Non-Farm Payrolls Report Data on Friday May Push Mortgage Rates Up

Tomorrow at 8:30 AM Eastern, the market will be waiting and watching as the Non-Farm Payrolls report otherwise known as the “jobs report” or “employment report” is released for September. This report can have a significant impact on mortgage rates and includes data about the U.S. unemployment rate, number of new jobs added or lost during the month in addition to average hourly earnings. This data helps market participants such as investors, banks and traders understand the health of the employment sector and can have a huge impact on mortgage rates.

Weaker than expected data could be positive for mortgage rates, while stronger than expected data could mean much higher rates depending on how strong the data is.

Keep in mind that since we are at a bottom, mortgage rates have a lot more room to move upward and are expected to move upward fast when they do move. This means that if you do not have a rate lock in, now may be the time.

The Low Rate Window May Be Closing

Have questions about a rate locks or the right loan for your scenario and goals? We can help you answer any questions you have in addition to locking in a low rate so that you are not at the mercy of the market! Holding off on your rate lock may mean the reality of much higher rates later.

1. Your Credit Score

Your credit score plays a major role in the type of interest rate you’ll qualify to receive. While different programs have different credit requirements, the rate you pay may increase or you may be disqualified altogether if you do not meet a specific program’s minimum or preferred credit score standards. If you find that you are having trouble qualifying for a mortgage, you might qualify for federally supported loans from Fannie Mae or similar institutions.

2. Available Liquid Assets / Reserve Cash on Hand

The amount cash reserves you can show to the lender are also important. Cash reserves help show that in case there is a disruption in your income, you will be able to maintain your monthly payments.

3. Your Down Payment Options

Another aspect to consider when applying for home loans is your down payment. Different lenders will require certain amounts in order to agree to giving you a loan.The higher a down payment you can afford to make  will not only help you in the long run, but give you an edge when applying for financing. Most financial institutions would prefer a down payment of anywhere from 10 to 20 percent in order to assure a good interest rate although this can vary by program. In difficult economic times, more and more banks are asking for the buyer to put more money down. Government-backed loans allow you to put less money down initially, but also carry higher monthly rates.

It’s important not to be discouraged if your credit score is lower than you anticipated, or if you can’t afford a large down payment. You can investigate other loan options, or even try to find ways to improve your credit. Improvement won’t happen overnight, but it can happen if you have patience. In fact, we can help you improve your credit score and help educate you on how to improve and maintain high credit scores in the future.

1. Increase Your Monthly Payments

The quickest way to chip away at your mortgage is to increase the amount you pay each month. Even if it’s just by a little each month, you’ll be getting ahead of the game. If possible, try to make an extra full payment once in a while, thus reducing the number of payments you’ll owe. While this is often a money management issue, if you’ve been given a bonus at work, or added income to your home, consider devoting more of these funds to your mortgage payment and less to other spending.

2. Renegotiate the Terms of the Loan

Depending on your loan, you may be able to renegotiate certain terms in order to facilitate faster repayment. If you are able to get a lower interest rate, this will lower your monthly payment. The trick is to continue paying the same amount as before. This acts in the same vein as increasing the amount you pay each month. Additionally, speaking to a financial consultant can help you understand bank-specific tricks to pay off your mortgage faster.

Keep in mind, the goal of these tips isn’t to encourage you to live beyond your comfort level. Even if you can only afford to put a little more toward your mortgage each month, that’s okay, you’re still working to pay off your loan sooner rather than later. Working to paying down your mortgage earlier may just allow you to live with limited housing costs during your retirement.

Fed Released Report on State of 2010 Mortgage Market

This week also marked the release of a report by the Federal Reserve about the 2010 Mortgage Market. Findings in this report can help shed light on some of the issues that borrowers might facing today.

According to the report, there would have been 2.3 million more refinances if not for stricter underwriting guidelines and borrower home equity issues. As borrowers have borrowed more against their homes and their home values have decreased, they are left with less equity, which may put them outside of newer refinance guidelines for home equity requirements.

From the Federal Reserve Report on the Mortgage Market in 2010:

“We estimate that, in the absence of home equity problems and underwriting changes, roughly 2.3 million first-lien owner-occupant refinance loans would have been made during 2010 on top of the 4.5 million such loans that were actually originated.”

The inability to refinance is especially a problem in states that were hardest hit by foreclosures, where home prices have declined the most, the report shows.

In Arizona, California, Florida, Michigan and Nevada, 6.4 percent of borrowers with credit scores between 680 and 719 were able to refinance in 2010. In other states, 9.7 percent of borrowers within the same score range refinanced.

Mortgage Rates in the Week to Come

The upcoming week has a a few relevant economic reports that may move mortgage rates. These include the August New Home Sales report, Consumer Confidence, Durable Goods Orders, Jobless Claims, GDP and more. We will be reporting with a full economic calendar on Monday.

The Window of Opportunity is Officially Open, Don’t Let it Close On You

This week presented a unique opportunity for homeowners on the sidelines that have not already taken advantage of record low mortgage rates. As with any window of opportunity, there may be a limited time in which you can get rates at their current low levels. We can help you understand which programs fit your needs the best and help you lock in some of the lowest mortgage rates in history.

This means that there is historic opportunity for existing and future homeowners looking lock in all time low mortgage rates.

Why Are Mortgage Rates Setting All Time Record Lows?

