans out their to satisfy any investment needs so really consider giving a housing investment a thorough look right now. I will inform you in another daily post if the situation changes.

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Housing Recovery?

Mortgage Rates have fallen to a record low. USA Today wrote a great article about the effects that the low mortgage rates are having on the housing market. The idea is that low mortgage rates will be extremely beneficial to the economy in three ways.
The first way involves the refinancing portion. Refinancing to lower rates allows current homeowners to spend less money each month on their mortgage payment. This causes an effect where the homeowner has more disposable income, feels richer, then spends the money stimulating growth. In this aspect the low mortgage rates will be very beneficial to our economy as a whole.
The refinancing alone though will not influence the mortgage economy as much as the fact that low mortgage rates make investing in properties more profitable and allow people to buy and sell houses much more easily. Whenever houses are bought or sold it has a very influential effect on the economy because people invest money in fixing up there home. With more money to spend and increased real estate investment, the overall housing economy should see some growth. Remember that right now the housing market is at a relative bottom. So any growth at all is a huge positive, it signifies the emerging from a valley.
The third way low mortgage rates will benefit the economy involves stimulating the lending environment generating money for the banks and lenders that will be further put back into the economy. The cycle of lending needs to be continuous and ongoing in order for the economy to revert back to fully functioning. Without lending our economy will again come to a standstill.
In these ways all signs point to a recovering housing market. But let's take a look at some externals that will factor in. The jobs reports are bleak, the financial bailout did not work as intended, Europe is in financial chaos, and the middle east is in unrest.
If the jobs reports show high unemployment that means a lower number of people are in the total population of people able to buy a house. Without employment you cannot get a mortgage loan. This has a very negative effect on the mortgage and housing industry.
The financial bailout has cause the United States to be in a massive amount of debt. The only feasible move for the U.S. Government to make is to raise taxes to overcome the debt. The increased taxes will cause people to have less money and will cause the growth in the economy to slow.
Europe is in such unrest that financially every other country needs to be on guard against another recession because of how intrinsically linked our global financial markets are.
And finally the middle east, specifically Syria at the moment, is in unrest. With turmoil overseas the only option the United States have is increasing money spent on defense. This will affect other areas of the U.S. because less government investment will lead to crumbling infrastructure.
For now I would be very concerned with the housing recovery. Their are too many variables that could go very negatively.

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Backing up What I said Earlier about Mortgage Economy Slipping

Mortgage Economy Information

This article gives all the new home sales stats for the year past defined on July 25th, 2012.

Oddly enough, new home sales plummetted while median home sales prices also declined. Usually when home prices decline home sales go up, but with all the information about the current mortgage economy I blogged about earlier, this isn't a surprise. The big surprise comes from the fact that home supply is near a record low. Median prices of homes shouldn't be falling if demands for home is high from the low supply of homes. Right now all the financial data is pointing to some ill signs.

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Current Mortgage Economy

Bleak. The current mortgage economy is bleak. With consumer spending down across the board, decline in growth in China and a recession looming in Europe, the mortgage industry does not look like it will recover anytime soon. People can't afford to spend money buying houses at this point in time due to the negative strain recession will put on their income, as well as fear of loosing jobs due to the impeding economic recession. The housing market is up a little bit with home prices creeping higher, but overall the housing market still has not recovered from three or four years ago when prices were extremely inflated and the market crashed.
The mortgage bankers association is a great place to get all your current economic information related to mortgages. You can find the current monthly forecasts and outlooks at Mortgage Bankers Association.

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Flipping A House

Flipping a house is the process by which an investor purchases a house with the money obtained from a low interest mortgage loan, then subsequently sells the house quickly for a profit and repays the mortgage loan before taxes and interest accumulate. Flipping houses caused the mortgage failure of 2007 through 2008 due to the high number of mortgage loans being written to unqualified investors in hopes that they could make profits flipping houses.
Basically mortgage companies got greedy. Instead of writing safe stable loans to people interested in buying homes for the purpose of living in them and paying down the mortgage, they came up with all types of fancy loan modifications so that no money was needed as a down payment on the house. This caused a flurry of investment into houses, driving up the housing prices and generating a large amount of money for everyone involved. The problem came when the only people that were buying houses were people investing money into house flipping. This drove the price up so much it wasn't worth it for people to purchase homes to live in because they were overpriced. When millions of mortgage loans by investors were defaulted on, the mortgage industry collapsed. And thus the mortgage meltdown.
Now is flipping a house entirely bad? No. There is money to be made in the real estate market and right about now with the impending stock market crash due to the European crisis, right now might be the perfect time to invest your money in houses. With the economy slowing down there will be more demand for rental residences and the concurrent receding of the housing market and the stock market will not be equal. The housing market will decline much less than the stock market, strictly because it was already battered so heavily and has not recovered like the stock market has. So my advice to you? Use all your money to buy up cheap houses and convert them into rentals for a couple of years to pay off the mortgage payments, then flip them for some real money in a year or two. It will definitely be worth it.

