The biggest hurdle WAS getting tenants

Investing in real estate is NOT for the weak. There are so many challenges with being a real estate investor. The biggest challenge is usually buying your first property. The biggest hurdle according to most of my friends and clients who have investment properties is getting qualified tenants. You should have no problems getting them rented according to these two stories from the Rocky Mountain News:

Demand for affordable rental housing in the state is being driven by record foreclosures and rising market-rate rents.

Read the full story: Affordable rental vacancies tighten

Statewide vacancies in affordable housing fell during the second quarter, dropping to 4.7 percent, from first quarter in the first quarter, according to a new state report.

Read the full story: Affordable apartment vacancies fall below 5 percent

Weekend Highlights

As the real estate market slows down, you should expect fewer and fewer articles in the newspapers especially during the final quarter (October, November, December). However, this part weekend, there were numerous devoted to real estate:

Denver Lender – 10 tips for using a mortgage as a financial tool

10 tips for using a mortgage as a financial tool

Here is a list of 10 tips to building and maintaining wealth, as well as the 10 most common myths about home equity, and the reality of each myth.1. Avoid the $25,000 mistake that ensnares millions of Americans. Myth: The best way to pay off a home early is to pay extra principal on your mortgages. Reality: No method of applying extra principal payments to your mortgages is the wisest or most cost-effective way of paying off your house. Strategy: Establish a liquid side fund to accumulate the funds required to pay off your mortgage, maintain flexibility, achieve substantial tax savings and accumulate excess cash.

The equity you have in your home can be a powerful tool in managing your overall financial situation. Your equity, the value of your home minus your existing mortgage, can serve as collateral for additional borrowing. While there are some risks with this strategy (as with any borrowing), home equity loans usually offer the attractions of lower rates, longer period to pay back, convenience and often tax benefits.

4. The return on equity is always zero no matter where your property is located. Myth: Home equity has a rate of return. Reality: Equity grows as a function of real estate appreciation and a mortgage reduction; however, equity has no rate of return. Strategy: Separate as much equity from your house as feasible in order to allow idle dollars to earn a rate of return.

9. Strategically refinance your home as often as feasible to increase your net worth. Myth: Equity in your home enhances your net worth. Reality: Equity in your home does not enhance your net worth at all. Separated from your home, however, it has the ability to dramatically enhance your net worth over time. Strategy: Set the stage to substantially increase your net worth. Refinance your home as often as feasible to separate equity and accelerate the process of accumulating the resources to cover all your debts.

10. Keep your mortgage balance high to sell your home more quickly and for a higher price. Myth: The amount of equity you have in your home has no bearing on how marketable it is. Reality: Your home may likely sell much more quickly and for a higher price if it has a high mortgage balance (low equity)—rather than a low mortgage or no mortgage balance (high equity)—especially in soft real estate markets. Strategy: Always maintain as high a mortgage with flexibility on your home as feasible to keep it marketable at the highest possible price should you want to sell the property.”

6. Use debt for positive leverage. Myth: Any and all debt is undesirable. Reality: Some debt, when managed wisely, can be desirable. Strategy: Use debt wisely as a positive lever for equity management purposes, conserving and compounding equity rather than consuming it.

2. Avoid expensive risks. Position yourself to act instead of reacting to market conditions you have no control over. Myth: Home equity is liquid. Reality: When you need it most, you may not have it. Home equity is usually not-liquid. Strategy: Separate as much equity from your property as is feasible, positioning it in financial instruments that will maintain liquidity in the event of emergencies and conservative investment opportunities.

5. Make Uncle Sam your best partner. Mortgage interest is your friend, not your foe. Myth: Mortgage interest is an expense that should be eliminated as soon as possible. Reality: Eliminating mortgage interest expense through traditional methods eliminates one of your best partners in accumulating wealth and financial security. Strategy: Use the difference between preferred and non-preferred interest expense to make interest work for you instead of against you.

