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Fixed Rate Mortgage Rates Rising

[May 28, 2009.]


CNN Money reports that fixed rate mortgage (FRM) rates spiked to 5.45% on May 27, up 21 basis points from 5.24% last week. Investor concerns about GM's potential bankruptcy may have influenced the 10 year Treasury yield, which is connected to FRM rates. The 10 year Treasury yield has recently risen its highest rates since November 2008. Government borrowing could also be contributing to investors' reluctance. The bottom line for homebuyers and homeowners wishing to refinance is that FRM rates are sill lower than the average FRM rate of 6.20% last year. Rates for 15 year FRM's also rose from 4.74 last week to 4.86, but borrowers who qualify at these rates can potentially benefit by saving thousands of dollars in interest payments as compared to repaying their mortgage loans over 30 years.

Adjustable Rate Mortgage Loans Remain Attractive

First time buyers or anyone seeking low mortgage payments may benefit by current low adjustable rate mortgage (ARM) rates.  Average rates for one year ARMs and five year ARMs currently average 5.03% and 4.94%. When considering an ARM mortage or refinancing, it's important to keep a few things in mind:

  • Mortgage loans are a long term proposition: First time buyers and others needing low rates may be tempted to take any mortgage to get into their own homes, or to lock in a low rate on refinancing before rates rise out of reach. Considering the potential for rising interest rates and declining home values is important for choosing home financing.

  • ARMs are a good choice for short term financing: If you plan to sell or pay off a mortgage before the initial low ARM rate expires, taking advantage of very low initial ARM rates can make sense. An example of borrowers who might choose an ARM are  new professionals who want a starter home, but plan to trade up or relocate in a few years as their circumstances change.  

  • Low ARM rates can help with budgeting: New homeowners often face financial challenges; moving costs, home maintenance and repairs, and higher utility costs can make it difficult for new homeowners to save. A low initial interest rate can assist new homeowners with savings during these first cash-strapped years.  

Low Rates and Down Payment Assistance Programs

  • Check out first-time Homebuyer Programs: First time homebuyers (typically defined as someone who hasn't owned a home in the past three years),  may be eligible for state and local first time homebuyer programs. These opportunities are typically  by housing finance agencies that offer less than market FRM's to eligible buyers who meet income criteria. In addition to favorable fixed rates, these programs may provide down payment assistance in the form of a second mortgage loan that does not have to be repaid until the home is sold or vacated by its owners.

  • Targeted Homeownership Assistance Programs: There are homebuyer assistance programs for people in certain professions and military veterans, and also regional programs providing low cost mortgage and rehabilitation loans for targeted locations. State housing departments can provide more information.

Local mortgage lenders and real estate professionals can help with finding mortgage opportunities suited to individual needs.


About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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