Mortgage loan dropped to a ten year low in January 2010, this has been figured out by the Council of Mortgage Lenders (CML) and revealed today. Total mortgage lending dropped an estimated amount £9.1 billion within the month, a 32% drop on December’s figure and 21% lower than the last year January.

However, this downfall was expected at the starting of the year, the down fall of January shifted lending to its lowest level and this is the lowest since February 2000, and brought to ending months of the rising interest rates from borrowers.

The CML stated that the lending aggravated by the traditional post-Christmas due to the flood of buyers to acquire properties before 31st December 2009, the temporary stamp duty holiday end on houses costs less than £175, 000 and it was probably to be the beginning of the quiet period in house marketing.

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No doubt, 30 year mortgage is the most popular type of home loans among people as it offers a fixed interest rate and monthly payments are lower. But due to the long term mortgage borrowers is required to pay off more interest over the loan life. These mortgages are the best options to purchase home through loans.

A fluctuation in the rates on the 30-year mortgages has been recorded as in comparison with the last year these rates are lower this year. Last year the average rates were about 5.16% where as the average rate this year is nearly 5%.

According to Freddie Mac fixed rate mortgages have faced a drastic downfall from the 4.04% to 4.34%. Likewise, this downfall was also recorded on five year adjustable rate mortgages from 4.27% to 4.19% before a week. While the rise in one year ARMs have been recorded from 4.22% to 4.33%.

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Nowadays, there are many ways to get a larger house if you want one. Lenders are now making it much easier to get larger amounts of money for a mortgage. But the question is however, that whether it is this good practice, and is it safe or not?

There are several types of mortgages available and you will have to decide which one suits you best.

Interest Only Mortgage

Some mortgages allow you to buy a larger house without having an increase in your income. This is typically called the ARM category, or balloons. An interest only mortgage, is also in this category. Actually, an interest only option can be attached to any mortgage, not just to an ARM. Howsoever, the interest only option will lower initial payments, but they will be raised to compensate later, which could be a big jump.

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It had not been long since we expected that mortgage rates will go up in next few months. The prediction for mortgage rates to go up was made because investors were sidelined and inflation was likely to rise. The downward spiral in home prices and the global financial crisis scared the already shaking investors a bit more. But all is not bad news. If you are planning to buy a home during this crisis, you might strike a deal of your life if the rate for mortgage finance and refinance go down in 2009.All investment pundits are predicting that home finance rates will go down in 2009 compared to 2008. Let’s analyze the main factors or fundamentals of mortgage rates movement. Economic outlook, inflation trend and Government policy… all these factors are signaling that we have lower interest rates ahead of us.

Already the mortgage rates being offered are very very attractive. National average for 30-year Fixed Mortgage has fallen to below 5.6% in December 2008. It is way down from 6.6 percent just 7 weeks before that. following are the main factors that in my opinion will influence the 30-year fixed rate mortgage and 15-year variable rate mortgage. If you act as a wise consumer, you can get great benefits from this knowledge and use it to protect your depleting wealth and equity in your house.

Yes! Mortgage rates will go down in 2009

30-year fixed mortgage rates will start from 5.5% and keep dropping till June 2009. from there as economic conditions in overall economy will start to improve the mortgage rates will move up again and might hit 6.5% by end of 2009.

Still at these rates, getting a home finance loan is not a bad deal. It’s still very attractive loan rate. There is no evidence available to suggest that home finance loan rates are likely to go up as the market is stalling. plenty of inventory is already out there. The economic conditions never change quickly and there will always be a window available to get the best deal on home loans. My prediction is that this window is already open and will remain open till June 2009.

I see 6 Factors that support my 30-year fixed rate mortgage outlook as i predicted above.

1. Deflationary Pressure

2. Global Recession

3. US Government Policy

4. Housing Market Mess

5. Poor Credit Scores

6. Wait and See Attitude

Deflationary Pressure:

With announcement from world bank, world is officially in the worst recession since World War II. Inflation is a thing of past. we are facing worst of deflation in our country. Core consumer price index has fallen sharply (mainly due to lower oil prices). Yields on Govt. securities like bonds and treasury notes in hitting bottom. It is interesting to note that 30-year Fixed Mortgage rates mostly follow 10-year Treasury Notes. Deflation will rule most of 2009. this will help keep the loan rates down.Recession

Recession:

The National Bureau of Economic Research recently announced that the United States did indeed enter a recession in December 2008. While predictions as to the duration and depth of the recession vary, economists at Goldman Sachs recently revised their original forecast in the face of deteriorating economic news. “This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3% in our forecast versus 2.7% then),” the economists said in the report.

Government Policy:

The massive bailout initiatives that governments around the world are now undertaking will undoubtedly lead to renewed inflationary pressures but as we can read the fine print of these spending plans, we are unlikely to see any material effect before first quarter of 2010.

The Mess in Housing Market:

The drop in home prices, mixed with rising mortgage delinquencies and foreclosures, has forced investors to demand higher rate of interest on their investments especially in securities that are backed by home loans. Resulting in increasing spreads — you can clearly see that difference between 10-year Treasury Bond yields and 30-year fixed mortgage rates has increased significantly. Home prices are expected to continue the downward spiral, at least till June, 2009 — and mortgage delinquencies increasing at alarming pace — this “risk premium” would remain High. “We’re not going to get back to the same tight relationship between the 10-year [Treasury] bond and fixed mortgage rates any time soon,” says Bill Cox , a mortgage lender from Illinois.

Poor Credit Scores :

Even if the mortgage rates will remain low in most part of 2009, a large number of people will not be able to benefit from these.(May be this is another reason for rates to be down). People’s credit scores are hitting rock bottom due to increased borrowing and Job situations. 1 in every 15 American is jobless.People who already have adjustable rate mortgage and want to take advantage of lower interest rates are unable to do so. The decrease in housing prices have eroded the home owner’s equity and most of them have negative equity. They are unable to refinance home mortgage loans due to negative equity, meaning they owe more on their mortgage than their home is worth. As a result, they will not be eligible for refinancing. There not a great number of  potential home buyers in the market these days.

Wait and See Attitude:

Even though, the loan rates are attractive today, people are in no hurry. They understand the economy better than year ago and know that 30-year mortgage rates are not likely to go away if they don’t hurry. they know they have enough time. Blogs like ours are helping in spreading the message. People are convinced that home loan rates are low and will remain low for considerable period of time and they can get their sheet together before taking another debt obligation.