Real Estate NewsMonday Mortgage Review, Feb. 12th
Interest Rate Activity During The Past Week
Mon
Tues
Wed
Thurs
Fri
30-Year Fixed
6.70
6.69
6.70
6.69
6.72
15-Year Fixed
6.32
6.32
6.32
6.31
6.35
1-Year ARM
6.42
6.50
6.42
6.43
6.42
Jumbo
7.23
7.22
7.25
7.24
7.25
Data Source: Bank Rate Monitor
Commentary
It was a quiet week on the mortgage front, with rates generally drifting higher by tiny fractions of a point. The exception: adjustable-rate mortgage (ARM) start rates fell .08 percent.
The limited rate movements were not surprising given that little in the way of unexpected financial news occurred during the week. There were no surprises on Wall Street, events overseas such as the Israeli election results had been anticipated, and the new Administration and Congress were mutually civil. The result was little change in the mortgage arena, good news considering that rates are now at low levels relative to the past few years.
The gap between rates for fixed-rate loans and ARMs continues to widen -- last week the two measures were separated by .19 percent, this week the gap expanded to .30 percent. Even bigger gaps will be necessary, however, before ARM will be generally regarded as attractive.
Notes
*Thirty-year, fixed-rate financing with 20 percent down, a conventional loan, consists of a mortgage with 360 monthly payments of equal size and an interest rate which remains constant throughout the life of the loan. At this time, conventional fixed-rate loans of up to $275,000 are available in the lower 48-states. In Hawaii, Alaska, Guam, and the U.S. Virgin Islands the loan limit for fixed-rate conventional financing is $412,500.
*Fifteen-year, fixed rate financing has a larger monthly payment than a 30-year loan, but lower interest rate and a smaller potential interest cost. Example: Suppose that the current interest rate for a 30-year fixed-rate conventional mortgage is 7 percent and the interest rate for a 15-year loan is 6.80 percent. For a $100,000 loan, the 30-year borrower would pay $665.30 per month for principal and interest. The total interest cost over 30 years (360 payments) would be $139,508. For the borrower who tales out a 15-year fixed-rate loan for $100,000, the monthly cost for principal and interest would be $887.68. Over 15 years (180 payments), the total potential interest cost would be $59,978.
*A jumbo loan is, essentially, a 30-year mortgage but with a loan amount above the conventional loan limit, in this case $275,000 for a single-family home in the lower 48 states. Because a larger loan amount is outstanding, lenders have more risk and so interest rates are somewhat higher than for conventional financing.
*An adjustable rate mortgage (ARM) is a form of financing which typically has an initial "start" rate lasting six months or a year, and then rates which change on a regular schedule. Because the interest rate changes, monthly payments can also rise or fall. The interest rate changes are based on an index not controlled by the lender such as the average price of Treasury bills over six months or a year, loans made by the Federal Home Loan Bank in San Francisco to lenders in California and Nevada (what"s known generally as the11th District Cost of Funds Index), and the LIBOR rate (the London Interbank Offer Rate, a measure which relates to the cost of borrowing in Europe).
Most ARMs have annual and lifetime interest caps, and also annual and lifetime monthly payment caps. Some ARM mortgages allow lenders to collect "negative amortization," an expression which means the interest cost is greater than the monthly payment, so the size of the debt increases.
*Interest rates are calculated at a given percentage of the loan amount per year, say 7 percent annually. A basis point is equal to 1/100th of 1 percent. Thus if a loan interest rate moves from 6.60 percent to 6.65 percent, it has gone up .05 percent or 5 basis points.
*Loans have a nominal interest rate, say 7 percent, and an annual percentage rate (APR). The APR is important because it includes not only the interest rate, but also such costs as points (loan discount fees), per diem interest, mortgage insurance and other expenses.
Be aware that the rates presented here may not reflect the rates for individual loan products at any given time, and that rates are constantly in flux. For additional information regarding current mortgage rates, please consult the Bank Rate Monitor