How Does a Fed Cut Affect Home Mortgage Rates?

Maybe you’ve been considering a refinance, and you’re waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.
Who is the Fed? Well, it’s really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all good.
Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That’s why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes,

How to Get a Low Rate Second Mortgage

You can improve your chances of qualifying for a low rate second mortgage by following a few simple steps. Before you apply for a loan, you should ensure that your credit history is clean, confirm you have enough equity to qualify, and determine which second mortgage is the best option for your needs and financial situation. Next you can shop for a low rate second mortgage lender and compare offers. With preparation, you may be able to close on your second home loan in as little as two weeks.

Confirm Your Credit History Is Clean

Even though you already own your home, prospective lenders will check your credit history to verify that you’re paying your current loan on time, haven’t recently taken on any large debts, and haven’t recently been delinquent on any debts or filed for bankruptcy.

Before applying for a low rate second mortgage, check your credit reports to make sure they don’t list any errors. If you have legitimate recent black marks, do what you can to correct them. Recent dings on your credit can result in a higher rate home equity loan. You should also check your credit score to see what rate you’re likely to qualify for.

Confirm Your Current Mortgage Balance and Home Value

When deciding how much money to borrow, you should first confirm that you and your primary lender agree on how much you still owe. If your numbers don’t match the banks, make sure all your payments have been processed properly.

You can use a variety of real estate websites to assess your home’s current market value. It may not be as much as you think if the market is on a downswing. A lower market value will limit the amount you can borrow against your equity. The combined balance of your first and second mortgages should never be more than 80% of your home’s value.

Determine Which Second Mortgage Option is Best

Before applying for a loan; decide what you plan to use the money for. Total up all the expected costs and add a little extra to cover unanticipated costs if you’re using the money for remodeling or college tuition, but not so much that you’re tempted to use the money for unrelated purchases. Remember that you are risking your home, so borrow wisely. Only borrow an amount you can afford to repay and only for items that will directly improve your home’s resale value, your financial situation, or your child’s or your future earning potential.

Once you’ve decided how much to borrow, you can decide whether a home equity loan

Or home equity line of credit is a better choice. A home equity loan lets you borrow a single lump sum and pay it back over time at a fixed rate. A home equity line of credit (HELOC) allows you to borrow smaller amounts when you need them and then pay them back over a period of time at a variable interest rate. If you’re consolidating debt or embarking on a small home remodeling project that will be completed quickly, then a lump-sum loan is preferable. If your remodeling project will take several months or you’ll need periodic college tuition payments, then a HELOC is a better choice.

Choose a Low Rate Second Mortgage Lender

Don’t automatically accept a loan from the first lender you find. Instead shop around on the Internet to determine what kind of second mortgage rate you can expect. You should approach two to three reputable lenders for estimates of your APR, fees, and other costs. When choosing your lender, compare all those factors and decide which is best. Once you’ve selected a lender and begun the application process, your preliminary work should help the process go smoothly and quickly.

For more articles and suggestions, visit http://www.bills.com/low-rate-second-mortgage/

Lowering as Much as Possible a Home Equity Loan Rate

Comparing rates from different lending sources is known to be amongst consumers, the preferred way to find the best rate for a home equity loan. By obtaining multiple offers, you have good chances of getting a decent rate; there are several actions you can take to help you get the lowest rate possible.

Doing your Best to Obtain Prime Rates

Being labeled as bad credit can be frustrating and cost expensive in times when cash advance is needed. Therefore, if you have the time to improve your credit ratings prior applying for a Home Equity Loan, do so.

If you have been labeled as bad credit because of one specific credit problem but usually your credit score is good and always make payments on time, let the lender know about it. Writing a letter and explaining the situation will help, if you can provide pass bank statements showing you are in good standards will add some positive judgment to the decision.

By applying for a shorter repayment plan you will lower the quoted interest rate. Make sure to compare several market lenders as well as other financial institutions and banks. This action will help you find the best deal available and don’t be shy to negotiate the rates, terms and fees, everyone does so!

Considering Other Factors That Contribute To the Total Cost of the Loan

Although the interest rates happen to be very important when obtaining a HELOC or Home Equity Loan, they aren’t the only factors. Some lenders offer great interest rates, but, very high fees. Try To make sure that the total cost will not be too expensive. Choose an equity lender after comparing several options from various lenders.

How the Prime Rate Works

If you are shopping for a new credit card, an education loan, a car loan, a business loan, a personal loan or a specific type of second mortgage called a home equity line of credit (HELOC) then you need to understand how the U.S. Prime Rate works.

On Wall Street and throughout the worldwide banking community, the U.S. Prime Rate is understood as the interest rate at which banks lend money to their most creditworthy business customers. Most American banks, credit unions and other lending institutions use the U.S. Prime Rate as an index or base rate for numerous loan products; a margin is added to the Prime Rate depending on how risky the lending institution feels the loan is: the riskier the loan, the higher the margin. However, since the Prime Rate is an index and not a law, business owners and consumers can sometimes find loan products that have an interest rate that’s below the U.S. Prime Rate.

The U.S. Prime Rate is determined by adding 300 basis points (3.00 percentage points) to the federal funds target rate (also known as the fed funds target rate.) So if the fed funds target rate is 5.25%, then the U.S. Prime rate will be 8.25%.

The federal funds target rate is America’s most important short-term interest rate, and it is controlled by a group within the U.S. Federal Reserve system called the Federal Open Market Committee (FOMC). The FOMC convenes a monetary policy meeting eight times every year to decide whether to raise, lower or make no changes to the fed funds target rate. The FOMC may also hold an emergency meeting at any time, if economic conditions warrant.

