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How Does the Market Affect Mortgage Rates?

When buying a new house, everyone would like to avail the best mortgage rates, which vary with market conditions. So you have to be aware of the market conditions to get the best deal.  Mortgage rates, tied to Wall Street activities and the national economy, vary from day to day. If the Federal Reserve decides to increase the key interest rate, which depends on the health of the national economy, lenders respond by raising their yields to investors. This leads to increased mortgage rates.

Similarly, mortgage rates fall if the condition of the economy is not good, in which case the Federal Reserve takes suitable action to revitalize the economy. This manipulation of the mortgage rates takes place all the time, and it is important to keep track of mortgage rates indexes, alerts and online financial news feeds, which are excellent indicators. Lenders have to follow the market trends and consider the secondary market and the sales of existing mortgages by agencies such as Fannie Mae and Freddie Mac. They cannot set their own rates, which are basically determined by financial investors.

Therefore, to avail the best mortgage rates, keep monitoring the financial indicators and news and examine all economic parameters relating to mortgage rates. As such it is important to keep track of the financial news in local and national newspapers.

The mortgage lending institutions have to compete with the other markets for the investor's money. If bank deposits are not enough to meet mortgage fund requirements, they have to borrow from the money market, which will not be to their advantage.

How can you, then, get the best mortgage rate? One by staying in touch with fluctuating financial information and doing enough research and preparation. You must keep track of the ever-changing mortgage rates before deciding on the right time to go in for a mortgage. Interest rates, today, are at their lowest ebb and, as such, mortgage rates, which hovered around 10%-12% a decade ago, are now around 4.5%-5% on a 30-year fixed rate.

That means that the best way to secure the lowest mortgage rate possible is to keep an eye on the news, to monitor financial indicators and news closely and to examine all economic cues relating to mortgage rates. Remember, glancing over the financial pages of your local or national newspaper can go a long way in the long run. Therefore, mortgage lending institutions are competing with other markets for the investor's money. If a bank doesn't attract enough depositors to fund all the mortgages, they have to go where their depositors go--the money market--to make up the difference. There, they pay the going mortgage rate!

Combining research and preparation, as well as staying plugged into all the latest up-to-date financial information can go a long way in ensuring that you get the mortgage of your dreams. All this information is well and good you say: but what's the mortgage rate today. You've asked the time and you're told how to make a watch. Unfortunately mortgage rates are not a constant. They are ever changing, depending on hundreds of factors in the continuing evolution of our economy. The market conditions detailed today will be old news tomorrow. The only certainty is that interest rates are nearing historic lows and compare to the 10%-12% mortgage rates of a decade ago, 4.5%-5% 30 year fixed rate is a bargain.

No one is asking you to be an economist, but there are certain market conditions you should look out for when it comes to shifting mortgage rates. Being aware of the varying conditions can go a long way in ensuring that you get the best mortgage rate and best deal on your new home.


Does refinancing AGAIN makes sense???

Wonder if refinancing again makes sense if you’ve closed on your most recent loan as recently as 9 months ago? The answer may surprise you. Depending on your situation, you could shorten the term of your mortgage, or enjoy more cash in your pocket every month! Here is an example of a situation where it would make sense:


                   Balance Principle     and    Interest
Current          $250,000.00                $1,380.51
Proposed       $250,000.00                $1,279.53

 

In this case, we were able to lower the borrower's rate by three quarters of a percent. With the drop in rate, this borrower could save $100.98 per month, which is great as it is, but there is another option: Get a lower rate, but make the same payments. Why? If this borrower continues to make the same payment she makes every month, that $100.98 goes directly towards the balance of the loan. She’d be done with the mortgage more than 4 years ahead of schedule, and over that time, she’d save more than $26,000!


That’s great if she is planning on staying in her house for awhile. What if she plans on moving in the next 5 years? MBA has some programs that can eliminate closing costs, so the savings of the lower rate start on the first month!


Whether you plan on staying in your current home for the long term, or have plans to sell in the next few years, we’d be happy to go over your options with you. Give us a call today to see what we can do!

 

*note that rates change every day--these rates are approximately what we see in the market, but are used here for illustrative purposes only.

 


Would and ARM be right for me? Don't be so quick to say no!

We wanted to inform you that ARMS are very competitive again, with rates as low as 3.25%. There are definite situations that can greatly benefit from these products. Having the right knowledge and knowing how to use them correctly is the key.