As you can see there are many ways you can put your equity to work for you. It might be a good idea to check with your online Mortgage Broker to see how you would be able to benefit from some of these strategies.

3. Separate home and equity to increase safety. Real properties with high equity and low mortgages get foreclosed on the soonest. Myth: Home equity is a safe investment. Reality: A home mortgaged to the hilt or totally free and clear provides the greatest safety for the homeowner. Strategy: Separate as much equity from your home as feasible to achieve greater safety of principle and reduce the risk of foreclosure.

7. Understand the cost of not borrowing compare deductible versus non-deductible costs. Myth: lower mortgages, resulting in lower payments, mean lower cost. Reality: If you take opportunity costs into consideration, low mortgage-to-home-value ratios create tremendous hidden costs that increase the time needed to pay off a mortgage. Strategy: Choose to incur deductible employment costs rather than non-deductible opportunity costs, since you have no choice but to incur one or the other.

8. Turbo charge your wealth growth rate by creating homemade wealth. Myth: Borrowing funds at a particular interest rate, then investing them at the same or lower interest rate, holds no potential growth returns. Reality: You can earn a tremendous pro fit regardless of the relative interest rates by positioning your money in a tax favored, interest-compounding investment that earns a rate of return greater than the real net cost of obtaining the money. Strategy: Learn to apply the fundamental principle that highly profitable financial institutions use to accumulate and create wealth arbitrage. Employ equity to earn a rate of return higher than the net cost of separating that equity. By doing so, you will create tremendous wealth and substantially enhance your net worth.

Nearly 6 in every 10 home owners has more home equity than stock, bond, treasury or other securities derived wealth. They key to maximizing one’s wealth is to utilize one’s home equity to invest in asset classes which on average return at a rate higher than the tax-deduction-adjusted interest rate of their mortgage. For example, if you have a 5% ARM your effective interest rate after deductions is roughly 3.75%. You should speak with your tax and investment professionals about finding a strategy which allows you to invest at a rate higher than this, and contact us for advice on how to get you the money to build your financial future.

10 tips for using a mortgage as a financial tool

Here is a list of 10 tips to building and maintaining wealth, as well as the 10 most common myths about home equity, and the reality of each myth.1. Avoid the $25,000 mistake that ensnares millions of Americans. Myth: The best way to pay off a home early is to pay extra principal on your mortgages. Reality: No method of applying extra principal payments to your mortgages is the wisest or most cost-effective way of paying off your house. Strategy: Establish a liquid side fund to accumulate the funds required to pay off your mortgage, maintain flexibility, achieve substantial tax savings and accumulate excess cash.

The equity you have in your home can be a powerful tool in managing your overall financial situation. Your equity, the value of your home minus your existing mortgage, can serve as collateral for additional borrowing. While there are some risks with this strategy (as with any borrowing), home equity loans usually offer the attractions of lower rates, longer period to pay back, convenience and often tax benefits.

4. The return on equity is always zero no matter where your property is located. Myth: Home equity has a rate of return. Reality: Equity grows as a function of real estate appreciation and a mortgage reduction; however, equity has no rate of return. Strategy: Separate as much equity from your house as feasible in order to allow idle dollars to earn a rate of return.

9. Strategically refinance your home as often as feasible to increase your net worth. Myth: Equity in your home enhances your net worth. Reality: Equity in your home does not enhance your net worth at all. Separated from your home, however, it has the ability to dramatically enhance your net worth over time. Strategy: Set the stage to substantially increase your net worth. Refinance your home as often as feasible to separate equity and accelerate the process of accumulating the resources to cover all your debts.

