Bad Advise Regarding Shopping Mortgage Rates.

Bad Advise regarding Shopping Mortgage rates.



I recently read an article that started off saying that encourage a person contemplating home financing to shop rates is bad advise. Say What? When you consider that recently overnight rates dipped and that 30 year fixed-rate mortgage averaged 5.67 percent in the week ended Jan. 20, down from last week when it averaged 5.74 percent, I say keeping an eye on rates is a big deal. Shopping rates means becoming aware of what the current rates actually are.



True bad advice is easy to give. But When a very popular MSNBC financial expert wrote an article, published in Yahoo's financial section, which implied if your FICO score is lower than 600, you can expect to pay an extremely high rate of interest on your mortgage, well the truth is the truth. Just don't settle for it.



I do appreciate the writers point saying if you have challenged credit, don't let any "professional advise giver" imply, that you can expect to pay a 9% interest rate on your mortgage. But rate watching is essential to finding a good deal.



The writer goes on to say that little pre application work, you can in fact have a 500 to 600 FICO score and get just as nice an interest rate as someone with a 680 to 750 FICO score on a standard 30-year conventional fixed loan.



But here is the contradiction. He adds that 50% of higher interest rate home buyers could have qualified for a lower interest rate conventional loan product. What? Now we're back to shopping rates? Yes we are.


Your wrap up tells it all. You say to credit challenged home buyers, you can use the FHA loan program to buy your home for far less than any alternative loan program available. Your closing costs typically will be higher, however, your rate will be equal to the prevailing conventional mortgage rate. Here you imply that one should by all means compare rates to what is on the market.



You even go so far as to say opt to pay higer closing costs to get you hands on lower rates. Good advice but what a contradiction. You say shopping rates is a bad idea yet your whole focus is on buying a lower rate.



Folks, focus on your rates and do whatever it takes to get a good one.

Where Are Mortgage Rates Headed

Overnight and into the early morning mortgage rates should hold at their lower levels.



a Fed official said that while the Committee depends on economic data for guidance, he believes that accommodation can be removed slowly, which is "Fed speak" for gradual rate increases.



The Federal Reserve's accommodative monetary policy is generating "excessive risk-taking" in the financial markets and possibly fueling speculative demand for single homes and condominiums, according to some members of the Fed's interest rate-setting group.



The Market Composite Index, an overall measure of mortgage applications, fell from 677.4 to 605.7 on a seasonally adjusted basis during the holiday week ended Dec. 31, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.

Home Equity Loans Gain Attention Over Refinancing

While the economic expansion continues to broaden, inflationary pressures are sending interest rates up.



The demand for mortgages declined during the week ending November 19, 2004, with the MBA index decreasing by 5.7% to 715. Both the refi and purchase components of the index fell. MOrtgage activity appears to have increased according the Mortgage Loan Search Network at http://www.mortgageloansearch.cc -



Consumer appear to be opting for home equity loans and cash out mortgage refinancing programs. Consumers seem to see this as a way to acquire funds for seasonal purchases and to cut down personal debt.



The greenback remains vulnerable. Clear path to further declines in the dollar.



Freddie Mac announced new maximum loan limits for next year. They said that they will purchase loans for single family homes up to $359,650, a sizable increase from this year's $333,700. Fannie Mae will likely follow suit in the next day or so. This would mean that borrowers can avoid jumbo rates for loans up to $359,650, which is approximately .375 of a percent higher than conforming rates.

Home Refinancing Tips

Home Refinancing Tips

Tip 1. Don't wait until mortgage interest rates drop by 2 percent before you consider refinancing your mortgage.

The decision to refinance your home is dependent on many things, including how long you plan to be in the house, how much lower the interest rate will be on your new loan, the closing costs for the new loan, your equity position in the home, and whether you plan todo a cash-out refinancing.

Tip 2. Using your current mortgage service may or may not save you money and time. The mortgage market is divided into three lines of business: mortgage origination, mortgage servicing and mortgage lending.

If the firm that originated your existing mortgage didn't retain the servicing, then you aren't a current customer. If the firm servicing the mortgage doesn't do originations in your market, then they may not be interested in your business.

It's best to use online lending marketplaces as these specialize in such issues and are equipped to provide services needed at competitive rates.

Tip 3. Many lenders require that you have at least 10 percent equity in your home (i.e., a loan-to-value (LTV) ratio of 90 percent or less). But when using the online lending marketplace consumers are connected to lenders willing to underwrite loans in which the borrower had only 5 percent equity in the home. Beware, however,that low equity loans can involve relatively high mortgage insurance costs.

How Fed Hikes Impact Long Term Mortgage Long-term rates generally rise to some degree as the Fed tightens monetary policy, particularly when it's clear that the Fed is embarked on an extended tightening process.

Between June 29 and Sept. 22, the 10-year Treasury yield declined by 65 basis points while the federal funds rate rose by 75 basis points. At that time we saw long term rates plummet and short term rate rise.

How could this happen? First, evidence of the mid-year "soft patch"in real economic growth; second, the slowing in core inflation from the surprising acceleration earlier in the year; and third, lower probabilities of aggressive tightening by the Fed down the line.

The "soft patch" is becoming passe, and the transitory factors that boosted core inflation earlier in the year apparently have unwound. That said we now see mortgage rates rising steadily and can expect this to continue as the Fed execute further rate hikes in the months to come.

If the hikes are small and spaced consumers have a chance to lower mortgage interest rates on long term home loans by refinancing at low rates points and fees and take advantage of a rapidly shortening window of opportunity to get back future income loss. 

In The News: The Fed's meeting statement revealed that the committee had raised its target forthe feds funds rate by another 0.25%, lifting it to2.00%. The hike is part of a credit tightening campaign to bring rates back up to more normal levels now that the economy's recoveryfrom the 2001 recession is more deeply rooted.



Tip of The Day

Cash out refinancing may help assist consumers during the heavy buying season. Many borrowers stretch the funds out over several buying seasons as much as five years or so while including things like funding a business, providing a second income, saving for college tuition and investment funds. In this way cash-out refinancing proves to be a smart investment in ones future.



When refinancing your home saving money by lowering interest rates,monthly payments and saving thousands of dollars over the life ofthe loan is of primary concern.



MAKE "APPLES TO APPLES" INTEREST RATE COMPARISONS

When faced with the need to compare different rate/point combinations among lenders, first convert each quoted rate to one based on a constant number of points and then find the lender with the lowest rate. In making this conversion, consumers should use a traditional rule of thumb that equates each point to a 1/4 of 1percent change in the interest rate. This would make an 8 percentloan with 0 points equivalent to a 7.75 percent loan with 1 point.



DON'T JUDGE A LENDER BY ITS APPLICATION COSTS

Lenders who lure you with no costs at application can lay the fees on heavily at closing. Keep your eyes focused primarily on the interest rate and points. 

Mortgage Rate Watch - Rate Shopping Tips
The News:Fed Boosts Interest Rate One-Quarter Point The Federal Reserve hiked a key short-term interest rate by one-quarter percentage point Wednesday, the fourth increase this year.It's part of a credit tightening campaign to bring rates back up to more normal levels now that the economy's recovery from the 2001 recession is more deeply rooted.

Tip of The Day
Mortgage rates are likely to continue climbing if the bond market anticipates more rate hikes. 1 year adjustable rate mortgage will feel the impact of a rate hike. Home equity loans, HEL's, are notimpacted by rate hikes.To find loan programs and lenders that may fit your criteria.