•Selling in 3-5 years
•looking for increased cash flow every month
•Understand the caps and margins of your mortgage (contact us for an explanation)
If you think that you may fall into one of these categories, please feel free to give us a call and we would be more than happy to discuss your options and give you some professional feedback on whether it is right for you.

Just look at the difference (for illustration purposes only)

30 year fixed: 5/1 ARM

•$200,000 $200,000 Loan Amount
•5.375% 3.5% Interest Rate
•$1,120 $899 Monthly P&I Payment
$221/ month Savings, which equates to $13,260 of cash flow over 5 years

 

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This is an actual analysis written for one of our clients by a licensed MBA Mortgage Loan Officer:

 

Good afternoon XXXXXX

Thanks for discussing your thoughts with me. Here is the informaiton we discussed and why I think the 7/1 ARM is the best fit for your particular situation. Since you only plan on living in the house for 5-6 more years, the 7/1 is a good option because it gives you a cushion in case you cannot sell prior to 6 years. The 10/1 is ok, but if you are looking at the 10, you might as well take the 30 year... The rates will depend on the LIBOR rate, which is currently at 1.08%. The margin which is 2.25%, so if it adjusted today, then the rate would 3.33%. However, we don't know what the LIBO will do in 7 years. The caps on this are 5/2/5, meaning no greater than 5% in the first year, no greater than 2% in any other year and no greater than 5% over the life of the loan. Sounds scary, BUT it's really not. Think about it like this: Assuming the Average 30 year fixed is at 4.5%, or $2,052/ month bases on your estimated $405,000 loan amount. 7 year balance = $352,456/ 10 year balance = $324,361 If you were to refinance today into a 7/1 ARM:


•3.875% Note Rate
•5% first adjustment Cap
•5% Lifetime Cap
•2% Annual cap
•2.25% Margin


The REWARD side:

Years 1-7 (compared to 30 year fixed)Payment is $1,904/ mo which is a savings of $148/ month and a 5 year savings $8,800 For the first 7 yrs you are at 3.875%. Why does this make sense for some people? Your Balance after 7 years = $347,531 ($4,925 less than the 30 year) Assuming you send the difference in the payment between the 30 and the 7/1. You pay an additional $148/ month, and your balance = $333,276 ($19,180 less than your 30 year)

The RISK Side:

Let's say you let it adjust, which a move frequently is not played. If the first and the lifetime cap is 5% from original rate, then let's say:

Worst case scenario: The rate adjusts the entire 5% in the first adjustment and now you're at 8.875% (highly unlikely). If it were the stay at that worst case scenario for the next 3 yrs. then for first 7 yrs you were at 3.875% and last 3 years you were at 8.875% meaning worst case scenario your average rate was 6.375% over ten years, with the opportunity to pay a lot more to principle over those first 7 years. Your balance at the end of 10 year is $331,260, which is not that far off the 30 year balance, and you were able to pay it down rapidly over the 1st 7 years. AND THAT JUST THE WOST CASE!!

Best case scenario:

You start at 3.875% and the loan drops to 3.25% after 7 yrs (Also not very likely, but has been happening lately). Knowing that the rate may change every year at this point, but not by more than 2%, then you know you will go from 3.25% (8th year), to 5.25% (9th year), to 7.25% (10th year). Your 10 year balance is around $318,653 which, once again puts you in front of the 30 year term.

REALITY:

With something in the middle being realistic, as you can see with these numbers, ARM's (when properly understood and used), can be a tremendous advantage to the consumer.


Our Rotary Club Awards $40,000 in Scholarships to 10 Area High School Seniors!

Rotary Scholarship Awards 2011

Scholarship Winners (not in order of picture): Lyndsy Muri, Ashland High School; Sarah Miller, Hopkinton High School; Scott Todd, Framingham High School; Alexandria Gomes, Joseph P. Keefe Technical High School; Lauren Taylor, Framingham High School; Kelsey Jones, Hopkinton High School; Dominique Haskins, Joseph P. Keefe Technical High School; Stephanie Schulman, Joseph P. Keefe Technical High School; Jennifer Mejia, Joseph P. Keefe Technical High School; Jessica Boudreau, Holliston High School.

Luncheon was held at Joseph P. Keefe Technical High School hosted by Keefe Tech Hospitality Program Students.   Our team members are proud to be members of Rotary International.