10. Keep your mortgage balance high to sell your home more quickly and for a higher price. Myth: The amount of equity you have in your home has no bearing on how marketable it is. Reality: Your home may likely sell much more quickly and for a higher price if it has a high mortgage balance (low equity)�rather than a low mortgage or no mortgage balance (high equity)�especially in soft real estate markets. Strategy: Always maintain as high a mortgage with flexibility on your home as feasible to keep it marketable at the highest possible price should you want to sell the property.�

6. Use debt for positive leverage. Myth: Any and all debt is undesirable. Reality: Some debt, when managed wisely, can be desirable. Strategy: Use debt wisely as a positive lever for equity management purposes, conserving and compounding equity rather than consuming it.

2. Avoid expensive risks. Position yourself to act instead of reacting to market conditions you have no control over. Myth: Home equity is liquid. Reality: When you need it most, you may not have it. Home equity is usually not-liquid. Strategy: Separate as much equity from your property as is feasible, positioning it in financial instruments that will maintain liquidity in the event of emergencies and conservative investment opportunities.

5. Make Uncle Sam your best partner. Mortgage interest is your friend, not your foe. Myth: Mortgage interest is an expense that should be eliminated as soon as possible. Reality: Eliminating mortgage interest expense through traditional methods eliminates one of your best partners in accumulating wealth and financial security. Strategy: Use the difference between preferred and non-preferred interest expense to make interest work for you instead of against you.

As you can see there are many ways you can put your equity to work for you. It might be a good idea to check with your online Mortgage Broker to see how you would be able to benefit from some of these strategies.

3. Separate home and equity to increase safety. Real properties with high equity and low mortgages get foreclosed on the soonest. Myth: Home equity is a safe investment. Reality: A home mortgaged to the hilt or totally free and clear provides the greatest safety for the homeowner. Strategy: Separate as much equity from your home as feasible to achieve greater safety of principle and reduce the risk of foreclosure.

7. Understand the cost of not borrowing compare deductible versus non-deductible costs. Myth: lower mortgages, resulting in lower payments, mean lower cost. Reality: If you take opportunity costs into consideration, low mortgage-to-home-value ratios create tremendous hidden costs that increase the time needed to pay off a mortgage. Strategy: Choose to incur deductible employment costs rather than non-deductible opportunity costs, since you have no choice but to incur one or the other.

8. Turbo charge your wealth growth rate by creating homemade wealth. Myth: Borrowing funds at a particular interest rate, then investing them at the same or lower interest rate, holds no potential growth returns. Reality: You can earn a tremendous pro fit regardless of the relative interest rates by positioning your money in a tax favored, interest-compounding investment that earns a rate of return greater than the real net cost of obtaining the money. Strategy: Learn to apply the fundamental principle that highly profitable financial institutions use to accumulate and create wealth arbitrage. Employ equity to earn a rate of return higher than the net cost of separating that equity. By doing so, you will create tremendous wealth and substantially enhance your net worth.

Nearly 6 in every 10 home owners has more home equity than stock, bond, treasury or other securities derived wealth. They key to maximizing one’s wealth is to utilize one’s home equity to invest in asset classes which on average return at a rate higher than the tax-deduction-adjusted interest rate of their mortgage. For example, if you have a 5% ARM your effective interest rate after deductions is roughly 3.75%. You should speak with your tax and investment professionals about finding a strategy which allows you to invest at a rate higher than this, and contact us for advice on how to get you the money to build your financial future.

Buy vs. Rent

One of the main benefits of buying a home vs. renting a home (or apartment) is that your mortgage interest that you pay each year is tax deductible. This can help at tax time to get more money back from the IRS. Another advantage of buying vs. renting is that with buying a home you are actually investing your money into a fairly safe investment. Unlike renting, when you are basically just throwing your money out the window.

Ask your mortgage professional to provide you a detailed analysis of the benefits of buying vs. renting. You will see many benefits of buying.

Another benefit in buying a home instead of renting is that you will be building equity. Your equity can later be turned into cash.

Owning your home vs. buying represents much more in terms of freedom and security. Very few renters actually realize that on a month to month rental the landlord can ask them to leave with only 30 days notice. This can usually be done without cause, meaning that they normally would not need a reason to do this. In many cases, rental properties have restrictions on how many persons may live in the property, pets, number of automobiles allowed, and many other things that can affect the way the renter lives.