Average Rates for April 24, 2010

Here is an update on the average mortgage rates for Saturday, April 24, 2010. All of these average rates also have points associated with them averaging out to around 1 points per loan. For more information about points and rates please visit our mortgage info section.

30 Year Fixed = 4.93%

20 Year Fixed = 4.83%

15 Year Fixed = 4.36%

3/1 ARM = 3.69%

5/1 ARM = 3.65%

7/1 ARM = 3.92%

10/1 ARM = 4.42%

Home Equity Loan - 10 Year = 4.09%

Home Equity Loan - 15 Year = 4.75%

Prime Rate = 3.25%

1 Year T-Bill = .400%

6 Month LIBOR = .418%

12 Month LIBOR = .963%

*These rates are based on current lender averages and do not reflect official market values and depend entirely upon the borrowers specific fiscal situation.

Current Mortgage Climate

Currently our mortgage sector is in shambles and the government programs designed to fix the problem really just exacerbated it through mitigating the losses of the people whom made mistakes (banks) without providing regulations to force the capital to trickle down to the people who can no longer afford the high monthly payments they thought they previously could due to the bad economy. In capitalizing the banks without actually correcting the problem of massive foreclosures on bundled loans the fundamentals of the mortgage market have been allowed to decay further than at the height of the mortgage meltdown because it is no longer about earning money from honest practices (charging interest in return for the opportunity to own your own home) it is about making as much money as possible before flipping the bundled mortgages to some unlucky investor. The practices still unregulated by the government going on in the mortgage industry point to some extremely troubling signs. First of all, with the current economy being so shaky nobody can really precisely value homes. I personally feel they are still overinflated and we will see another re-correction downward of the housing market around the middle of 2010. This dip will be the direct result of not correcting the foreclosure rates currently experienced in the mortgage market compounded with the intense amount of lower income first time home buyers who rushed into buying homes because of the $8000 first time home buyer tax credit (which at the time of this writing will expire in one week.) The overall negative indicators of the current economy do not forebode well for the mortgage market.

How will this effect the financial sector and the specific economics of mortgages? First of all the big defining factor will be the FED, or Federal Reserve Board. The FED controls the rate at which lenders can themselves borrow money. The lower the rate the FED charges lenders, the lower the rate lenders charge borrowers and vice versa. The problem with the economic conditions we currently face involves the fact that in order to shore up their balance sheets and start recovering some of the money lost in the recession the FED really needs to raise rates. If the FED raises rates then the ability to get loans will greatly decrease. The mortgage brokers will no longer want to write loans to anybody without a superb credit rating and thusly the lower middle class and down won't have access to credit. So at this point (if the FED raises rates) we will still have a high number of foreclosures remaining from the previous housing bubble, the influx of foreclosures resulting from unqualified consumers greedy for the tax rebate, and yet again an extreme slowdown in the rate that mortgage lenders will write loans. The entire mortgage sector will experience turmoil resulting in a re-correction of the market to about 70% of current home values. If the FED takes the opposite approach and lowers rates then access to borrowing will be much more available but really will just perpetuate the cycle of writing newer bad loans to cover the older bad loans made before. At some point the mortgage industry needs to just chalk up the situation as a sunk cost and reformulate the basic purpose of mortgages. If greed continues to run rampant among financial institutions though we could be in for an extremely rough ride during the upcoming months.

