$700 Billion Bail Out Plan

The market bounced around today after the huge fall off yesterday, as stocks plummeted.  Investors will wait to see what will happen next.

After the $700 billion bailout plan failed to be passed by Congress yesterday we saw a 778 point loss, the biggest one-day point loss in history.

Even if they are to pass this $700 billion bailout plan later this week, there is still so much turbulent activity out there, which will keep a downward pressure on stocks.  Economists are forecasting a loss of nearly 104,000 jobs in September this coming Friday, and if that is the case this would be one of the biggest job loss drops in nearly 5 years.

Since the $700 billion financial bailout plan was rejected, the next steps are unclear.  It has left lawmakers scrambling around trying to figure out if they want to renegotiate the bill.

To be honest with you, I’m not exactly sure if I wanted that bill to pass either.  The reason being is that from what I have been reading and watching all over the news, there doesn’t appear to be any specific plan of action with the $700 billion.

I think that the lawmakers need to get a “plan” together first of exactly what they want to do with this $700 billion bailout, and then go back to the drawing board.

President George W. Bush spoke this morning before the stock market opened in New York and Toronto and warned that if this bill wasn’t passed.  It could send our economy into a long lasting recession. Uhhh, you think…  Imagine that. I will keep you posted as much as possible about this bailout plan.

How to Refinance A Home Loan

During the recent real estate boom the adjustable interest rate mortgage with its low rates was an attractive option for many homeowners across the country. Unfortunately those same low rates are now starting to reset and are often times lead to unaffordable payments for the home owners.

How ARM Home Loan Problems Begin

If you have an ARM home loan you may recently have experienced a increase in both your adjustable interest rate mortgage payment and your loans interest rate. Many people can absorb the initial payment increase but then life usually steps in.

The Car needs a muffler, the kids need school clothes and the cost of everyday living just keeps going up. Little by little you seem to be getting farther and farther behind.For many people this is where the adjustable home mortgage trouble starts.

What You Need To Know IF You Have An Adjustable Rate Mortgage

• If you know you have an adjustable interest rate mortgage the first thing you need to know is when the loans rate will reset and how much it will increase by. This information can be found on your adjustable rate rider.

• Next you need to know what your credit score is. In todays tight market borrowers need at least a 680 credit score to refinance adjustable mortgage with a fixed rate conforming loan. For FHA financing you will need at least a 620 credit score.

• If your credit score is below this level and you are unable to refinance your ARM home mortgage you may need to look into either repairing your credit or working with the lender to try and work out an arrangement. As long as you contact them early many lenders are happy to assist customers that are having ARM loan trouble,as long as the have a good payment history.

Interest Rate Impact

Interest rates on mortgage loans have a tremendous impact on the dynamics of loan market. Hence, understanding the factors that influence the fluctuations in the interest rate is vital. What factors influence the interest rate?

Conventionally speaking, interest rates are determined by the supply and demand. Interest rates tend to increase with an increase in the rate of borrowing and when the economy is flowing. However, interest rates decrease in situations when economy is not going too well and as a result borrowers are not attracted to borrow.

Another factor that mainly influences interest rates is the Federal Reserve or “The Fed”. The Federal Reserve determines the federal funds rate. Federal funds rate can be explained briefly as a short term rate where the interest rate is levied on the funds that are lent between banks. These rates are determined by the Federal Open Market Committee (FOMC) and usually mature within two years.

Whenever any changes happen in the federal funds rate, short term interest rates including home equity rates and adjustable rates are deeply affected resulting in a fluctuation in inflation rate. Any concern regarding inflation would cause an upsurge in long term interest rates. This generally happens whenever there is a fall in short term interest rate. Long term interest rates include interest rates on loans with a maturity of more than 10 years such as 30-year mortgage rates. So as to keep the inflation rate in check, the short term interest rates are usually kept by the Federal Reserve at a marginally higher rate.

It is quite difficult to predict the fluctuations in the federal funds rate of a complicated U.S economy. Due to this reason, many borrowers are now refinancing their ARM loans into fixed rate mortgages so as to avoid changing interest rates.

Mortgage Interest Rate Predications

Making mortgage rates predictions is a little tricky. Financial markets, including those which set share prices and mortgage interest rates, are chaotic systems. This is not to say they are chaotic in the common usage of the term, meaning something with no order to it at all, but they are chaotic in the mathematical sense, in that the formulas which describe how mortgage interest rates are determined, which are the formulas used to make mortgage rates predictions, have self-referential components.

Making mortgage interest rates predictions is like making weather predictions – it is impossible to be precisely accurate with mortgage interest rates predictions, and the further in advance you try to predict mortgage interest rates, the greater the margin of error in the prediction.