There are many rent vs. buy calculators available online that will help demonstrate the advantages of homeownership compared to your current renting situation. These calculators provide all different kinds of information such as tax savings, equity gained, and a breakdown of differences between the payments.

Another advantage to buying a home is that you are locking into a payment. As in most cases rent will increase yearly while your mortgage payment may stay the same up to 30 or 40 years.

Keep in mind that owning a home has many responsibilities too that renting does not. A homeowner needs to upkeep the home. If the furnace goes or the hot water heater quits a homeowner needs to take care of these items. As a homeowner you must make sure that your property taxes and homeowners insurance get paid. Also, as a homeowner you must upkeep the exterior of the home, the yard, landscaping etc… While these responsibilities do exist for a homeowner the benefits of owning your own home still outweigh and are much more rewarding than the benefits of renting. Your home should always appreciate in value and you are going to basically make money simply for living there and making your monthly housing payment.

For many people, psychological and emotional factors drive their decision to stop renting and buy a home. These factors include pride of ownership, a feeling of establishing roots, a desire for a place to raise a family, desire for privacy, and freedom – freedom to paint your walls any way you want, freedom to barbeque on your own back porch, freedom to play with your dogs in your own back yard.

Other sites: Loan Officer | Stated Income Loan | How To Choose A Real Estate Agent | Delinquency | MIP | Closing Costs | Selling your home with a real estate agent| Pay Option Arm Calculator

Cash-Out Refinance

Editors Note: Due to the mortgage and credit crunch, Cash-Out Refinances may be harder to obtain. If you’re in need of a Denver Refinance contact us to discuss your mortgage options.

With a Cash out-Refinance the money you get at closing can be used for many purposes such as future investments, College, or debt consolidation. Money can be used to pay off current monthly debt which could lower your personal Debt to Income ratio. Consult a Mortgage Professional in regards to how much you should extract from the equity built into your home.

You can get cash out through a first mortgage, a second mortgage or a home equity line of credit (helot). Some lenders will require that you stay within certain loan to value (LTV guidelines) for cash out. Conforming limits are 90% LTV and FHA cash out is limited to 85% LTV. Many subprime lenders will go to 100% cash out with good credit.

Whenever you take a decent amount of cash out from your home, your LTV (loan to value ratio) will probably exceed 80%. To avoid paying mortgage insurance on these loans, many borrowers split the amount borrowed into two loans, a first and a second. Typically, the first mortgage has a LTV of 80%, but there are loan programs where having the first mortgage at 70% LTV offers more favorable terms to the borrower. The lower the LTV ratio, the less risk the lender will have in offering you a loan.

FHA update on October 31, 2005 allowing for a cash out refinance to go as high as 95% LTV. Previously the guidelines only allowed for a maximum of 85% LTV. These changes will allow many borrowers to take advantage of the equity in there homes and still obtain low rate financing.

Taking cash out on a home refinance is one of the many factors a lender takes into account when evaluating the risk of the loan. In certain situations, taking cash out may cause the lender to perceive the loan to be of higher risk. This could result in a slightly higher interest rate or additional restrictions on qualifying for the loan.

Since payment on cash out refinances can be spread across over up to 40 years, it is often advisable to use the proceeds for investing in something enduring. Using cash out from home equity for Value adding home improvements or for financing a new business are excellent options whose benefits you will continue to reap long after the last payment is made.

Besides setting the maximum LTV limit with Cash-Out Refinances, some prime lenders also limit the maximum cash-out dollar amounts.

Some non-conforming lenders will allow cash-out up to 125% of the value of your home.

Cash out Refinances can help many people better their financial situations by improving their monthly cash flow. However, many of these borrowers after paying off high interest rate debts often find themselves in the same situation down the road because of a failure to control their use of credit. These people wind up being in a worse situation because now they have no equity in their home plus high interest rate debts to pay.

