Category Archives: mortgage interest rates

What is a Mortgage?

Posted on May 10, 2012 by admin

Mortgages are in the news everyday.  But really, what is a mortgage?  A mortgage is a special type of loan that you can obtain if you want to buy a home. Since most people cannot afford to pay cash in full for the price of a loan, a mortgage makes it possible for people to buy a house and pay for it over time. Special Features of a Mortgage A mortgage is different from other types of loans that you might get, such as a credit card or a car loan. There are several key differences associated with a mortgage loan that are helpful to understanding this type of loan. Secured Loan The first and most notable feature of a mortgage loan is that it is a “secured” loan. This means that there is an asset (something of value) that is used to guarantee that the loan will be paid back. This asset is the house that you bought with the mortgage, which is referred to as collateral. The collateral protects the lender because if you do not pay back the home, the lender can take the house. A car loan is a secured loan like a mortgage because the car is the asset/collateral that guarantees the loan will be paid back. The difference, however, is that real estate usually goes up in value over time while a car loses value. This means that a mortgage is an even safer loan for lenders to make than a car loan is since the asset that guarantees the loan is likely to be worth more than the loan is.  If the lender has to take back the house (foreclose), there is a good chance they will get all of the money back they put in (and there might even be some extra made that is distributed back to the homeowner). Loan-to-Value Ratio Another special feature of a mortgage is that there is usually a down payment required and a specific “loan-to-value” ratio allowed. This means that when you buy a home, the mortgage lender isn’t going to give you the entire amount it costs to pay for the home. Instead, they will give you a percentage of the cost and you will need to pay the difference. In most cases, a lender will only lend you 80 percent of what the house is worth and you will have to put in 20 percent of your own money. This is referred to as an 80 percent “loan to value” ratio since it compares the amount of the loan to the value of the home. The required down payment makes the lender even safer because it again increases the chances that the lender will get all of his money back if he has to foreclose. Interest Rate Because of these special features, a mortgage usually has a lower interest rate than other loans. The interest rate is the amount that it costs you to borrow the money. This is normally described in terms of a percentage. For instance, a 3 percent interest rate means that you will pay to the lender each year an amount equal to 3 percent of what you owe on the loan. Credit card interest rates (the cost of carrying a balance on your credit card) can sometimes be as high as 30 percent, while mortgage interest rates are almost always below 7 percent (interest rates change based on what the economy and real estate market is doing). Mortgage interest for a first home can seem expensive since you are borrowing a large amount of money to buy the house. Fortunately, for your primary residence, mortgage interest is tax deductible. Repayment of your Mortgage Finally, another special feature of a mortgage to consider is that it typically has a much longer repayment period than other types of debt. It is common to have 30 years to pay off your mortgage. This makes sense because you are borrowing such a large amount of money, and it makes it possible to have reasonable monthly payments on the home. Getting a Mortgage When you are ready to buy a house, it is time to start the process of getting a mortgage. You can get a mortgage through a bank, a credit union or with the help of a professional called a mortgage broker (who usually will charge you for his services). You will need to provide information on your credit score, your income and the amount of debt you have. The lender will evaluate your finances to determine how likely it is that you will pay back the money you borrow. Lenders do not want your mortgage payments to exceed a certain percentage of your income, so they will also tell you the maximum you can borrow based on your monthly payments vs. your monthly income (this is referred to as your debt-to-credit ratio). In many cases, it is a good idea to have the lender evaluate you before you start house hunting. This is called getting “pre-approved” and it allows you to find out exactly what the lender will allow you to borrow. The Appraisal Process Once you have found an actual home, then the next step is for the lender to decide how much it will lend you for that particular house. The lender will usually do an appraisal to see what the house is worth on the market. This determines the “value” they will use. The lender will typically then lend you 80 percent of whatever the appraised value is. The appraised value, which is determined by looking at what similar properties (comps) sold for, may not be equal to the exact amount you are paying for the home since homes on the market are not always priced perfectly. If the house appraises for less than what you are paying for it, you will have to put down more money to make sure the loan-to-value ratio stays at 80 percent. Finishing Steps Finally, understanding what is a mortgage will help you when you decide to get a mortgage to finance the purchase of your next home. There are different types of mortgages including a fixed rate (your payments stay the same over the entire life of the loan) and an adjustable rate mortgage (the interest rate changes after a certain amount of time and is linked to some type of financial index). In most cases, a 30-year fixed mortgage is the best and safest option to choose. You will then pay monthly payments to your mortgage over time, slowly paying down more of what you borrowed until the home is finally your own. Continue reading →

