Saturday, December 22, 2007

What a rate cut means to homeowners


How to keep ahead of rates and lower them when your card issuer hikes them up.


NEW YORK (CNNMoney.com) -- Most analysts see the Fed cutting rates for the third consecutive time tomorrow. What investors don't know is just how deep the Fed will cut. What will this mean for your mortgage? Here's what you need to know.
1: Long-term mortgages won't move much
Right now investors are split on whether the Fed will lower the funds rate by another quarter point to 4.25% or cut it by a half-point, to 4%. But the fact is, there's not much doubt that the Fed will cut rates. And because of that, the market has already priced that in, says Mike Larson with moneyandmarkets.com. 30-year fixed rates have been falling for some time.
In July, the average rate on a 30-year fixed mortgage was 6.66%. Last week, it was 5.82%. So, a rate cut won't really do very much to lower long-term rates. They're already low. So if you want to refinance, it's a good time to start shopping.
2: ARM resets not as severe
The Fed move tomorrow may be more significant to borrowers with adjustable-rate mortgages than what the government is doing in freezing subprime interest rates. That's according to Greg McBride at bankrate.com. Most resets on adjustable rate mortgages will reset in the middle of next year. And the fact that the Fed is cutting rates, will make these resets more manageable for prime borrowers, which aren't covered by the foreclosure-prevention plan announced last week.
So, if you had an adjustable rate mortgage that started at 4.5% and your rate was going to reset at 7.5%, you may only face a rate reset of 5.7%.
3: HELOCS will be cheaper
Home equity lines of credit will be cheaper if the Fed does cut rates. It may take up to three billing cycles to see the actual decrease in your bill. If you need to consolidate debts or you need money for medical bills or college expenses, you may consider shopping around for a HELOC since lenders are likely to price in the Fed's cut immediately.
4: Keep it in perspective
The take away here is that the Fed is on your side. This rate cut won't be the silver bullet that fixes the housing market. But it's apparent that Fed is in a rate cutting mode, and the cumulative effect on that will help consumers. There are a number of things the Federal Reserve can't control, like the impact of the credit crunch.
You need to look at inflation, job growth and the overall health of the economy as indicators of when this housing crisis may subside. When we get down to it, there are two issues here, according to McBride. That's inventory of houses on the market and the affordability of houses. Interest rate cuts won't do much to make that go away. Sometimes, it's just a matter of time.


PARTNERCENTER(Rates provided by Bankrate.com.

Mortgages - 15 Year Fixed 5.38%




Mortgage rates at lowest level in 2 years

NEW YORK (CNNMoney.com) -- Interest rates on fixed-rate mortgages slipped again this week as the glut of available homes exerted downward pressure on prices and construction activity, Freddie Mac reported Thursday.
The government-sponsored loan buyer said the rate on a 30-year fixed-rate loan fell to an average 6.10 percent for the week ended Nov. 29, from 6.20 percent the prior week. At this time last year, the 30-year FRM averaged 6.14 percent.
The 30-year rate has not been lower since the week ending Oct. 13, 2005, when it averaged 6.03 percent, Freddie Mac said.
"Interest rates for U.S. Treasury securities have been drifting lower this month over market concerns that the housing slump and stress in the credit markets could slow future economic growth," said Freddie Mac (Charts, Fortune 500) chief economist Frank Nothaft.
With home prices falling 4.95 percent in the 12-months ending September and 15 metropolitan areas showing annual declines, "the overall picture does, indeed, appear glum with no immediate relief in sight," Nothaft said.
New home prices: Worst drop in 37 years
Freddie Mac said rates on 15-year fixed-rate loans averaged 5.73 percent, down from 5.83 percent last week. A year ago, the 15-year FRM averaged 5.87 percent. The 15-year rate has not been lower since the week ending January 26, 2006, when it averaged 5.70 percent.
Five-year adjustable-rate mortgages (ARMs) averaged 5.86 percent this week, down from 5.88 percent last week. A year ago, the five-year ARM averaged 5.95 percent.
One-year Treasury indexed ARMs averaged 5.43 percent this week, from 5.42 percent last week. At this time last year, the 1-year ARM averaged 5.46 percent.

Current Mortgage Rates

30 yr fixed mtg 5.82%
15 yr fixed mtg 5.38%
30 yr fixed jumbo mtg 6.71%
5/1 ARM 5.54%
5/1 jumbo ARM 6.02%