If you’re looking to take out unlimited cash out when refinancing consider a rate and term refinance of your first mortgage and a home equity loan second mortgage option. Taking cash out proceeds from your second mortgage allows you to get a better rate on your first mortgage.

Diversify your Real Estate Portfolio

Concentrating your properties into one certain region can actually put you at risk to mother nature. Earthquakes, Floods, Fires can take all your properties and leave you to answer to the banks while asking your insurance company for help. After you have acquired many properties think about spreading your properties to other States or Cities within your state. Example, Have few properties in San Diego, CA and thinking about purchasing another. Well why not purchase a property in Big Bear, CA or Lake Tahoe, CA area. Phoenix, AZ is another hot real estate area and equity is rising in that desert land.

On top of risk from natural disasters, over investing in a single market may expose you to microeconomic factors, such as a reliance on specific industries or even specific companies in their capacity as employers for your tenants and buyers. In today’s dynamic business markets, with large scale outsourcing and drastic changes in hiring and operating strategy amongst major employers, as a savvy investor you would be best advised to increasingly diversify your real estate portfolio to include different regions, and you might consider refinancing some of your current holdings and taking cash out to facilitate diversification into new real estate markets across the USA and in hot international markets.

You can also diversify your Real Estate Portfolio by investing in different types of properties. You may want to have some longer term investment properties, such as rental properties. You can also invest in mid term properties. These would be properties that you buy and keep for a year or two then sell because of the increased market value. There are also short term property investments such as rehab projects. Where you buy a distressed property, rehabilitate it and then sell it.

Other sites: Mortgage Broker | New Credit Card Minimum Payments | Why is my credit bad| Pay Option Arm Calculator

Fannie Mae

Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Generally speaking, mortgage loans products than are sold to Fannie Mae will have the most attractive interest rates on the market. Also, the conforming loans (Fannie Mae products) do not normally have pre payment penalties.

Fannie Mae is apart of what are known as Government Sponsored Entities (GSE’s). Though government sponsored, are not government owned, just as the Federal Reserve is a privately owned but government sponsored corporation. Fannie Mae is responsible for over half of the conforming loan purchasing and investing in the nation and is largest real estate asset holding company in the nation. While Fannie Mae is an integral part of real estate loans in the nation, they still have their limitations of what they feel comfortable investing on for Wall Street. Because GSE’s like Fannie Mae are so influential to real estate financing, loans they will not buy are called non-conforming, or subprime mortgages.

All loans that are sold to Fannie Mae are underwritten according to Fannie Mae’s rules and guidelines. More information about Fannie Mae and their underwriting guidelines can be found on their website, simply type Fannie Mae into any search engine to find their site.

To sum it all up; Fannie Mae buys the mortgages on the secondary market, sells those mortgages in the form of securities to investors, which allows lenders to continue loaning money over and over again.

Since Fannie Mae is one of the two (the other being Federal Home Loan Mortgage Corporation, or FHLMC, also referred to as Freddie Mac) largest purchasers of mortgage loans in the secondary mortgage market, it’s underwriting and product guidelines are widely accepted in the mortgage loan industry. Even in the world of non-conforming loans (loans that are not eligible to be sold to FNMA/FHLMC, usually due to the loan amount being larger than that allowed by FNMA/FHLMC), its underwriting criteria are still closely followed.

Mortgage loans that are eligible to be sold to FNMA are called conforming loans. Because lender banks can resell these loans to FNMA and recoup their investments immediately after closing, rather than having to wait 30 years to recover their investments, lenders are able to offer lower interest rates for conforming loan products. In addition, since every financial institution, regardless of its financial strength, can sell conforming loans to FNMA and immediately recoup its investments, smaller lenders with limited capital are able to compete with large international banks in offering loans in the primary market, thereby giving conforming loan borrowers even more competitive rates. Non-conforming loan products carry higher interest rates because banks cannot sell these loans to Fannie Mae and must sell to smaller investors or keep in their own investment portfolios for the length of the loan terms. Therefore, Fannie Mae plays an important role in every mortgagor’s loan transaction.

