Mortgage rates in U.S. have fallen to another record low as the week closes. It is has declined for 10th consecutive week this time.
As Freddie Mac reported this Thursday that 30-year fixed rate mortgage yields have averaged about 5.01% for the week ending on January 8th, 2009. it is a 9 basis point decline from last weeks’ rate. It is nice to compare it with the rates this time last year. which were 5.87% .
Since The Govt. Sponsored Agency Freddie Mac started the survey(1971), this is the lowest reported level for these rates.
15-year fixed rate mortgage is even lower at 4.62%. It is has declined sharper from 4.80% levels of last week and a down hill slide of 5.43% level of this time, last year. It is said to be the lowest reported rate since June 13, 2003.
It is expected that this will impact on adjustable-rate mortgage especially the 5-year adjustable mortgages which averaged about 5.5% this week down from 5.7% last week.
Plain English: What does it mean for house owners
Well, the the house owners around US are struggling with increased cost of living and job uncertainty, these attractive rates can offer real relief in terms of monthly amount spent on home loan re-payments. Most of the homeowners will see this as an opportunity to get rid of expensive adjustable rate mortgage and get a fixed payment loan instead for the peace of mind that comes with it. As It the fixed-rate mortgages are not likely to go down any further, It is a good time to bet on them.
Homeowners should plan to refinance the home loans not for the greed of saving money on mortgage payment but with the fear of any future increase in adjustable rates for home equity loans.
Not every one will be able to benefit from this historic time in history of home finance. The reality is quite harsh. The US Credit Crisis and housing crunch have left many families and home owners with damaged credit scores. Most of them owe more than their house’s worth. So it will be very difficult for most of the population to access the lower rates, unless they have a good credit rating.
Is Fixed-Rate Mortgage Right For You?
If interest rates are low when you take out a mortgage, or if you just do not want to take the risk of them increasing, you are probably better off with a fixed rate mortgage. If you have a large mortgage, whereby even a slight rate increase may mean a big increase in your monthly mortgage payment – you are perhaps better off with a fixed rate. If you are simply the cautious type who does not like taking a risk, a fixed rate mortgage is typically the best option for you.
Advantages of Fixed-Rate Mortgage
The obvious advantage is that the interest rate does not change – and neither will the amount of your monthly payment. You always know exactly how much you will be paying each week and can thus budget more accurately; the amount of your monthly payment will only increase if the amount of insurance rates or the amount of property taxes increases. Some borrowers consider it easier to plan for other big expenses, such as college funds and retirement, with a fixed rate mortgage.
Disadvantages of Fixed-Rate Mortgage
The biggest disadvantage of a fixed rate mortgage is that you run the risk of missing lower payments when the interest rate goes down. The difference in the amount that you pay each month can be substantial if you have an adjustable rate mortgage and the interest rate is lowered. This not only saves you money each month, but also potentially helps you pay off your mortgage sooner. Of course, nobody can ever accurately predict when interest rates are going to drop, although it is sometimes possible to have some indication and base your decision upon that.
Sources:
Long-Term Mortgage Rate Falls Again
Long-term home-mortgage rates dropped again this week, with the 30-year fixed-rate mortgage hitting a fourth consecutive low in the history of Freddie Mac’s weekly survey.
The 30-year mortgage averaged 5.01% for the week ended Jan. 8, down from last week’s 5.10%. The mortgage averaged 5.87% a year ago.
The rate hasn’t been lower since Freddie Mac’s survey began in 1971. The survey covers conventional, conforming mortgages. Wall Street Journal Reports
Average Mortgage Rate Hits 5%, Lowest in Decades
“Since the Fed announced they would buy mortgage-backed securities, we have seen a pretty healthy increase in refinance applications, while purchase applications have trended up, but not as significantly,” said Orawin Velz, the Mortgage Bankers Association’s vice president for economic forecasting.
The Mortgage Bankers Association said its refinance index, which measures refinancing activity weekly, stood at 5,904.5 as of Jan. 2, up from 1,254 on Nov. 21, before the Fed’s announcement. During the same time period, its purchase index rose to 344.2, from 261.6.
The survey does not measure how many of those applications become loans.
“Refinance activity continues to be strong, but purchase inquiries are relatively static,” said Cameron Findlay, chief economist at LendingTree.
Of course, buying a home is a more lengthy process than simply calling up a mortgage broker to refinance, and activity typically slows during the holiday season. But many home buyers are discouraged from jumping into the housing market given the increasingly dismal economic outlook.
Meanwhile, to qualify for the best rates, consumers still face stiff requirements. Borrowers need a credit score of about 720, along with 10 to 20 percent of equity in their homes. And many homeowners need to sell their existing properties to consider a new one. From a New York Times Story
US mortgage rate drops 10th week, to record low
Rates below 5 percent are available for the best customers of JPMorgan Chase & Co’s (JPM.N: Quote, Profile, Research) Chase Home Lending, helping to fuel a three-fold increase in refinancing applications since November, said Thomas Kelly, a bank spokesman in Chicago. Those customers have high credit scores and hold at least a 20 percent equity stake in the home, he said.
Chase saw refinancing applications jump after the Fed announced its bond purchase plan and again as the central bank cut its key federal funds short-term interest rate target to zero to 0.25 percent, he said. Reuters Reports
Thanks for sharing this informative post.