Fannie Mae and Freddie Mac

So I was sitting watching The Kudlow Report today and Kudlow stated something along the lines of, it isn't banks that are causing this financial crisis... It's Fannie Mae and Freddie Mac. Let me just set the record straight. It was NOT the fault of the government agencies designed to be providers of secure lending to underprivileged people. It was the shameful greed of America especially those on wall street, the government officials preaching deregulation, but most sadly the majority of the population who decided with all these fancy financial instruments I can live well above my means and hope that everything goes up a lot so in 15 years I can sell houses at a profit. It is ridiculous to think that people purchased so many loans that within two years they completely crashed our financial system, and yet nobody caught on. Anyway, I've digressed. I think with help Fannie Mae and Freddie Mac can conservatively recover and later down the line resume command of issuing loans to lower income citizens of the United States of America so we can have a working class.

Also, the housing market will recover but it will be on much lower income homes. I'd say houses you could build and sell to people for $50,000. When we figure out how to make living in a $50,000 home feasible and enjoyable then the housing market will recover to before bubble periods.

Welcome to Mortgage Rate Co.

The purpose of writing this blog is to eventually merge it with a website our team is developing. Throughout the course of this blog, which will be a constantly growing resource for pertinent up to date mortgage information, our team will put links to the Mortgage Rate Co. website where more detailed and specific information can be found.

Mortgage Rate Co. is a resource for any and all information regarding mortgages, rates, home loans, lenders, banks, borrowing, repaying a loan, loan amounts, the mortgage process, and of course consistent and friendly help with anything and everything you need. We pride ourselves on the high level of service and knowledge we bring to the table and would be more than willing to walk you through the necessary steps to finding you the right loan, lender, mortgage, and of course the best rate available. Our lenders' rates are updated regularly and we constantly add information to the Info Center so check there to expand your familiarity with the mortgage world.

In the current mortgage market and the financial credit crisis that has thrown our economy into turmoil we hope to help you achieve the best loan possible for your specific needs; whether that includes refinancing, a longer term mortgage, helping to rebuild your credit score to qualify for a lower rate lessening monthly mortgage payments, or just helping to get you started on the path to home ownership. We promise that through our vast network of mortgage information we can help. So don't hesitate to look around our site or contact us personally for some mortgage help.

If you are in any way remotely interested in a mortgage loan or just want to look around at the market and various aspects of it we hope you enjoy your visit to our site and we hope you will return to view the new material we constantly post about the realm of mortgage rates.

The Workings of Mortgages

Taking out a mortgage to finance the purchase of a home can be very confusing. There are lots of different types of loans to fit any financial situation, and to ensure you get the best one you must understand how mortgages work and which one you will be best with in the long rung.

The most traditional type of mortgage loan is called a fixed rate mortgage. A fixed rate mortgage is extremely defined from the start including a rate that stays constant through the duration of the loan, which makes every monthly payment exactly the same and thus predictable so you can plan financially around the mortgage payment. Along with a fixed rate the duration of the mortgage is also predetermined, usually for a length of fifteen to thirty years. These loans are nice because the payment does not change with rising or falling interest rates, and are easily managed as long as the amount of money borrowed is not too large in the first place. You can find more information about fixed rate mortgages in our Info Center.

The next type of mortgage we will discuss is known as an ARM, an adjustable rate mortgage. The difference between a fixed rate mortgage and an ARM is that as mortgage interest rates rise or fall in the country the rate associated with the ARM rises or falls as well. This can be beneficial or negative based on whether the rate at the time is rising or falling. When the rate of a loan becomes higher or lower the monthly payments adjust accordingly which can prove burdensome for people with less discretionary income. The problem comes that if an ARM rate becomes too high then it can be difficult to pay the monthly payment every month, subsequently causing people to default on their loans and loose their homes to foreclosure. If you are confident the rates in the market will stay low or not rise higher than you can afford an ARM could be great if the rates go lower.

Another type of mortgage for people with less than perfect credit is known as a sub prime mortgage. These are mortgage loans made to people who normally could not obtain a loan at the expense of a much higher interest rate. In order for lenders to take the chance on people who have previously had blemishes on their credit record they need to garnish a bigger reward for themselves in the end. Thus they charge a much higher interest to people with lower credit. Sub prime mortgage rates are largely based on what credit score the borrower has, as well as current financial situations.

The three other types of mortgages that are seen enough to be noted are Jumbo, Balloon, and Two-Step mortgages. These are just various twists on mortgages based on a person's financial situation and mortgage loan needs. A Jumbo loan happens when a person needs to borrow a larger amount of money than the limit on regular conforming loans set by Fannie Mae and Freddie Mac. The larger amount of money is borrowed usually at a higher interest rate. A Balloon loan is a loan that has a lower interest rate for the first couple of years than would normally be given to a person for the amount of the loan, but after the pre-decided period in which they receive a low rate they must pay off the principle or refinance. A Two-Step mortgage involves paying a fixed rate for a certain period of time, then readjusting the rate only once for the duration of the mortgage. All these types of mortgages are detailed more elsewhere in our learning center.

