Federal interest rates are not directly tied to the mortgage markets, so they do not have a direct effect on mortgage interest rates. This seems to be one of the biggest misconceptions in the mortgage industry. When the Fed raises or lowers interest rates, the interest rate quoted by your lender or mortgage broker may not match this rate.
The main driver of mortgage interest rates is the bond market, more specifically mortgage-backed securities. When the demand for these bonds is high, interest rates go up; conversely, when demand is low and supply is high, the interest rate on a new mortgage will decrease to stimulate demand. This is an oversimplification of mortgage rates, but it should help spread the myth that the mortgage market will follow the ups and downs when the Fed changes the rate.
If you are looking to refinance in the next year (2008 to 2009), you probably shouldn’t wait to do so. If you have 30% or less equity in your home right now and you need to refinance for whatever reason (especially if you’re on an ARM), you’ll want to act quickly because at least 50% of applicants in today’s mortgage market are working. in trouble when they have an appraisal on your property. They suddenly realize that they have lost as much as 20% (sometimes more) of their equity due to the downturn in the housing market and the rise in foreclosures occurring across the country. The simple fact is, if one of your neighbors goes into foreclosure tomorrow, you may not be able to refinance with your ARM (Adjustable Rate Mortgage) because you now owe more than your home is worth. This happens more often than most people realize.
You can visit websites like (www.Zillow.com) or (www.Cyberhomes.com) to get an idea of the current value in your area. These websites are not accurate and can be quite far at times if the property is not considered the norm for the area. However, they are a valuable tool for obtaining an estimate based on comparable properties in the area. They also show the moving average of home prices and the amount your property has increased or decreased in the last two months, seven months, one-year intervals, and since the last sale. Additionally, you can contact an appraiser or real estate agent in your area to find out what effects, if any, foreclosures are having on your particular housing market. Real estate agents and the appraiser will generally provide this information free of charge, if you are just looking for general information. If you are looking for them to name an exact figure for your property, you will have to pay an appraisal that usually costs between $ 300 and $ 400.
If you don’t have an immediate need to refinance, now might be a good time because interest rates are at six-year lows and are not expected to drop below 5.5% at par again (30-year fixed rate ) for some time. Contact your lender or mortgage broker for details on current rates, as these rates change daily and have proven to be somewhat volatile of late. This article is simply a warning in today’s real estate market. The next few years will likely balance out and real estate will start to increase in value again. For now, it is suggested that you exercise caution and act quickly if your current capital raises concerns about whether or not you will be able to refinance.