Because Fannie Mae was formed with the sole purpose of promoting homeownership in the United States by creating a healthy supply of mortgage funds, all of its underwriting guidelines are designed to benefit the average homeowners, and to keep the wealthy and the commercial sector from taking advantage of its functions. Amongst its many criteria, FNMA stipulates that the property must be for residential use. It also dictates the maximum loan amounts allowed. Other criteria that has to be met include percent of down payment in relation to purchase price, borrower’s capability to repay loan, cash reserves, the type of eligible properties, borrower’s credit worthiness, and other aspects of the loan file.

Started by Congress to help keep the secondary mortgage market going. As a tax-paying corporation, it insures mortgage money is available. They also buy and/or sell conventional residential mortgages, in addition to VA-guaranteed and FHA-insured mortgages.

Fannie Mae is also credited with developing two automated underwriting engines that revolutionized the underwriting process of conforming loans. Desktop Underwriter (DU) and Desktop Originator (DO) computerized the loan risk assessment process and are used by every conforming lender in the primary market.

Other sites: Mortgage Broker | Delinquency | Negative Amortization | MIP | VA | Fixed-rate mortgage | Mortgage banker| Pay Option Arm Calculator

How Can an ARM Loan Benefit Me?

Benefits of an adjustable rate mortgage:

Often, mortgage borrowers want to avoid Adjustable Rate Mortgages (ARMs) at all cost. Most fail to realize how an ARM loan may actually benefit them over a traditional 15 or 30 year fixed loan.

Your mortgage broker should give you options for fixed rates or arms. Many sub-prime borrowers benefit from the arm rates due to lower payments while they restore and rebuilt their credit rating.

An often overlooked benefit of an ARM loan is that it could possibly save you from the need to refinance. Here’s what I mean. In the period from 2001 to 2004 when rates were declining, many borrowers with fixed rates spent thousands of dollars to refinance their loans, sometimes more than once. They did this in order to keep ratcheting their interest rate down, again incurring thousands or even tens of thousands in refinancing costs in the process. Those with ARMs saw their interest rates go down along with the decrease in market rates – without having to pay to refinance! So yes, with an ARM you are vulnerable to increased rates when the market rises but you also benefit with lowered rates when the market moves downward.

Many times the 2/28 ARM or the 3/27 ARMs are the only way a person with low credit scores can purchase a home. They are basically used as starter loans to get you in the house. Once you are in the house, then it may be beneficial to you to refinance into something more long term, if you plan on being there for a while.

An ARM loan can help save you money from your monthly mortgage payment. This money saved can be used to pay down other debts, apply more money towards the principal of your loan, and to start investing money towards your retirement. There are all kinds of ARM loans available. Some common examples are 3/1 ARMs, 5/1 ARMs, 7/1 ARMs, 3/1 Interest Only ARMs, 5/1 Interest Only ARMs, and Pay Option ARM’s. All of these have their own benefits and your mortgage broker should be able to help decide which one might be right for your unique situation.

Arm loans can be beneficial to you for lowering your monthly payment over a shorter period of time allowing you to purchase or refinance a property and limit your monthly expenses. If you are anticipating a higher income at a later date, an arm loan may be your best option for minimizing your expense while maximizing your buying power at your current income level.

The ARM will offer you a lower rate and if you only plan to live in the home 3-7 years then an ARM will benefit you with its lower payments.

How Market Conditions Affect Interest Rates

When the Chairman of the Federal Reserve lowers “rates,” he lowers the “Federal Funds” rate. Its the interest rate at which large banks lend funds to one another and is a “short-term” rate. Mortgage interest rates are long-term, up to 30 years. Longer-term interest rates are sensitive to expectations about inflation. When short-term rates fall, like the ones the Federal Reserve controls, borrowing and spending usually increase, which can actually cause inflation. Longer-term rates, like mortgage interest rates, can rise when concerns about inflation increase.