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January Home Sales Increase for Third Consecutive Month

Posted on February 23, 2012 by admin

According to a recent report issued by the National Association of Realtors (NAR), existing home sales rose in January – the third consecutive month of increased sales.  The rate of total existing home sales (which includes single-family, townhouses, co-ops, and condos) was up 4.3% compared to December’s numbers.  January home sales were an estimated 4.57 million, while December’s rate was 4.38 million.  The numbers for January 2012 were 0.7% above the 4.54 million sold in January 2011. NAR attributed the growth in sales to pent-up housing demand, low mortgage interest rates, low home prices, rising rents, and improved job creation.  The organization saw the improved figures as a favorable indicator for the health of the spring home market. Inventory: The total housing inventory – which measures existing homes available for sale – dipped 0.4% from December, representing a 6.1 month supply of homes at the current sales pace.  In December, the inventory was at a 6.4 month supply. This figure is 20.6% below the amount in January 2011. The total unsold inventory hit a peak of 4.04 million in July 2007, but January’s inventory was 2.31, the lowest amount since the start of the economic recovery. NAR believes that the market has a good balance between the number of sellers and buyers. Prices: The median sale price for existing homes was $154,700, which is a 2.0% decline from January 2011 and a 4.6% decline from December.  Foreclosures accounted for 22% of the January sales, while short sales accounted for 13%. These deeply discounted sales accounted for 35% of total sales, an increase from 32% in December. Regional Sales: The West led the increase in home sales with a jump of 8.8%.  In the Northeast and the Southern states, existing home sales increased 3.4% and 3.5% respectively. The increase in the Midwest was 1.0%, but still represents a 3.2% increase over January 2011. Why Consumers Care: All indices related to housing are seen as indicators of the overall strength of the economy, particularly given the mortgage crisis which started in 2007.  Based on information like existing home sales, investors make decisions about purchasing stocks and bonds related to mortgage companies, home builders, and other home-related industries.  When consumers purchase homes it also creates income for a wide range of services and products, including furniture, tree services, cleaning services, and many others, so an increased rate of home ownership can be good for the economy. Continue reading →

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Mortgage Purchase Applications Drop Last Two Weeks of 2011

Posted on January 11, 2012 by admin

The Mortgage Bankers Association (MBA) announced the recent mortgage purchase applications data for purchases and refinances.   Even with seasonally adjusted numbers, the weeks ending on December 23 rd and December 30 th do not look good.  With new purchases plunging nearly 10% (9.7% actual) in the two week period, and refinances dropping 1.9%, the housing market remains on shaky ground.  Even while enjoying some of the lowest mortgage interest rates in history (averaging 4.07% during 2011 for well qualified borrowers on conforming loans; 3.96% on FHA backed loans), home sales remain down. Before a person is willing to commit to buying a new home, they must be confident in their earning abilities, and the future of their income.  When either the current income, or the future income, is questionable, people simply are not willing to purchase a home.  This reluctance shows up in the MBA purchase applications for new homes.  Low consumer confidence means that the overall economy is still struggling.  But when new home purchases start to pick up, it sparks interest and spurs movement in other sectors as well. Building a new home not only gets money to the mortgage brokers.  It provides jobs for construction workers and other workers in the trades.  The new homeowner will need furniture and appliances to fill the home, so new construction will spur retail sales.  More demand for hard goods flows back to more demand on the manufacturing industries encouraging them to ramp production and hire new workers.  All of these factors will work together in order to help the economy get back on a growth pattern rather than be stagnant refusing to recover.  But if people are not confident in their jobs and the future of their income, they do not want to risk the possibility of losing their home, and thus will not make the commitment to buy new. Instead of buying a new home, many people take advantage of the low interest rates and will refinance their existing mortgage.  Often being able to save as much as $200 or $300 per month will relieve the burden they feel about keeping their mortgage.  The refinance will help keep the title companies and the mortgage brokers in business.  With several hundred extra dollars each month, people are more willing to spend money on consumable goods in all areas of the economy.  While the impact is not as forceful and direct as the impact of the construction of a new home, good refinance numbers will show at least movement in the upward direction. For people who have a steady job and are not in the housing market, they may wonder why this is important.  The mortgage market is a leading indicator of the overall economy.  This means when the mortgage market picks up, the rest of the economy is sure to follow.  A healthy economy is one where money is constantly changing hands.  While one or two weeks of declining mortgage application numbers is nothing to worry about, several weeks in a row cause concern for investors.  When the major investors start to pull their money from the stock market, the overall market goes down, leading to a weakened economy.  As this graph indicates, the mortgage market has been in a slump for a number of years, when the market starts to rise again, only then will we see the economy start to rise again. Continue reading →

