Home Mortgage Weblog

In an increasing interest rate regime, home mortgage companies have found a new product to market. While, they focused on ARMs when the interest rates were low, now they are getting aggressive on fixed rate mortgage loans. ARMs were an extremely attractive option for customers earlier. However, with short term rates having escalated to about the same as long term rates and with the future of adjustable rates being uncertain, they have turned unattractive to customers.

Different mortgage companies are following different strategies to promote fixed rate mortgages aggressively. They are focusing on converting existing ARM customers to long term loans. Some companies are using statement inserts. Other companies send direct mailers to customers 45 to 60 days before their ARMs are scheduled to reset, encouraging them to switch to a fixed rate mortgage. The increasing interest rate regime has decelerated the realty market and the home mortgage market forcing mortgage companies to innovate products to maintain the lending boom.

If you found it difficult to buy a home because monthly outflows restricted you from doing so, there seems to be light at the end of the tunnel. The Treasury Department is in the process of resuming 30 year bond sales. Long bonds will enable lenders to offer more 40 year mortgages and start 50 year mortgages as well.

While the Treasury rates and loan rates are not directly connected, the former act as benchmark rates basis which, lenders set mortgage rates. As of now 10 year rates were serving as guidance for the setting of mortgage rates. 30 year rates, which will be lower that 10 year rates, will enable lenders to offer softer mortgages.

Longer term mortgages imply a longer payback period leading to lower monthly outflows. Long mortgages can come as a blessing for the US realty and mortgage industry as high interest rates have dampened the boom.

Close on the heels of the Ameriquest case, where the home mortgage financier was forced to cough up USD 325 million for targeting sub-prime lending, more mortgage companies targeting credit-strapped borrowers are likely to fall in the net.

Sub-prime lending involves lending to customers, who otherwise cannot get loans due to reasons like poor credit history. Sub-prime lending is usually at rates higher than prime rates. Paradoxically, customers who cannot get prime rates are customers who usually cannot afford sub-prime rates. Hence, financiers that have targeted these groups in effect have created more trouble for them. Sub-prime turns predatory at the stage when the customers are unable to make repayments and the predatory-lender acquires the property.

State financial regulators are now working closely to monitor the situation and penalize companies that have been indulging in this practice

If you have been contemplating buying a home for yourself and have watched the prices go through the roof and thought that you’ve missed the boat, you are in for a surprise. You are in luck, because property prices are expected to start softening for sometime to come.

The reason for this is that interest rates have shot up and easy money that fuelled this growth is no longer available. With the Fed having raised interest rates continuously, interest rates on adjustable rate mortgages are near 6%.

Thus, it is best for you to wait till prices to soften. Buying at softer prices will enable you to build on home equity as the markets recover again later.

To read more about timing your buy, click here.

Usually when a customer gets a loan home offer, add on costs haven’t shown up as yet. When the customer is ready to sign on the dotted line, the surprises come in. They could be in the form of processing charges, administration fee and other mysterious fees.

The customer, who may have initiated a bargain buy for his home, which is time bound, may not be in a position to shop around for another loan and may be forced to pay the extras. Federal officials are now working on regulations to force financiers to disclose all costs and provide good faith estimates. Some banks are also taking the lead and doing this on their own initiative.

The wise thing for you to do would be to insist on disclosure of all costs right from the beginning and ask the financier to provide it in writing.

Don’t be in a hurry to trash your home mortgage papers, even after you have paid the last instalment. After the closure of your mortgage, you will need to ensure that the lender issues you proof of clearance of the title. Procedures vary from state to state.

You may need to pursue this activity as the lender does not have a monetary incentive to undertake this activity. Even though state laws require lenders to return the papers within 15 to 21 days, rarely do they do this before 90 days. However, for you, this is one of the most important last steps to fully owning your property. Also, if you were to take a sudden decision to raise capital against your property or to sell it, you may be unable to do so until the lien is cleared.

When you took you home mortgage finance, did the loan officer brief you on all aspects extensively, or was he vague and you were so desperate to close the deal that you did not bother to find out?

Owing to the homeowner’s eagerness to close a loan, mortgage officers have been taking advantage and not acquainting customers appropriately. But, help is at hand. After the Ameriquest settlement, loan officers, especially covered in the settlement will be bound to explain details of the offer extensively.

This will cover major aspects of the offering, including interest rates and changes, pre payment penalties, service charges, and any exceptions applicable.

Given the current deceleration in the realty market, customers should also ensure that they assess all terms and conditions carefully and have them included in the legal contract for a safer tomorrow.

The recent rise in interest rates is turning home mortgage customers edgy. With mortgage companies beginning to hard sell fixed rate mortgages, you might get tempted to switch your ARM to a fixed rate mortgage.

However, before you take that decision, you need to consider a variety of factors that will enable you to evaluate if your switch will be profitable or not.

Factors that one needs to evaluate:

• How long you intend staying in your house
• The current interest rate on your mortgage
• When will that rate begin to adjust and how high can it go
• Rates on competing products
• Whether your loan carries a prepayment penalty

If you do not intend staying long and plan to sell your property, it may not be worth making the switch. A detailed analysis of these factors will help you take the best decision.

ARMs or adjustable rate mortgages have been the mantra for the home buyer for some time now. With short term interest rates having been as low as 1.5%, ARMs were very attractive and customers even chose riskier versions of ARMs like interest only payments, amongst others. Never had the consumer expected that home loan rates will cross six percent. Another Fed hike, though, unexpected, can make these rates close to seven percent.

In order to hedge the risk of increasing interest rates, customers are now showing an increasing preference for fixed rate loans. Fixed rate mortgages may be of tenures from 15 to 30 years, with the 15 year mortgage carrying more attractive rates. Fixed rate mortgages are also becoming increasingly attractive because the spread between ARM and the former has decreased considerably.

With the Fed having raised interest rates by 25 basis points, home mortgage rates have also firmed up. Higher interest mortgage rates have led to a considerable fall in mortgage application rates. A decline of 5.1 percent for all mortgage applications was recorded for the week ended January 27. For the home loan section, the fall was even more exacerbated and the purchase mortgage index fell a full 8%. This is one of key index for gauging the health of the US realty market.

With Allan Greenspan having made a remark last year that the realty market is taking proportions of a bubble, people now seem to be watching the situation in expectation that property prices might start to fall. Others have merely deferred their decision, due to the rate hike and may take a little longer to close their deals.