Basically these are the ways in which a person can finance the purchase of a house. They all have their ups and downs, some are better than others in various circumstances, but overall these are the typical ways in which mortgages are repaid in the current mortgage lending system.

What Is A Mortgage Rate?

A mortgage rate is what determines how much money the mortgage lender gets back overall for taking the risk of lending out a large amount of money. Rates often vary by loan type and amount of money, as well as personal credit score and current financial situation. Mortgage rates work by every year taking the percentage determined by the rate and then re-adding it to the loan total. So basically if you have a $100,000 loan, with a mortgage rate of 6%, the first year if no part of the loan was paid off, $6,000 would be added to the total. That is the most basic way to look at it. There are many different factors and variables that play into the amount of money added and total amount accrued but basically you can look at a mortgage rate as an amount added every year based on the value of the loan.

It is important to get a good mortgage rate in order to make lower monthly payments to easily be able to afford to repay the loan. Without shopping around and finding the most competitive rate a home buyer might potentially pay tens of thousands of dollars more by the end of the loan. In order to understand mortgage rates more, please use our mortgage info center to look at types of rates and how they apply to various loan types and amounts.

Mortgage Lenders - Banks and Brokers

To understand fully the system of obtaining a mortgage loan we must look at the two sources in which mortgage loans are originated. The two ways in which a perspective home buyer can borrow money come either from a bank, where naturally money is stored and doled out in a secure manner, or a mortgage broker, whom specialize in providing loans designed to use houses as collateral for the money being loaned. Both are viable options for people considering the purchase of a home, they both have positives and negatives which will be described below.

Taking out a mortgage loan from a bank for generations has been a great way to finance the purchase of your new house. Banks have large amounts of funds to dip into when you go to them seeking a home loan. They are regulated by the government and most likely can give you a lower interest rate on the money that you need to borrow. The problem with banks is that their intense network of financial transactions means that your mortgage to the bank is just another number on their balance sheets. Although smaller banks will provide a higher level of service than mega-banks, their commitment to you as a customer is relatively based solely on bills and payments. This can play a problem when a financial problem arises and you need highly knowledgeable and caring support to help you maintain the ability to repay the loan and keep your house. So although the rate might be lower the level of service most likely will also be lower.

Getting that same mortgage from a licensed mortgage broker has its own benefits and drawbacks. A mortgage broker needs to gain funds from investors or banks for each individual loan it writes. This means that the rate they can loan you the money at will be based on the rate at which they have the money loaned to them. Although the rates aren't too much higher, they probably will not be as low as if you originated the mortgage directly from the bank. The huge benefit that comes from taking out a mortgage with a licensed broker comes from the much higher level of service they will provide throughout the duration of the loan as well as the incentives they will give you in order to entice you to do business with them which often includes lower closing fees and no penalties for paying down the principle early. Also in a time of financial woes a mortgage broker would be much more willing to work with you as a customer in order to help you continue to repay the loan and interest on that loan. If you default on your loan it is much more of a burden to a mortgage broker because they need to repay the loans they took out to finance your loan. So basically a mortgage broker provides more service than a bank and is more willing to work with you in order to prevent foreclosure, but the interest rate on the loan will be slightly higher.

Overall both banks and brokers are good sources of mortgages, it really depends on your individual situation, financial security, and future plans. For example if you have a very secure job which pays well and have a decent nest egg to make sure if anything goes wrong you have a back up plan then using a bank to secure a mortgage loan would probably be the better decision. If you have some misgivings about your job security and don't have too much leeway with your savings then finding a mortgage broker to guide you through how much money you can borrow and how easily you can repay that loan would be a better idea. The best option always when making a huge financial decision such as purchasing a new home involves shopping around and learning as much as possible in order to make the most educated choice.

What is a mortgage?