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Mortgage Interest Rates Among New York Metro Area Top Banks

Posted on December 11, 2011 by admin

An analysis of mortgage rates listed on the websites for the top ten banks in New York, as of December 1, 2011, shows an average 30-year fixed rate mortgage of 4.20 percent.  During this period, Hudson City offered the highest 30-year fixed rate mortgage product – 4.625 percent. JP Morgan Chase provided the lowest interest rate – 3.875 percent. The average 15-year rate mortgage rate was 3.45 percent.  JP Morgan and Bank of America had the lowest rate of 3.25 percent.  Four banks had showed the highest rate of 3.625 percent.  For the 5/1 ARM product, Well Fargo had the lowest rate of 2.50 percent.  Citibank, Sovereign and PNC rates were not available. Top New York City Metro Area Banks As of 30 years 15 years 5/1 ARM JP Morgan Chase 12/1/11 3.875% 3.250% 2.500% Bank of America 12/1/11 4.000% 3.250% 2.625% Citibank 12/2/11 4.250% 3.625% NA HSBC 12/1/11 4.375% 3.625% 3.125% Wells Fargo 12/2/11 4.000% 3.375% 2.250% Capital One 12/1/11 4.125% 3.375% 2.875% TD Bank 12/1/11 4.250% 3.375% 2.750% Hudson City 12/1/11 4.625% 3.625% 3.250% Sovereign Bank 12/2/11 4.125% 3.375% NA PNC Bank 12/2/11 4.375% 3.625% NA      Average 12/2/11 4.200% 3.450% 2.768%   What Determines Mortgage Interest Rates For any New Yorker seeking to secure a  mortgage for a condominium or home, it helps to possess some basic  financial literacy concerning how mortgages work, before submitting an application with a bank, mortgage broker or other lender. Interest rates can change from hour to hour.  Most lenders quote mortgage rates on a daily basis. Some lenders also quote their mortgage rates at midday.  It helps for consumers should understand the dynamics behind mortgage interest rate fluctuations. Interest rates fluctuate according to the yield or return on the 10-year Treasury bond.  Domestic and global political and economic events affect the yield on bond rates. These factors, along with investors’ demand for bonds, influence mortgage interest rates. Do not confuse mortgage interest rates with the Annual Percentage Rate or APR. The APR consists of the actual annual costs of the loan over the term, which includes fees or additional charges related to the mortgage transaction and the mortgage interest rate. Listed rates from banks, thrifts and credit union websites on the date indicated for conforming loans with 0 points.  Data is believed accurate at time of collection, can change without notice, and will vary based on an individual’s credit history.  Keep in mind that the best interest rate quotes only apply to borrowers with excellent credit scores.  In addition, the lowest rate is not indicative of the “best deal” because borrowers must include other costs of the loan.  Contact a specific institution for current rates. Continue reading →

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