Hilde's Mortgage Blog

Here is a word from Residential Mortgage LLC

After Bernanke and Paulson’s comments over the last several days, we have had a number of inquiries as to the direction of interest rates.

My initial observation is that no one can predict interest rates as they are subject to many influences, from the rate of inflation, to the value of the dollar, to current economic conditions, the direction of the stock market, etc.

More specifically, people have asked where the Treasury is with their announced program and how will it unfold. The Treasury Department already has the authority to buy billions in mortgage backed securities (MBS) and to-date has not done so to any large extent. How much would the Treasury have to buy to push rates on a 30 year MBS to 4.5%? To give you some perspective the Treasury’s plan to buy $500 billion of MBS’s did cause rates to drop (for a couple hours) before interest rates finished flat this morning.

This morning conventional rates were at 5.25% which we last experienced in June 2003. Due to the change in administrations any coordinated purchases by the government, if any, will probably not occur before January 20^th.

In summary, what we have is a program that doesn’t exist, has no qualifying parameters (will it apply to all loans or just purchases?), no time table for implementation and at best will probably drop rates 50 bps from their current level.

We must also consider that never before has the government issued so much new debt and it’s hard to imagine the mortgage market sustaining a prolonged move to lower levels in that environment.

Lately rates have been dropping and could be considered having reached an historic low. It remains to be seen if rates will drop further and how much longer they’ll stay at currently levels.

One great aspect of lower rates is the impact it has on the purchasing power of a prospective buyer.

Let’s say a buyer has an income of $4,000 per months and other monthly debts of $500 per month. Let’s also assume that their underwriting risk profile allows for a total debt to income ratio of about 40%. A change of the interest rate of one percent would equate qualifying for $16,000 more of a loan. If, for simplicity purposes, we assume a down payment of 20% and a loan of 80% of purchase price, we are looking at the difference of a purchase price of $190,000 versus $210,000. In this example a 1 percent drop in the interest rate results in purchase power increase of $20,000 and loan amount increase of $16,000.

There is speculation that rates may drop further. When deciding when to buy your home you need to factor in the risk that the perfect home you found today won’t be available when the rates have reached the low point you are waiting for. However, if you do buy now and rates still drop significantly, you can always look at refinancing that initial loan later.

USDA-RD loans - one of the last hold outs for 100% financing.

This program is designed for low to moderate income families buying a modest home in non-metro areas. For Alaska that means everyplace but Anchorage, Fairbanks and Juneau (sorry, you urbanites). Income ceilings apply based on family size and the geographic income limits. So, essentially there has to be sufficient income to qualify for the loan payment but not too much income to be above the income limits.

This is a loan guaranty feature, like FHA or VA. The funds for the loan actually come from various investors, like Alaska Housing or other entities. They will determine the interest rate. Like a VA loan, there is no monthly mortgage insurance required. A one time upfront fee of about 2% is charged and can be added to the loan.

Call or email me for more details.