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From Mentor's Desk- Mortgage Rates 'Sky is the limit'

Posted on: 01st Nov, 2005 08:53 pm
Mortgage rates go high for seven weeks in a row

The US economy seems to be making progress and experts believe that this might be the reason of the interest rates being the highest for the past 2 months. The economy registered an annual growth rate of 3.3% in the second quarter of this year. Investors and economists roughly evaluate the third quarter growth to be around 3.6%. Unless there is sufficient productivity, such faster growth may lead to inflation and the probability of higher inflation may cause interest rates to rise.

This year itself the rates for 30 year fixed rate mortgage rose 7 basis points to 6.24% as projected through a national survey. The discount and origination points for all mortgages had an average of 0.29% this week. On the other hand, the 15 year mortgages rose 7 basis points to 5.79%. But the rates of adjustable rate mortgages could register a rise of 5 basis points to 5.82%. Financial experts consider the rates on fixed rate mortgages to be quite attractive this year because these have been below 7% since April 2002.

But mortgage rates are expected to reach 6.8% by the end of 2007. However, economists consider this growth to be moderately low as per historical standards. As of now, the rates are expected to rise by 1/4th of a percentage point for the remaining part of this year. Investors also anticipate that Federal Reserve may increase the rates of short term loans to any unexpected value. As far as the long term loans are concerned, the rates may rise another 40 to 50 basis points by next year.

Jessica Bennet
Mortgage Mentor
waht does basis point mean?
Posted on: 01st Nov, 2005 11:38 pm
Hi Lizzy,

A basis point is equal to 1/100th of a percentage point, that is 1/100th of a percentage. it is the smallest measure for quoting yields in the bond market. These are used for interest rates. Basis points are used with other things to measure the changes in the yield of a bond in the money market.

1 basis point = .01 in interest

Posted on: 01st Nov, 2005 11:53 pm
Hi, I have take an adjustable rate mortgage last year. I have heard that the FED has again hiked the rates. is it going to be harder this time?
Posted on: 02nd Nov, 2005 11:10 pm
Hi Jim,

If you have adjustable rate mortgage that adjusts annually, half yearly or monthly, then it is almost certain that the rates will rise whenever the adjustment period comes. If you have got some hybrid product such as 5/1 ARM then the rates for initial period will be low which will last for 5 years and after that will adjust annually. In this phase of rising rates, it is actually not possible to predict what will happen to these rates after several years from now.

What I would suggest is that plan your budget properly and try to pay off your bills regularly.

Hope this information will help you.
Posted on: 02nd Nov, 2005 11:58 pm
I was planning to buy a car for the past few months and I need a car loan for that. But interest rates do not seem to get low. any idea about car loan rates?
Posted on: 03rd Nov, 2005 01:58 am
Hi Dick,

The way interest rates have been rising, it seems that it can go up to any level this year. The rates for a 4 year new car loan is 8.06% and for an average 3 year used car loan, the rates have increased from 8.53% to 8.80% since June.

I think you should wait for quite some time and see how the market goes. Why I am suggesting this is because the rates have been raised by the Federal reserve for the 12th consecutive time and they have been getting higher and higher for the past 2 months. So I would advise that you keep a watch over the rate hikes and then apply for the loan. But if you have sufficient income and if you are confident that you can afford higher loan payments, then you might as well go for the car loan.

Hope I could help you.

God Bless You.
Posted on: 03rd Nov, 2005 02:45 am
you say that taking a car loan will be risky, then do i purchase it with a home equity loan or a home line of credit?
Posted on: 03rd Nov, 2005 10:51 pm
Hi Dick,

You can definitely buy the car with a home equity loan but not preferably with a home equity loan of credit.

Interest rates on various loans seem to be rising and this time even experts are unable to predict how much the rates will increase. Even then, if you take a home equity loan, you will not have to pay as large as with other loans. This is a fixed rate mortgage with gradual rise in rates throughout the year. So at least you can be aware of the payments that you will have to make. Also, the average rate on a home equity loan has increased from 7.16% to 7.24% unlike the car loan rate which is even higher.

I would suggest that you don't go for a home equity line of credit since it is tied to the prime rate that keeps rising to a higher value. It is expected that rates will be raised again, so avoid this option if you really want to cut down your mortgage payments.

Hope that I have been able to help you.

God Bless You.
Posted on: 04th Nov, 2005 12:18 am
Hi guys,

The interst rates really seem to exceed the limit. Wonder what the hurricane victims are going through. And low income people too. The FED should have thought about them. This will deprieve many from buying homes.
Posted on: 04th Nov, 2005 04:04 am
Hi Diana,

I do agree with you. The Federal Reserve Board should have thought about the low and average income people. After all, the consecutive rise in rates is affecting homeownership in the United States.

Posted on: 04th Nov, 2005 11:01 pm
Hi guys, can u pls advice, i wish to go for an ARM but now that interest rates are rising high constantly, do you think it is a good deal?
Posted on: 04th Nov, 2005 11:26 pm
Hi Jenny,

In general, it is better to go for an ARM when a borrower intends to occupy the property for a short time. This is because an ARM offers you a low rate initially compared to a fixed rate mortgage.

But market rates are going very high for the past 18 months and the rates on ARMs may go even higher. This may not affect you now if you take hybrid ARMs, the rates of which remain fixed for quite some time, say 5 to 7 years. But after the fixed period, you may have to pay much higher than is expected.

The rates on ARMs are tied to short term indexes and the FED has been increasing the short term rates for quite some time. So even if you can afford to get a record low rate on any ARM you choose, the adjusted rates may jump to any high value. For instance, the rate on a 3/1 ARM in 2002 was 4.2%. After 3 years the adjustment rate has come out to be 6.76% with the 1 year Treasury yield being beng 4.26% at present and the loan margin being 2.5%.

Although there is a cap to limit the change in interest rate to 2 percentage points, yet the difference in payments monthly payments can be quite large. So I would suggest that you keep a close watch over the interest rates and if possible, wait for sometime before the rates go down a bit.

Hope this information will help you.

Posted on: 05th Nov, 2005 01:15 am
Really things are going to be tough for us if the trend is upwards as mentioned here. It's nice to get a platform like this where such an important topic, related to everybody, has been opened for discussion. At least seeing the posts I gain some courage and relief on finding that I am not alone but a lot of people like me are there who are concerned on the issue. Although I am not very much acquainted with the rates, trend or loan terms other than some common ones, but the information makes me understand that we are going to face problems with hike in interest rates.

I would like to know about these discount and origination points? Is there any difference between them?
Posted on: 05th Nov, 2005 09:33 am
Hi Rick,

Yes we are all concerned on the issue, as it affects all of us. As you have said correctly, many of us are not acquainted with all areas on mortgage. So, through this forum we have tried to build a community to share our knowledge and ideas for the benefit of all.

Now, I am coming to query. Actually originating points are charged by a lender to the borrower against originating the loan. Every lender has their own kind of originating points of their own.

Discount points are optional which if paid by the borrower at the time of closing, the lender offers him a loan with lower rate for the entire period of the loan.

For more detail you can refer here.

So, the difference between them depends on where they are applied. Originating points help a lender to get his compensation whereas discount points are in the borrower's interest to lower his interest rate. Discount points are more optional than originating points and every loan does not have discount points.

Hope you have got your answer.

God bless you.

Posted on: 05th Nov, 2005 10:16 am

I agree with Rick. The rates have indeed become uncertain. This is the main probs, I am currently out of job and require to pay off quite a few debts. I hope to get a job soon but I really don't know how to repay these debts. Can you advice?
Posted on: 06th Nov, 2005 11:22 pm
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