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The End of the Low Interest Rates Era in Sight?

 

April 02, 2013  |  Loan-America.com Insights

There may be some potential changes to the ultra-low interest rates in the US in the near future. Read below to find out how to take advantage of them while they’re still around. 

The economy, labour markets and stock indexes are all showing conservative yet positive signs of recovery. Many believe the policy interventions of the U.S. Fed have played a big role in facilitating this recovery. 

Some analysts and policy experts, however, have begun questioning the long term fiscal soundness of the easy-money policies for the economy. Most are afraid that the policy response to this crisis may fuel yet a new crisis all together!

To date, to ward off deflation and jump-start the economy, Ben Bernanke, the Chairman of the US Fed, cut the Fed’s benchmark interest rate to zero in 2008 and has since pursued unconventional economic policies – such as buying back junk mortgages – to drive down longer-term rates.

One risk many analysts have pointed out in pursuing a prolonged easy-money and ultra low interest rate policy is that it could indadvertedly encourage speculative activity, undermining the very process of restoring sustainable growth and financial stability to the economy. 

Another risk that some economists have highlighted is the rise of “reaching for yield,” which is a term that applies to investors taking on more risk in their quest for better returns. This becomes more common during low-interest periods, such as the present, when traditionally safe assets offer lower rewards. If interest rates change quickly and investments are illiquid, the added risk could lead to unsustainable liabilities in one’s investment portfolio.  

Finally some analysts believe that given such low interest rates for borrowing, the government also has little to no incentive to cut back on its spending in the short term but will be faced with a sizeable debt in the long term . A that point, given the rate of spending, interest rates are surely to go up to help make appropriate corrections to the macro economic context. 

Given the most recent economic activities, most analysts are unsure if the current stock-market highs, for example, are signs of economic strength to come (i.e. investors being forward-looking) or a reflection of the makings of another bubble. 

Though many experts still see how the short term benefits of pursuing these policies probably outweigh the costs, in light of these insights, may are also concerned that the path being pursued is unsustainable in the long term.

 

How to Take Advantage of these Rates and Circumstances

Though there is little consensus amongst experts that the current policies may lead to a full blown bubble, there are legitimate concerns that we believe the government will take into consideration. The most relevant of which to consumers is that ultra low interest rates will probably rise to normal standards in the long term. In other words, these rates may not be around for much longer. 

In light of this, Loan-America would like to strongly encourage potential consumers to take advantage of the current circumstances and try to enter the housing market as a first time buyer or re-financing an existing mortgage at a lower fixed rate as soon as possible

For help with securing low interest rate mortgages in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. We look forward to helping you!

 

Sources:

http://news.yahoo.com/former-top-economic-officials-fret-asset-bubbles-195623013--politics.html 

Top 5 Essential "To Do's" to Avoid Being Taking Advantage of When Signing a Mortgage Through a Broker

 

February 16, 2013  |  Loan-America.com Insights

Are you unclear about what to look out for when signing a mortgage through a brokerage firm? Over the years, many have been deceived into accepting “ultra low rate” mortgages but stung them badly with hidden junk fees and terms that cost tens of thousands over the course of their investment. Don’t fall for the tricks. Read this blog to help identify a few common tricks to look out for.

 

1) Beware of Conflicts of Interest around Commission Fees

Broker's are often provided a fee or commission by a credit provider for arranging a loan based on the products the broker provides. Since different credit providers pay different commission levels, this can influence what loan products the broker recommends to you. As such, brokers may be limited to a particular range of mortgage products that may not suit your circumstances. Even worse, due to the misalignment of incentives, brokers may try to sell you products you don’t need just to increase their own commission wage. [1] 

To avoid being a victim of these conflicts of interest and before signing anything, find out from your broker exactly what loans they offer, who pays their commissions and how their commission structure works. If they are unwilling to disclose any of this information, you should shop around for someone who will.

 

2) Use Online Tools to Make Sure your Broker’s Registered:

Use “BrokerCheck”, a free tool, to help you research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives. This should be one of the first resources to turn to when choosing whether to do business or continue to do business with a particular firm or individual.

Fair Isaac Corporation's MyFICO.com is another tool to reference as it can help you get a realistic estimate for a 30-year fixed mortgage rate based on your credit score.

With these two items in hand, you’ll have more peace of mind about the integrity of the professionals you deal with and the products they offer you.

 

3) Never Sign Blank Agreements and Get Things in Writing

If a mortgage broker asks you to overly exaggerate your income or sign blank or incomplete documents, this strongly resembles the behaviour and tactics used by predatory mortgage lenders and is indicative of dealing with a dishonest company. Evidence has surfaced over the years that some brokers have used similar tactic to structure mortgages to promote default, because simply giving out a product lined their pockets and met their needs more than those of the consumers.

Before signing a mortgage, get a “good faith estimate” in writing to help mitigate any surprises. This will allow you to weigh one option against another. Such an estimate or written agreement should tell you:

  • The type of loan being arranged for you
  • The amount of the loan
  • The term of the loan
  • The current interest rate, and
  • Any fees you have to pay.

 

4) Cross Compare Lender Fees

Home buyers also have to deal with title insurance companies, surveyors and inspectors, all of which have their own fees. If you’ve done some comparison shopping already and have found a better rate, ask the lender to use your preferred vendor instead of theirs.[2]

 

5) Judiciously Review the Good Faith Agreements to Avoid Junk Fees

After being pre-approved and getting a quote through a “Good Faith Agreement”, make sure you judiciously review the document to identify any inflated charges.