A mortgage is a home loan. In order for an average person to be able to buy a house they will need a little help. To start the process of obtaining a mortgage a great place to start is by looking around for mortgage lenders. A mortgage lender will front the money an individual needs to buy a house on the condition that every month a payment is made in order to repay the loan. The loan's can come in various forms but usually they take 15 to 30 years to be fully repaid. After finding out some info on a few mortgage lenders a person must go back and forth between the best offers different lenders can make to find the best rate. The mortgage rate is the important part because it is a percentage of the total loan that you need to pay each month until the loan is paid off. The interest rate is the cost of borrowing the money. So if you shop around for a lower mortgage rate usually in the end you will have lower monthly payments and over the course of the loan pay less money to the mortgage lender.

The main reason mortgages exist involves the fact that people want to start building up their equity, which is the portion of the property you currently own due to paying off your debt. So basically you pay off the debt and you own more and more of the house. With a mortgage loan people can begin to own a home much sooner than if they had all the money to buy it in the beginning. They are an essential financial tool in our society as well as an asset and a value to individuals. If you’re looking for a home to live in, start a family, rent out to others for profit, or any other reason somebody might purchase a property a mortgage is the best way to achieve that goal.

Benefits and Drawbacks: Buying or Renting

When deciding whether or not to buy a home many things need to be considered. First of all the current situation of the perspective mortgage seeker must be taken into account. Where does the person live now and why do they wish to purchase a house? If you currently live in a place that does not cost a large amount each month then the monthly cost of the mortgage might be too strenuous on your finances. For example, a person recently graduating from college that still lives with their parents would probably find paying the monthly cost of a mortgage very difficult. Alternatively a person that has been paying a high amount each month for rent probably won’t be too disheartened writing a check to the mortgage lender every month.

Secondly, does the person have a current house they own with equity in it which will alleviate some of the amount of money they must pay for the house? If a person can sell their current home, pay off their current mortgage, and have a solid amount of money leftover to use for a larger down payment will make it much easier to buy another house. This extra money used for the down payment would reduce the amount of money needed to be dished out each month because usually mortgages are repaid in a system of monthly payments.

Thirdly, are you financially secure enough to afford the huge cost of purchasing a home and repaying the mortgage loan? A mortgage is a huge monetary commitment. If you are unsure of how long you will be sticking with your current employer or plan to relocate in the near future then buying a house would probably be a financial loss. The process takes a lot of money with all the costs associated with it and usually only becomes a beneficial investment after a couple of years paying down the mortgage and building equity in the house. So if you’re financial situation is somewhat shaky or you plan to move in the near future purchasing a house would not be as good of a decision as continuing to rent and avoiding the costs of obtaining a home loan.

In the long run buying a home can be a great investment and very sentimental. Everybody needs a place to live; to reside in with friends and family, and buying a home can provide a person with a wonderful feeling of accomplishment when they can finally call a place home. It also provides a higher incentive to maintain and invest in the property because that money will be returned when the house is sold. But in order for buying a home with a mortgage to be worth it the person must be willing to live in the home for a solid amount of time in order to avoid loosing money on the deal. Hopefully you can have the great experience of being a homeowner and being able to call somewhere a “place of your own”.

Introduction to Mortgage Rate Co.

Hello,

From henceforth I will be blogging everyday out of personal pleasure in order to help figure out this fiscal disaster called the Mortgage Crisis. Since late 2007 the mortgage industry has undergone a very tumultuous down swing due to bad lending practices and terrible risk assessment. Also the incentives for mortgage lenders at large mega-banks to write bad loans hasn't necessarily changed, and without reform of the system our population will quickly forget the troubles that occurred and in within a decade the same problem most likely will occur due to American greed.

The problem with the mortgage market isn't the original system that was established so people with the ability to repay a loan could buy a home younger and actual own the property so the money they put into builds equity and translates into personal wealth. Well with great rates and no regulation, the mortgage industry got soft and began writing massive amounts of loans to people that could not make payments, most often in cases where the homes were meant to be bought and then quickly sold at a profit. Well all the houses were overvalued and the people buying/selling the houses didn't have the ability to repay the loans, so when the house prices dropped because of the housing bubble bursting, lots of people had no way to repay loans. In the meantime all the companies writing loans bundled all the bad mortgages together into a financial derivative called CDOs or Collateralized Debt Obligations. When all the buyers/sellers defaulted on their loans the people who bought the "secure" CDOs lost billions of dollars, causing a huge cascading collapse of our financial system.

What will become of the mortgage industry next?

Current Mortgage Rates: 5%-7% for a 30 year fixed rate mortgage