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[M831]My Mortgage Interest Rate

by Matt Ellsworth, Mat

Even before you go hunting for the best mortgage deal for your dream house, you need to have a clear understanding of mortgage interest rates. Mortgage interest rate is one of the biggest factors (though not the only factor) in deciding what mortgage deal is best for you. Also, mortgage interest rate is one of the most important things that you use to measure how good a mortgage lender is. So let's get started with gaining some basic understanding of mortgage interest rates.

The mortgage lenders keep floating new mortgage plans all the time. However, all these plans are based on just 2 types of mortgage interest rates i.e. fixed mortgage interest rate and adjustable mortgage interest rate. While the fixed mortgage interest rate is fixed for the entire term of the loan, the adjustable mortgage interest rate adjusts itself after short intervals of time and is based on a pre-determined financial index (like treasury security). The adjustable mortgage interest rate could adjust itself on monthly, annually, 3-yearly, 5-yearly or as agreed with the mortgage lender. So the mortgage interest rate remains fixed till the next cycle of mortgage interest rate adjustment when it adjusts to the prevailing mortgage interest rate which is based on the financial index. Moreover, you might have a cap (a limitation) on the amount/percentage by which the monthly-payment/ mortgage-rate can adjust at each adjustment cycle. Further, the mortgage interest rates are different for different loan durations e.g. the fixed mortgage interest rate for a 15 year loan is lesser than the fixed mortgage interest rate for 30 year loan tenure. Besides that there are mortgage plans that offer you the option of changing from adjustable mortgage interest rate to a fixed mortgage interest rate. Such mortgage plans become very handy when you are on an adjustable mortgage interest rate that is expected to rise in the near future. Moreover, such an option can save you the hassle of going for a refinancing option. Another factor affecting the mortgage interest rate is the points i.e. the percentage of total mortgage amount that you pay upfront towards interest. One point is equal to 1% of the total loan amount. Paying points entitles you to a lower mortgage interest rate (for the mortgage lender, it's like an instant return on their investment). Generally, mortgage lenders float various combinations of points and mortgage interest rates for various offers. The points system is more effective in high interest regime since in low interest regime the rates are already so low that incentive to further lower the interest rates is not so attractive.

So, those were some basic facts about mortgage interest rates which everyone should be aware of.

Up up and away. Mortgage interest rates continue on their upward trajectory. 30 Year mortgage rates went from 6.32 to 6.42. 15 year notes rose from 5.93 to 6.02 and 5 year arms rose almost 20 basis point going from 5.7 to 5.89. 1 Year arms rose this week from 5.09 to 5.19. But unlike the other mortgage products (which are higher) 1 Year Arms remain about where they were a month ago. As we have talked about for the last several months since the FED is no longer cutting rates we can expected rates to rise throughout the summer. The only question is when they will stop rising and start stabilizing. Below is the rates for the last month.

June 19,2008
30-yr 6.42 15-yr 6.02 5-yr ARM 5.89 1-yr ARM 5.19

June 12,2008
30-yr 6.32 15-yr 5.93 5-yr ARM 5.70 1-yr ARM 5.09

June 5,2008
30-yr 6.09 15-yr 5.65 5-yr ARM 5.51 1-yr ARM 5.06

May 29,2008
30-yr 6.08 15-yr 5.66 5-yr ARM 5.62 1-yr ARM 5.22

May 22,2008
30-yr 5.98 15-yr 5.55 5-yr ARM 5.61 1-yr ARM 5.24

May 15, 2008
30-yr 6.01 15-yr 5.60 5-yr ARM 5.57 1-yr ARM 5.18

Using our free mortgage calculator lets see how the increasing rates have changed the payment on a 200k loan.

June 19th
30-yr $1253.63
15-yr $1689.87
5-yr ARM $1184.99
1-yr ARM $1096.98

May 15th
30-yr $1196.53
15-yr $1639.47
5-yr ARM $1149.41
1-yr ARM $1103.16

Mortgage payments on most of the mortgage products went up quite a bit over the last month. Looking at a 30 year note the mortgage on a 200k loan has increased $57.10 or about 4.8 percent in a little over a month. In fact the only mortgage product to fall is the 1 Year Arm ($6.18 or about 0.5 percent). Why banks would want to push ARM which is the very loan product that caused all the problems in the first place is anyones guess. Although I typically avoid ARMs the cost savings on a 1 or 5 Year ARM is hard to ignore. That said I would only look at ARMs if you think their is a reasonable chance you will sell your property in that time frame. The general expectation is that rates should be higher and not lower in a few years.

So the question remains where are rates going to be in the next month. While I was fairly confident that rates would rise this month I am not as sure what will happen in a month. If the FED continues to avoid anymore rate cuts I would expect to see mortgage rates at about the same level or higher. Banks have been dealing with massive losses from foolish bets on subprime loans and are looking to make up for these losses through higher mortgage rates.

Another change occuring with loans is a limit on the number of investment properties an individual can recieve a loan on. It looks like most banks are limiting the number of investment property loans per individual to 4. This should obviously have a negative effect on investment properties. I also expect to see more cash offers from investors looking to pick up properties at currently depressed prices.

Personally I think this rule is a little bit foolish. I would make more sense to limit loans based on some networth to total loan amount ratio. For instance if someone has 2 million in the bank it seems reasonable to allow them to buy 5 duplexes for 180k. But if the banks were well run they probably would not be swimming in subprime debt right now.

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Both Matt Ellsworth & Ki Gray are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Matt Ellsworth has sinced written about articles on various topics from Disneyland Vacation, Finances and Forex Guide. . Matt Ellsworth's top article generates over 1300 views. to your Favourites.

Ki Gray has sinced written about articles on various topics from Debts Loans, Real Estate and Food And Drink. Ki is real estate agent in Austin Texas. He runs a website covering the ins and out of along with providing a free search of the. Ki Gray's top article generates over 110000 views. to your Favourites.