On the other hand, chaotic systems are predictable in broad terms.

If you think about predicting the weather, you may not be able to predict the top temperature for a given day in August, but you can reasonably sure it will be within a certain range – say, if you live in Orlando, between 80 and 95 degrees F, and if you live in Copenhagen, between 16 and 25 degrees C.

Just as climate gives a broad indicator of summer top temperatures, economic climate gives a broad indicator of mortgage interest rates.

Factors Which Make Mortgage Rates Rise: Inflation

So called “real interest rates”, the interest rates which move in response to supply and demand in the financial markets, are independent of inflation. To get from the “real interest rate” to the “nominal interest rate”, which is what your bank will charge you for your mortgage, you simply add on the annualised percentage rate of inflation.

Factors Which Make Mortgage Rates Rise: Reduced Availability Of Credit

Financial markets operate on supply and demand. If there is a limited supply of anything, then it will go to those who are willing or able to pay more for it. The same is true of mortgage money. Mortgage rates predictions will take into account whether the supply of money is increasing or decreasing, and likewise, the trends in demand for money.

Factors Which Make Mortgage Rates Predictions Rise: Increased Risk

Apart from the underlying real interest rate determined by the broader economy, the rate of inflation, and the supply of money available for mortgage lending, there is another factor which comes into play in any investment decision – risk. Mortgage rates in general will depend on the overall risk involved in the housing market.

If house values plummet, as they have in some parts of the US, then the default risk for the banks suddenly increases, which means that they will be wanting to charge higher mortgage interest rates; predictions will take this upward pressure into account.

Factors Which Make Mortgage Rates Predictions Fall: Government Intervention

The US Government is an 800-pound gorilla in the financial markets. By issuing Treasury bonds at different interest rates, the government can influence the overall market for money, and thus affect the “real” interest rate.

Mortgage rates predictions based on purely economic considerations might indicate that mortgage interest rates are due to rise, but while the political pressure is running high, and in an election year, the government will do everything in its power, however economically irresponsible in the long term, to push the interest rate rises off until after the November elections. Mortgage rates predictions must take this political distortion of the financial markets into account.

Understanding Interest Rates

In order to understand interest rates, it is important to have background knowledge on mortgages. A mortgage is a loan that you receive from a lender or bank that is secured by a property, your home. Once you have chosen the right mortgage, you make monthly payments to repay the lender. The monthly payment has two parts to it, the principal and the interest. The monthly payment may include property tax and home insurance, as well.

The principal is simply the money that the bank lent you for the house. For example, you save up $20,000 and the house costs $150,000 you would need to borrow $130,000. After you borrow the $130,000, that amount will go to the seller of the home that you are looking to purchase.

Mortgage lenders make their money by charging you interest on top of the principal. The amount of interest you pay depends on the amount the loan is for and the interest rate. Overall, the lower the interest rate and the shorter the time it takes for you to pay the lender back (term), the lower the amount you will pay.

If the interest rate is 6.25%, we can easily calculate the monthly payment based on the previous example. The monthly cost would be $677.08 per month. We got that by multiplying the principal, $130,000 times the interest rate 6.25% and dividing that by the number of months, 12. ($130,000x.0625)/12= $677.08. It is important to keep in mind that as your loan principal decreases so does your interest expense. In the first 15 years of the term, you will be paying more money on the interest. On the other hand, the last 15 years the money mostly goes towards paying off the principal.

Paying off a loan over 30 years is very expensive. An alternative is to get a loan for only 15 years. This will help you save more money in the long-term and also finish paying off the home sooner. You will end up paying a lot less money on interest with the 15-year loan agreement. On the other hand, your monthly payments will be higher because you are paying more of the principal each month.

This is not suggesting that everyone should go for the 15-year loan agreement. Every case is going to be different and you should choose your loan term based on your financial situation. If you can afford to make the higher monthly payment with the 15-year term and without sacrificing too much, then it is advisable to do so. On the other hand, if you are sacrificing too much just to save the money after 15 years, it might be best to go with the 30-year term agreement. There are also adjustable-rate mortgages that you could choose. These are where the interest rate varies based on the market. It is important to consult with your mortgage lender before choosing the term limit and the type of mortgage: fixed or variable. He or she would be able to give you the loan that better fits your personal needs.

Overall, in order to save the most money you need to have a shorter loan agreement and a low interest rate. The lowest interest rate should not be the only reason for choosing a particular lender though. Having personal service is definitely worth the minimal extra interest that you might have to pay.

Next Page »