Bond prices and bond yields have a direct effect on long term interest rates. Bond prices and bond yields always move in opposite directions (if one pays more for a bond, the yield decrease, and vise versa). Bond prices, hence their yields, are affected by many economic indicators. Some of the monthly economic indicators the bond market pays close attention to are Non-Farm Payrolls, Unemployment Rate, and Gross Domestic Products, Consumer Price Index, Producer Price Index, and Retail Sales. As a rule of thumb, when these economic indicators forecast a strong or inflationary economy, bond prices fall and bond yields increases, interest rate will go up. If a weak economy or low inflation is expected, bond prices rise, bond yields falls and rate will fall.

When the Stock Market is in a Bull trend (Up Trend) it is indicative of monies flowing into the market. Historically, The stronger the up trend in stocks, the weaker the real-estate market will be during the same period. Weak real estate markets (lack of demand) will result in declining prices in home values, which usually correlate to a rise in mortgage interest rates.

One aspect of the economy that can cause interest rates to rise is inflation. One of the reasons interest rates were so high back in the 1980’s was that the market felt that inflation was out of control. Investors demand high rates of return when there is inflation because they are investing or loaning with today’s dollars and being repaid with tomorrow’s money. If the market senses inflationary trends, interest rates will usually rise.

Many domestic and international investors, particularly those investing in the country’s stock and currency markets, will respond to a hike in interest rates by moving money out of the country. This is due to a belief that the increased cost of borrowing will weaken balance sheets and devalue equities, thereby creating a ripple effect which weakens the country’s currency.

Because Adjustable Rate Mortgages and Fixed Rate Mortgages are affected differently it is very important to find a mortgage professional who understands the market conditions and the relation between the bond markets and interest rates. Your mortgage broker can help you make the decision on when to lock a rate which can save you thousands of dollars over the life time of your loan. He can also help you choose the right program!

It is important to note that Adjustable Rate Mortgages (ARMs) and Fixed Rate Mortgages are affected differently by an increase made by the FED or Federal Reserve. The FED makes adjustments to the short term rates which in turn affects things like the bond market, a key determining factor in the 30 year fixed rate. The 30 year rates work in the opposite direction to the 10 year note. If the price of the 10-yr note falls, the rates rise. Adjustable rates are comprised of two things an Index, and a Margin. The margin is set by the banks so when the FED adjusts the rates, banks in turn make adjustments. The Index is a regularly published rate that is independent of the lender and generally used as a market indicator. Examples of and Index would be: PRIME, LOBOR, MTA, COSI, etc.

Markets are often ahead of the Federal Reserve. Mortgage interest rates are determined every day in active public markets. If those markets believe the economy is slowing, interest rates may fall as markets anticipate that the Federal Reserve might lower short-term rates. This happened in the last half of 2000 when mortgage rates began steadily dropping, even though the Federal Reserve left their short-term rates unchanged. The opposite can happen as well. Mortgage rates can rise well ahead of the Federal Reserve increasing short-term interest rates. It’s almost impossible to accurately predict the future of something as complex as the U.S. economy. However, it is important that we, as mortgage consumers, understand some of these market dynamics. Sometimes, a lack of understanding can cost us a lot of money.

This is why it is important to “shop” for your mortgage with lenders on the very same day. Key factors can see mortgage rates changed several times in a given week, sometimes in the same day. The lender that you get a rate from on Monday may not be able to give you the same rate on Wednesday.

Other sites: Loan Officer | Fixed-rate mortgage | Delinquency | New Credit Card Minimum Payments | VA | Why is my credit bad | AFTER BANKRUPTCY APPLYING FOR CREDIT | What not to do after you apply for a Mortgage| Pay Option Arm Calculator