Rates keep rising!

The 30-year fixed rate jumped to an average 5.32 percent this week, up from 4.91 percent the previous week, according to Freddie Mac. Refinancings are already down sharply due to the higher rates, but home purchases continue to recover slowly.
In fact, the rise in mortgage rates in recent weeks is causing some homebuyers to jump now before rates head any higher.
"I think that as rates look like they are going up, there's a rush to buy," says Diane Saatchi, senior vice president and associate broker with the Corcoran Group. "In the short run, there's an increase in activity to lock in rates. We're seeing a bit of a frenzy to buy."
But if mortgage rates continue to climb, that could slow any housing recovery says Mark Zandi, chief economist with Moody's.
"If rates rise any more for any period, that will significanlty hurt housing sales and the housing market," says Zandi. "I think fixed mortgage rates around 5 percent will entice buyers, If they are over 5 percent, that will hurt."
Still, Greg McBride, senior analyst at bankrate.com says home buyers don't need to panic-at least for now.
"The move up in rates is not a barrier to affordability," says McBride. "Mortgage rates are still at historical lows and coupled with much lower home prices, they still provide home buyers with tremendous opportunities."
On Tuesday, the National Association of Realtors on Tuesday reported that pending home sales, based on new sales contracts, rose 6.7 percent in April, the biggest jump since October 2001.
There are financial incentives for people to buy now, says Lawrence Yun, chief economist at the National Association of Realtors.
"Many first-time home buyers are taking advantage of the $8,000 tax break from the Obama administration, which runs out on November 1st of this year," says Yun.
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One area feeling the immediate impact of higher rates is refinancing says Alan Rosenbaum, president of Guardhill Financial, a mortgage banker and brokerage company.
"Right now in the mortgage business, refinancing has been by far the most dominant action," says Rosenbaum. "But with higher rates, refinancing homes is being hurt. Low rates puts money in people's pockets and that's what homeowners are looking for."
The numbers back up Rosenbaum. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended May 29 decreased 16.2 percent to 658.7.
The big difference between rates of last year and even last week comes down to the
10 year Treasury note.
Fixed mortgage rates are tied into the yield of the 10 year note. If the yield goes up-and the price of the note goes down-so too do interest rates.
A look at the numbers over the last year shows how rates are heading up:
Rate/June 2008 Percentage30 yr. 4.91%15 yr. 4.53%5/1yr. 4.82%
Rate/June 2009Percentage30 yr.5.32%15 yr. 4.92%5/1yr4.61%
Analysts say an improving stock market is raising yields and rates. "The ten-year yield is rising quite strongly the last couple of weeks," says Yun. "As the economy gets stronger and money moves from bonds to stocks, that will increase mortgage rates."
And there's the problem of mortgage-backed securities, which helped create the housing crisis and are still affecting it. Like the 10 year Treasury, they help set mortgage rates.
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Defaults on all the subprime home loans led to big losses for MBS investors and banks. In turn, lenders have been requiring tougher underwriting standards and wider spreads on new mortgages.
The Federal Reserve is in the midst of purchasing $300 billion in Treasuries and $1.25 trillion in mortgage-backed securities in order to to unclog credit markets and to keep interest rates lower.
"The government needs to keep buying those MBS investments as they do the 10-year notes," Rosenbaum says. "That allows lenders to price the loans lower."
Analysts say home buyers will see interest rates rise with a better economy and a need to control inflation.
"You can't assume rates will stay at rock bottom forever," says NAR's Yun. "I think five and a half percent could be the norm by the second half 2009."
Rosenbaum sees them going even higher.
"I think they could be a full percent higher at the end of the year," says Rosenbaum. "The more money the government prints, the higher risk of inflation and higher rates."
Still, Yun says the need for housing will keep sales heading up despite the rising rates.
"It's hard to predict but I think there's a pent up need for housing that's going to emerge," says Yun. "Even with rates at 5.5 percent in 2010, I don't see it slowing down housing sales."
Industry experts say it's not really current interest rates that are a hurdle for home buyers.
"Down payments and the ability to sell existing homes are the main impediment for home buyers now," says Bankrate's McBride. "There's also the more stringent underwriting rules. If you can get past those, mortgage rates are not a problem."
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"With home prices lower and rates still lower than ever, people just need to figure out what they can afford," says Rosenbaum.
Corcoran Group's Saatchi warns that many perspective home buyers are losing sight of what they are trying to accomplish when it comes to getting the best rates and prices.
"Don't get caught in the trappings of the negotiations and lose the whole package," says Saatchi. "People want a great deal and they forget about the house they're trying to buy."

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Rate update

30 year fixed mortgage rates shot up to their highest levels in six months last Wednesday.Fannie Mae mortgage backed securities (they serve as the foundation for mortgage rates) dropped by -231 basis points in just three days.Many borrowers that had been pre-approved for loans with interest rates in the upper 4's found out that their new rates could be in the mid to upper 5's.We did make a comeback on Thursday and Friday but this still left us -82 basis points worse than Monday's rates.The reasons for the deterioration in rates? It was really a powerful 1-2 combination that set up our perfect storm. First, foreign investors showed their concerns over our constant barrage of Treasury sales. As we continue to auction off more and more of our Treasury debt, we naturally must pay a higher rate to borrow that money. That puts pressure on your mortgage rates.Also, we received a few economic reports such as Consumer Confidence that pointed to positive economic data. Any kind of economic data that is positive will lead to higher mortgage rates as long-term investors fear the threat of eventual inflation that is a byproduct of a growing economy. Obviously, as we slowly climb out of our recession we will start to get more and more positive economic reports which will lead to this very same type of volatility. The silver lining? Mortgage rates are still fantastic and borrowers that have been sitting on the sidelines were sent a huge wake-up call. It is simply not worth the risk to wait for lower rates. The opportunity cost of missing out on home prices that are artificially and temporarily too low is not worth waiting for lower rates. The purchase market is about to heat up. We have great rates, large inventories of homes, and reduced home prices...this all adds up to the right time to buy.

Mortgage

Mortgage
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This article is about the legal mechanisms used to secure the performance of obligations, including the payment of debts, with property. For loans secured by mortgages, such as residential housing loans, and lending practices or requirements, see Mortgage loan.

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A mortgage is the transfer of an interest in property (or the equivalent in law - a charge) to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
This comes from the Old French "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.[1]
In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than on other property (such as ships) and in some jurisdictions only land may be mortgaged. A mortgage is the standard method by which individuals and businesses can purchase real estate without the need to pay the full value immediately from their own resources. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.
The cost to the borrower is measured by the annual percentage rate (APR), which is an effective annual rate of interest and fees paid by the borrower.
In many countries, though not all (Iran) or (Bali, Indonesia is one exception[2]), it is normal for home purchases to be funded by a mortgage. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Ireland, Spain, the United Kingdom, Australia and t