Due to higher treasury rates, last week the mortgage rates went up a bit. 10-year U.S. Treasury rates were up at 3.65 percent compared to 3.30 percent of the week earlier. Still the rates are quite low if we see them in long-term historic perspective.

These low interest rates are bringing back the home buyers. It the trend continues, the housing crisis might be near it’s end. Mortgage re-finance activity is also picking up pace as result of low interest rates.

According to to Mortgage Banker’s Association the Refinance index rose more than 17 percent from the weak earlier.

National Association of Realtors also reported that Pending Nome Sales index is also creeping up slowly for last 4 weeks.

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Refinancing can be defined as a replacement loan, with a lower interest rate and a different financial institution. Refinancing is the best solution if you are paying high interest rates on your mortgage.

Howsoever, there are some pros and cons of Refinancing.

Pros of Refinancing

1. You will be able to get a home loan at a lower rate.
2. Refinancing will  enable you to extend the repayment term of your mortgage. It will reduce your monthly installment appreciably.
3. By applying mortgage refinance, you can switch from a variable rate mortgage to a fixed rate mortgage.
4. If you refinance, there will be an increase in your mortgage amount. With this increase in mortgage amount, you can pay off all your previous debts.
5. There is no need to pay any mortgage insurance when you opt for refinancing.

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Mortgage interest rates for Jumbo loans have also gone down in previous week. Due to this decline, the difference between normal mortgage rates and jumbo rates is also reduced. Spread has narrowed so to speak.

During Last year, as we entered the credit crisis, banks were very reluctant to give Jumbo Loans. For those lucky few, who got the loan, the interest rate charged on Jumbo loans was sky high. I know a friend who paid 2.5 percent more than the prevailing interest rate for conforming mortgage rates.

Current trend in jumbo mortgage rates is that it is now back to normal. By normal, it means that you can now easily find a Jumbo Loan with mortgage rates that are only less than one percent above the conforming mortgage rates.

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When you want to buy a house on loan, you must consider all your options carefully before choosing one of them. You must decide which mortgage is best for you and then settle for it when you are completely satisfied with it. Fixed-rate mortgage and adjustable-rate mortgage, both have their pros and cons.

With a fixed-rate mortgage you know that your principle and interest payments will stay the same and never change throughout the life of the loan, regardless of market conditions. A fixed-rate mortgage is an excellent choice in a low interest rate environment. You can get your loan for home purchase or refinance at a low rate which will ensure a low monthly payment for the life of the loan.

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As the name says, a fixed rate mortgage is a mortgage where for the whole duration of loan, interest rates are fixed. simply put, the interest rate in a fixed rate mortgage never changes. Fixed rate mortgages are popular of all other type of mortgages as about 75% of all mortgages that are taken for a home purchase are fixed interest rate mortgages. Largest benefit of a fixed rate mortgage is that you always know exactly what your mortgage interest and principle amounts are at any given time during the life of the mortgage. this helps you keep your budgets in shape.

Fixed rate mortgage offers security and peace of mind as you are not worried about sudden changes in interest rates. For example if the lending bank offers 30 year fixed mortgage loan to a home buyer and both agree on a 5% interest rate. This 6% rate will be fixed for entire 30 year period for which mortgage loan was given. It does not concern the buyer or seller if the market rate increases to 6% or decreases to 4%. Home buyer will continue to pay 5% interest rate and bank will be content with that. Therefore Fixed Rate Mortgage rate applies same interest rate to monthly installments throughout the life of loan and it make possible a fixed monthly installment.

Main Benefits of a Fixed Rate Mortgage

1. In comparison to Adjustable rate mortgage, A Fixed rate mortgage is easier to understand and less complex.
2. As it is more secure loan, It is widely adopted by first time home buyers.
3. It suites two kind of buyers, First those who have a steady fixed income like salary etc. & Second those who wish to keep their houses.(does not suit investors)
4. As Interest rates fluctuate a lot, risk perceived by lenders is higher in fixed rate mortgage so the rate of interest is normally bit higher than adjustable rate mortgage.
5. Since the risk perception is higher in Fixed rate mortgage, Lenders usually ask for higher initial monthly payments compared to those of adjustable rate mortgages.
6. Fixed-rate mortgage is less flexible than adjustable rate mortgage.

On the other hand in Adjustable rate mortgage the interest rate is not fixed and it changes during the life of the loan. Usually the changes are linked with an index rate like LIBOR and move in accordance to it. In a fixed-rate mortgage, your interest rate stays fixed for the entire life of the mortgage.

Further Reading

Federal Reserve

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.

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