Relevancy of Rates on Reverse Mortgage Costs [mortgage-solutions.blogspot.com]
Question by pieface: How much more do you think the interest rates will drop on fixed rate mortgages? Also what do you think the lowest they will go is? Best answer for How much more do you think the interest rates will drop on fixed rate mortgages?:
Answer by REIBroker
There is no indication that fixed rates will go down at all. Unfortunately there is a misunderstanding of the "rate" reported on from the Fed. This is the "target" rate which is set by the market and reported by the Fed. The best thing it does when it goes down is to inspire consumer confidence. Rates likely will go down very little -if at all- before the Fed target rate rises again. Unlike the last time the Feds had to set that rate lower there is far less liquidity in the market and consumer confidence wasn't waning - it was building. The truth is rates are still historically low. If you are looking to refinance I have seen rates this week as low as 5.25 with no discount on a fixed 30. It didn't get much lower than that at the lowest of lows. It really depends on what happens with the bond market for bonds that drive Fannie Mae and Freddie Mac. If we hit inflation and recession becomes a reality the Fed change will not affect the mortgage rate that will be important to you. It also depends if you have a conforming (agency) loan or a non-conforming loan (outside of agency guidelines falsely referred to as "sub" prime). Bottom line: I would LOVE for rates to go lower but it's not a likely reality that you'll seen them go much lower than they are right now.
Answer by Blah Blah
One never knows. In the short to medium term, they will likely come down. Even though the Fed dropped overnight rates .75%, that doesn't mean that longer-term rates will drop. If the drop is considered to be inflationary, long-term rates can actually increase. But considering that the economy is currently in the dumps, I don't see inflation as an immediate concern, so I do see rates dropping. Another item that keeps rates up is credit spreads ... the interest rate that you get is a premium to a risk-free rate, or a treasury of a similar duration. That credit spread, or premium to a risk-free rate has been high recently because of all of the subprime losses and the drop in real estate prices, which has led to losses on "A paper" portfolios. That credit spread should come down over the near term.. . How much? I can see a normal fixed rate 30-year loan being at 5.1% to 5.6%. That is about all we will see for now. The hybrids (3/1, 5/1, 7/1) should be a bit lower. But in the long-term, inflation will creep back in from three sources --- weakness of the U.S. Treasuries (greater credit risk), inflation caused by increased cost to produce overseas, and "crowding out" when the government borrows to pay for debt which competes for dollars with the average consumer - pushing rates up. So go get your fixed rate under 5.5% and be happy. P.S. -- there is also a chance to get a loan at 5% or lower in the next two years, but that is a risky proposition to wait for it. All in all, the lower rates is good for real estate prices ... should keep them up. And that should keep loan losses down. that is good, too. It could be a good time to get a loan ... if you have a good stable job and want to purchase.
Answer by John K
Oh ... great question. Of course, there's no sure answer. Thing is, even though the Federal Reserve has dropped its Fed Funds rate, it only has limited effect on the rates on your mortgage loans. A mortgage loan is a 30-year loan, whereas the Fed Funds rate is for short-term loans. Mortgage loans track 10-year Treasury Bonds, but are a bit higher, due to the added risk. And, sometimes long-term bonds go in the opposite direction of short-term bonds. But, back to your question. I think we've hit rock-bottom for mortgage loan interest rates. Sure, they might go lower, but now's as good a time to lock-in a rate. I just refinanced from a 6.75% fixed-rate loan to what I hope is a 5.625 fixed-rate loan. It was only today, so I'm not sure what we ended up with. Best part, it was with no closing costs. I could've received a better rate if I was willing to pay closing costs. I think brand-new loans can get a better rate than a refinance. If everything turns bad over the coming months, rates might drop lower, but then you can just refinance! http://bostonreb.com - The Boston Real Estate Blog
Answer by Tres7
They dropped this morning and my guess is that they will drop at least one more time before the end of Feb. Beyond that they will wait to see what it does for the economy. More than likely will not go past 4.5% and will not stay there to long. It is a great time to buy a home....This is just my opinion considering the election year, the economy, and history of what happens during a Buyers market. We will all wait to see, but don't wait to long.
What are interest rates based on? Well, for short term and variable interest rates they are based on the bank prime lending rate which in turn is determined by the bank of Canada's overnight lending rate. For fixed term interest rates they are based on the government of Canada long term bonds. Now, why is this important? Why is this a question I think you should ask? Well, first of all, I think when you do ask it people may come back to you with a general sort of answer that may or may not be useful in your situation. I encourage you to push for more information. Why? Because of the way both short term and long term interest rates operate, they are not well correlated. This means that I have to be watching certain indicators in each one of these markets so that I can have a sense of where I think interest rates are going and therefore create a strategy that makes sense for you. So if someone doesn't really understand the basics of how interest rates are determined then how can they possibly give you a solid strategy that is going to help your overall financial wellness? To find out more information on this or for any other questions, please me using any of the methods listed below. Thanks for listening. Warren Thody 519-701-2904 www.warrenthody.ca wthody@dominionlending.ca
mortgage-solutions.blogspot.com What Are Interest Rates Based On? Mortgage Education London Ontario
Real-estate website Zillow Inc. (Z) said Tuesday its real-time rate on 30-year fixed mortgages in the U.S. fell to a new all-time low, as the rate has consistently dropped for much of this year. Zillow said the 30-year fixed mortgage rate on its ... US 30-Year Mortgage Rate Hits New Low
Previously, we explored all the upfront fees involved in a reverse mortgage. Now, of equal importance, we explore continual costs that are accrued during the life of the loan. These costs include the interest rate, the ongoing HUD Mortgage Insurance Premium (MIP), and the monthly service fee.
The single item that may cost the most over the life of the loan is the interest rate. With a reverse mortgage the borrower has the option to obtain a fixed rate or an adjustable rate. Since the rate is known on the fixed rate, it provides the security of knowing exactly what the loan balance accrual will be at any point in time. The adjustable rate is based on one of two indices: LIBOR (London Inter-Bank Offered Rate) or CMT (Constant Maturity Treasury) plus a margin that currently ranges from 2.75% to 3.75%. It is important to remember that the interest accrues as a compound rate, meaning that borrowers will be accruing interest on interest.
It is very important to look at an Amortization Schedule to help understand how the loan balance will grow over time.Next, every reverse mortgage, whether fixed or adjustable will have an additional 50 basis points (0.5%) for mortgage insurance that will continue to accrue for the life of the loan on whatever the outstanding balance is. The upfront and continual mortgage insurance is in integral part to help maintain the stability and financial soundness of the HECM reverse mortgage program.
Lastly, under the FHA HECM program, borrowers are charged a monthly servicing fee that ranges from $ 25-$ 35 to manage their account once the loan closes. This fee is added to the loan balance each month that the loan is outstanding.
When determining the amount of benefit available to the borrower, there is the service fee set-aside to consider. The service fee set-aside is an estimate of what the total servicing fees will be over the life of the loan. Although it's not considered a closing cost, the service fee set-aside can equal several thousand dollars, which is deducted from the available loan proceeds. You do not have access to that money, nor does it earn interest.To summarize, in addition to the upfront fees involved in a reverse mortgage, there are continual costs that are accrued during the life of the loan. When making a decision on whether or not to obtain a reverse mortgage, it is important to explore and understand all fees involved. An industry professional should be able to explain all fees to you in a manner that makes them easy to understand. As always, reviewing the Good Faith Estimate (GFE), Loan Comparison, TALC (Total Annual Loan Costs) and Amortization Schedule with a family member or trusted advisor is recommended.
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