Mortgage Guide

Rob Blake asked:


What can the Federal Reserve really do to effect the current mortgage rate?

Not as much as you think. Everyone gets excited when they hear something about the Fed lowering interest rates. They automatically think that means current mortgage rates are immediately going lower too.

A mortgage interest rate is not the same thing as the Fed rate. Other names for the Fed rate are short term rates, prime, Fed funds rate. This interest rate is the one tied to your car loans, credit cards, and home equity lines of credit. Even though a home equity line of credit is considered a mortgage, it is amortized like a credit card. That is the only mortgage affected by the Fed funds rate or Prime.

Mortgage rates are not directly but indirectly affected by the Fed moving rates. When the Fed makes a rate move it is felt by the investors. Some of these folks invest in mortgage backed securities. It is the mortgage backed securities that move mortgage rates up or down.

The Fed makes rate decisions on what is happening in the market. The unemployment number, consumer confidence, consumer price index, etc. are just some of the economic indicators the powers that be use to decide if a rate move is needed.

These same indicators are what affect the mortgage backed securities which in turn affect mortgage rates. Every day the market is analyzed using the economic indicators and a rate is established for the mortgage backed securities.

This happens every day whether the Fed is doing his thing or not. A good way to gauge where the market is for mortgage rates is by watching the 10 year bond. When there is bad news for an economic indicator then that means good news for the mortgage market.

Investors get nervous when a bad indicator shows up and they take their money out of the stock market where they feel their money may be at risk and put it into a safer place like the 10 year bond. When money floods into the 10 year bond it drives the price up but the yield down. When the yield is down then current mortgage rates go down.

When there are good indicators and news the investors take money out of the 10 year bond and put it back into the stock market. They can make a better rate of return in the stock market then in the 10 year bond. When they feel safe that the economy is rebounding then the stock market is the place to be. The 10 year bond price goes down and the yield goes up so the rates go up.

If you want to track current mortgage rates because you are thinking of buying or refinancing then do not listen to everyone else and certainly do not listen to the Fed. Check out a financial website and track the 10 year bond.

Remember, when the yield is up then mortgage rates are up and when it is down then they are down. Rates move every day and sometimes if good or bad enough news comes in during the day, they can change in that same day.

Richard

LizaMathers asked:


Mortgage and remortgage rates may vary from one loan program to another. But is the lowest rates actually the best criterion when shopping for a mortgage?

Shop around first to find the mortgage that is compatible with your financial circumstances and count the expenses you’re likely to incur from the first day of your loan application to its closing.

Getting a Mortgage

Looking for the right mortgage or remortgage rates can be perplexing and this is compounded with the task of waiting out the paperwork. Several processes are involved from start to finish. The processes and expenses differ and mortgage approval will be dependent on the findings made by the lending company.

Credit companies have several loan programs tailor-fitted for different needs. But there is hundreds of bewildering mortgage programs. Going over a plethora of information can be confusing for anybody who is not well-versed in the semantics. This is no thanks to the hundreds of mortgage companies out there. But for each program, you must be alert to the implications of the mortgage and remortgage rates being offered in your case.

You will have to give the following information to a prospective lender: are you a home mover, a first time buyer, are you buying a house to rent it out, or do you have the council right to buy. You will be asked to give the value of your property and the amount you want for a loan. Your credit history will scrutinized after you have indicated whether you have a good, fair, or poor credit history. All these information will predetermine your pre-approval for the loan and the corresponding appropriate interest rate.

Fixed Mortgage vs Flexible Mortgage

In your quest for the best mortgage or indeed remortgage rates, consider your present financial capacity. If you’re employed, it is advisable to get a fixed mortgage or a loan with a fixed interest rate.

The advantages of flexible mortgages are the options you can employ to pay off your loan. In this arrangement, you can reduce your monthly payment for sometime or make overpayments if you ever get bonuses or payouts. You can even take a respite of 6 months from paying your monthly dues. You can also withdraw equity from your property using your cheque book. In this case, there are pre-agreed limits to the amount you can access.

The right mortgage rate can depend on the amount added to the principal, which you can afford on a monthly basis. The shorter the loan term, the lower mortgage and remortgage rates but the monthly bills will be higher; the longer the term, the higher the mortgage and remortgage rates but the monthly bills will be lowered.

Do not confuse the lower monthly bills as getting a low mortgage rate. If you’ll add these all up, you’ll see the staggering difference. The deciding factor should be your capability to pay the principal and the interest rate in a given period. A mortgage broker can always help you find the best firm that can provide what you need for a mortgage suited to your individual personal finance circumstances.

Willie