The markets of the United States and the world are in turmoil and extremely volatile. Consistently bad economic data has shown that recovery is not occurring at the pace expected or at all. Concerns about inflation, unemployment and other key indicators are driving fears of a double bottom recession, an extended recovery and an all around weak economy despite stimulus attempts.

When markets are driven by fear, investors take money from equities (think stocks) and place them in safer but lower yielding vehicles like bonds. Money flowing into bond markets help push rates down. This means that bad news for the stock market is generally good news for mortgage rates.

What Does This Mean For Me?

You may have heard the phrase “never try to pick a bottom” when speaking to a financial adviser or in conversations regarding the stock market. The saying holds true for mortgage rates as well. The markets move too fast to truly pick a bottom and when rates do rise, they will move quickly, meaning that once they move upward, it will be too late for you to get the rates that are available today.

Now is the time to lock in record low rates, holding off in the hope of squeezing a tiny bit more out of the market is a gamble with very high risk and very low reward. We can help, now is the time.

As a result, it is important that new home buyers run some numbers before they choose their mortgage term. We can help you calculate payments at different interest rates and help estimate worst case scenarios upon adjustment (in the case of an adjustable rate mortgage), to help prevent a scenario where a loan that is affordable in the beginning, will not be unaffordable when the loan enters into its adjustment period. If we find that an adjustable rate mortgage term is not suitable for your finances or comfort level, then we can explore options for a longer term adjustable mortgage that will better fit your needs.

The Benefits of a Longer Term Adjustable Rate Mortgage

• A longer term adjustable rate mortgage guarantees that home buyers will be able to afford their home over a longer period of time without their rate adjusting.
• A 10 year adjustable mortgage, for example, allows home buyers to pay down more of the principal since the first few years of a mortgage primarily pays the interest.
• By the time the longer term adjustable mortgage comes up for renewal, the total amount will be lower. This means it will be more affordable even if interest rates are higher as there will be a lower balance owed.

Home buyers that believe they will be able to afford their mortgage regardless of an increased interest rate can simply pick the mortgage term that most appeals to them. A little bit of preparation before choosing a loan term is critical in maintaining financial stability in the future and preventing challenges in the future.

One issue at the forefront of eroding consumer confidence is the impending budget deal debacle which will decide the fate of whether or not the US debt ceiling can be increased, allowing the United States to continue funding its monthly obligations.

Adding to consumer anxiety is credit rating agency Standard & Poor’s statements this week that there is a 50 per cent chance it will downgrade the U.S. government’s credit rating within three months because of the congressional infighting over approving an increase in the debt ceiling. The rating agency has placed the United States on a credit watch, not good news for the economy or consumers.

FED Chairman Ben S. Bernanke in Semiannual Monetary Policy Report to the Congress:

Much of the slowdown in aggregate demand this year has been centered in the household sector, and the ability and willingness of consumers to spend will be an important determinant of the pace of the recovery in coming quarters. Real disposable personal income over the first five months of 2011 was boosted by the reduction in payroll taxes, but those gains were largely offset by higher prices for gasoline and other commodities. Households report that they have little confidence in the durability of the recovery and about their own income prospects. Moreover, the ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment. On the positive side, household debt burdens are declining, delinquency rates on credit card and auto loans are down significantly, and the number of homeowners missing a mortgage payment for the first time is decreasing. The anticipated pickups in economic activity and job creation, together with the expected easing of price pressures, should bolster real household income, confidence, and spending in the medium run.

The silver lining for mortgage rates is that bad economic news results in lower or depressed mortgage rates. We can help you decide if you in the best mortgage for your needs or if a lower rate is available. Please contact us today for your free existing or future mortgage consultation.

Fixed Rate Mortgages

With a fixed rate mortgage, your interest rate and monthly payments remain the same throughout the term of the loan:

• There is no risk of your monthly mortgage payments changing at any point during the course of the loan. This means as long as there are no drastic changes to your lifestyle, you should always be in a position to pay the mortgage amount comfortably.
• A fixed interest rate is typically higher than whatever the going adjustable interest rate is since you are offered more stability.
• Throughout the term of your mortgage, there is no change to the amount applied to principal versus interest, it always takes the same course as per the amortization schedule.
• If interest rates go down you don’t have the opportunity to take advantage of this move as you may with an adjustable rate mortgage.

Adjustable Rate Mortgages

With adjustable rate mortgages, your payment amount is determined by the initial mortgage rate fixed for a 3, 5, 7 or 10 year term, which presents some interesting pros and cons:

• With a adjustable rate mortgage, there is the potential that you can pay much less than you would with a fixed rate mortgage, but if interest rates go up, you could also pay much more as you do not have a guaranteed future rate once your “fixed rate” period is complete.
• You don’t have a guaranteed monthly payment amount, and you may have to tighten the purse strings on other spending when interest rates rise.
• Adjustable rate mortgages can allow you to pay down your mortgage with more money applied to principal depending upon what interest rates are doing at any given time.
• In order to be eligible for a adjustable rate mortgage, you may need be approved to pay a monthly payment amount higher than what you’d pay based on the interest rate at the time in a fixed rate loan. The regulations can vary by lender or state, but this ensures that your mortgage can always be paid.

Still have questions about whether an adjustable rate or fixed rate mortgage is best for your needs? We can help walk you through any questions you have to find the loan that best fits your needs.