If the FOMC determines that the pace of inflation within the U.S. economy is too high, then the group is more likely to raise the fed funds target rate, so as to bring inflation under control. Conversely, if the FOMC determines that numerous sectors of the U.S. economy are flagging in a significant way, or if the economy is determined to be in recession, then the group is more likely to lower the fed funds target rate, so as to spur economic growth. If the U.S. economy is growing at a moderate pace and inflation is also rising at a moderate rate, then the FOMC is more likely to make no changes to the fed funds target rate.

When it comes to borrowing money, timing is very crucial, so it’s important for consumers and business owners to stay informed about what the FOMC is likely to do with the fed funds target rate at the FOMC’s next monetary policy meeting. If the U.S. economy is showing clear signs of contraction, then holding off on a fixed-rate loan may be a good idea, since in such an economic environment, short-term interest rates, like the Prime Rate, may be on their way down. On the other hand, if the U.S. economy is growing at a very strong pace and the rate of inflation is relatively high, then borrowing via a fixed-rate loan sooner rather than later may be the smarter option, because in such an economic environment, short-term interest rates may be on their way up.

Variable Interest Rates and HELOC

In most instances, your HELOC Equity credit facility will feature a variable interest rate. This is very much akin to how your credit cards operate. Typically, a specific number of points (as in interest rate percentages) is added to the prevailing prime interest rate. If you have an outstanding credit score then your HELOC may feature the prime borrowing rate, which is usually tied to movements in popular credit indexes such as US Treasury Bonds or LIBOR (or the London Interbank Offering Rate). As these indexes fluctuate, so does the amount of interest that is due on the outstanding principal balance that you have drawn from your HELOC.

 

However, in order to ensure that during times of inflation, most HELOC agreements feature maximum interest rates. The same generally holds true of variable interest rate mortgages. If the interest rates associated with your HELOC begins to rise rapidly as a function of major changes in the credit markets then it is advisable that you repay as much of the credit facility as you can. This will substantially lower your payments. As we have discussed before, one of the primary concerns among central banks throughout the world was that interest rates would rise sharply as a result of the credit crisis, lack of securitization market, and the downward spiral of housing prices. However, central bankers have poured money into the financial system so that the prime interest rates remain at historical lows.

 

On a side note, the reason why interest rates vary is because money

Debt Consolidation with a HELOC Equity Line

Although we have discussed how you can use a HELOC Equity facility to amplify the equity in your home, one of the other most common purposes of a home equity line of credit is to consolidate bills. This is often an excellent method of reducing your monthly debt service payments if you have a number of outstanding debts that carry high interest rates. Let’s take a look at an example. First, let’s assume that you racked up $75,000 in credit card debt (which is an unsecured debt) that carries an interest rate of 19% per year. If you have substantial equity in your home then you can receive a line equal to $75,000 with an interest rate of 6% (assuming that you have the appropriate collateral and credit scores in place). As such, you will reduce your monthly payments on your outstanding debts by more than 2/3. Additionally, chances are that consolidating your debts via a HELOC Equity line of credit will drastically increase your credit score.

 

Most credit scoring agencies look upon large balances on credit cards as a large negative. This is because the interest rates are higher, the risks relating to default are much higher, and it shows a general recklessness when it comes to your spending habits. Consumer loans (such as credit cards) are looked at differently than home loans or mortgage credit facilities (such as residential mortgages and HELOCs). As such, by reducing your consumer loan debt down to nothing

Truth About Second Mortgage and HELOC: Are They One and the Same?

A lot of people often confuse second mortgage with home equity loan. While both are associated with each other, they have their own benefits. But distinguishing one from the other should not be difficult. A second mortgage is a type of home equity loan. Equity refers to the difference between the current appraised value of your home and the amount you have paid towards the first mortgage. The amount you can borrow on a second mortgage is usually based on the difference between the current value of your home and the remaining principal balance on your first mortgage. The second mortgage is an effective means of tapping the asset value of your home so that you can meet your financial needs and avoid acquiring high interest unsecured debt like the one offered by credit cards.Generally, one can get a second loan wherein the total loan-to-value ratio of your first and second loans equals 85 percent of your homes appraised value. On the other hand, there are lenders in almost all states that allow you to take out a second mortgage that equals to 125 percent of the appraised value of your home. Second mortgages usually have a fixed interest rate that runs.  Also, it is usually a 15- to 30-year loan. As with the initial loan, the rate of interest and points for a second mortgage will be based on credit history, home price, and the current interest rate. The second mortgage may have a higher interest rate, but the fees are typically lower. Furthermore, second mortgages are also used to pay out a fixed sum of money to be repaid on an appointed schedule. People who are in an emergency situation usually opt for a second mortgage. This is because when you get approved for such mortgage, you will receive a lump sum, which you can use for expenses like roof repairs and home renovations. You may also use the money from your second mortgage for expenses not entirely related to house expenditures, like school tuition, car repair, vacations, debt consolidation and other financial needs. Home equity loan is different. This is used to refer to a home equity line of credit (HELOC). A HELOC is often revolving and is similar to a credit card, wherein the interest is charged, and the amount you are allowed to borrow is based on your creditworthiness. Like the second mortgage, a HELOC may be used for any type of expense, but anything that is paid back above the interest owed will be returned to the account and can be used again when needed. Usually, home equity line of credit loan has a term of up to 15 years. If you sell your home before you have repaid the line of credit completely, you will then have to do it upon completing the sale. This feature is applicable to both the HELOC and the second mortgage. In determining the limit of your HELOC, lenders examine your homes appraised value and start calculations at 75 percent of that value. They then deduct the remaining balance owed on your mortgage. Your current financial needs will help distinguish the type of loan that is appropriate for you. For one-time expenses, you can opt for a fixed-rate second mortgage. But if you have a frequent need for extra money, a HELOC would be right for you.