Most charges found on your Good Faith Statement should not be higher than 1-1.5% of the loan amount.[3] On the statement, locate the loan processing fee and make sure you are not being charged more than approximately $400.[4] The fees could include broker's fees or commissions, fees to the credit provider or lender for setting up the loan, and/or any early termination fees.[5]

Look out for excessive processing and documentation fees in the following categories:

  • Application fee
  • Underwriting fee
  • Mortgage rate lock fee
  • Loan processing fee
  • Broker rebate

If you do notice anything that resembles an application fee, lock fee, broker administration fee, or courier fees, these are most often junk fees that you should be contested. As a rule of thumb, ask which expenses go into each fee and challenge anything that seems inflated (like overly pricey charges administrative tasks).[6] Most often, by simply raising your concerns companies will consider reduce the fees significantly or eliminating them completely from the deal. This advice applies to other fees as well.

Some mortgage companies and brokers may try to mark up the interest rate you qualify from the wholesale lender that approved your loan. This tactic is called ”Yield Spread Premium” and there is a way to avoid paying it. When your mortgage company or broker provides you the written guarantee, ask to see the guarantee from the wholesale lender. If they refuse, find another broker that will show you this document.[7] Discrepancy between the two fees can cost your tens of thousands of hard earned dollars over the lifetime of the loan.

US Mortgage Rates Still at Record Lows – How to Take Advantage

 

January 9, 2013  |  Loan-America.com Insights

 

A recap from 2012

Over the last quarter of 2012, we shared exciting news about the US mortgage rates were hovering near record lows in nearly a century, strongly favouring prospective new buyers or consumers wishing to re-finance their existing mortgages.

 In early October, we followed up with reports of unorthodox policies being pursued by the US Federal Reserve (Fed) of “quantitative easing”, whereby the central bank would purchase $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely to help stimulate the economy, and support lending, borrowing and spending by driving interests rates as low as possible until evidence arose to show the economy required less support.

 We argued that these reports suggested that interest rates could remain relatively low for the long-run, and would significantly benefit consumers by increasing their  purchasing power. 

 We also warned consumers that securing financing in the future could be more difficult since government support would not be indefinite since it was heavily policy/politics dependent.

 

The New Year Brings New Market Lows

Earlier this week, The Associated Press broke news that the average U.S. rates on fixed mortgages have once again moved closer to record lows experienced in late 2012, where the average rate on a 30-year loan slipped to 3.34% from 3.35%, 30-year fixed mortgage rate averaged 3.66% and 15-year fixed mortgage ticked down to 2.64% from 2.65 percent, making home buying more affordable and helping sustain a housing recovery.

Already, these record-low interest rates have begun attracting new buyers and persuading many homeowners to refinance their existing mortgages. According to the Mortgage Bankers Association, U.S. mortgage refinancing applications have risen substantially as rates declined. 

However, tightened credit restrictions are barring some borrowers from filing loan applications and taking advantage of these rates.

 

How to Take Advantage of these Rates and How We Can Help

In light of this news, Loan-America would like to remind clients that were here to help you take advantage of these unprecedented and favorable conditions. We strongly encourage consumers to take advantage of the low rates by trying to get into the market or re-financing their existing mortgages at a lower fixed rates as soon as possible. Specifically, for help with securing low interest rate mortgages in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. We look forward to helping you in 2013! 

How Low Interest Rates Will Affect the US Real Estate Market?

 

October 31, 2012  |  Loan-America.com Insights

 

The recent unorthodox decision by the US Federal Reserve (Fed) to pursue a policy of “quantitative easing” suggests that interest rates could remain relatively low for the long-run.  The aggressive attempts of the Fed to stimulate the economy through purchasing large amounts of bonds and assets targeting the mortgage market lead many analysts to speculate that there is no better time than now to purchase a home in the US. This Loan-America analysis will highlight some decision criteria for potential consumers to consider when assessing home ownership in the near or long term.

Though factors can shift to make home buying more or less attractive, the most important factor to consider at this time is the historically low interest rates, which helps significantly increase consumer purchasing power. Though the Fed has most recently used strong rhetoric to state they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, consumers should keep in mind that government support will not be indefinite and is heavily policy/politics dependent.[1] When the economy begins showing signs of recovery, the Fed will eventually cease its asset purchasing program, surrendering the housing market more-and-more to the forces of the private sector. Such a reality could be dramatically sped up in the event of a Republican Romney-Ryan 2012 Presidency since traditional free-market Republicans like Mitt Romney and Paul Ryan strongly disfavor heavy government intervention in the market. In this case, the private sector will demand higher interest rates to assure against their risk premiums. Either a slow easing of the Fed’s support or a drastic policy change resulting from a new Republican Presidency could put upward pressure on interest rates, in turn significantly reducing consumer purchasing power.

Securing financing in the future may also be more difficult than the present. Since the financial crisis, many banks have begun tightening their requirements to access credit for a mortgage. To counteract this, Congress has been guaranteeing 90% of the mortgages on the market to spur consumer confidence. Conventional wisdom suggests that as the recession recedes banks will begin to loosen stringent requirements and provide more consumer credit. Consequently, Congress will also begin re-thinking the extent to which it intervenes in the market. If government is less prepared to underwrite mortgages, the private sector will most certainly require greater collateral to help secure access to credit.

Lastly, many analysts speculate that the aggressive level of government intervention in the market will yield high levels of inflation. Inflation normally drives up nominal wages. If consumers secure a low fixed interest mortgage on a new home prior to inflation rises, they are making a smart investment as their mortgage payments will be more affordable.

Given the level of uncertainty in the economy, this analysis mostly supports purchasing housing for residency rather than investment purposes. All things considered, the benefits of securing a long term low fixed rate mortgage or switching from a variable mortgage to a low fixed rate to take advantage of the depressed rates appear to greatly outweigh current risks. 

For more information about how to take advantage of these low interest rates in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions.

 

Sources:

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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  |  Loan-America.com Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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