Posts Tagged ‘Term Basis’
How Does a Decrease in the Federal Funds Rate Influence your Ability to Purchase Real Estate in Denver?
Damon Chavez asked:
Dr. Ben Bernake and the Federal Reserve have cut short-term interest rates for the last two consecutive months by a total of .75% in an effort to prevent the U.S. economy from slipping into a looming recession. Since most consumers do not understand how short-term interest rates actually impact their ability to borrow money, these rate cuts often create a common misconception that a decrease in the Federal Funds Rate translates to an equal drop in mortgage interest rates when these cuts often cause the latter to rise.
There are two primary interest rates controlled by the Federal Reserve that dictate the overall cost of borrowing money on a short-term basis: the Discount Rate and the Federal Funds Rate. The Discount Rate is the interest rate the Federal Reserve Bank charges member banks when these institutions borrow money from the government. The terms of these loans are usually no longer than 30 days and generally do not have a direct impact on the consumer. The Federal Funds Rate is the interest rate that commercial banking institutions charge each other over night for the use of Federal funds to meet their individual reserve requirements. This interest rate tends to impact the individual consumer and the economy as a whole over time more directly.
Mortgage interest rates, on the other hand, are determined by the trading price of mortgage-backed securities and fluctuate based on the performance of the bond market. The 30 year fixed rate mortgage tracks the yield on the 10 year Treasury note and usually runs about two percentage points higher than the 10 year Treasury yield on any given day. In accordance with basic rules of supply and demand, when investors purchase mortgage bonds the price of the securities increase, causing yields and interest rates to drop. Conversely, when investor appetite for mortgage-backed securities decreases, bond yields and interest rates rise as the bond prices drop.
Over the last few months bonds have been favorable investments in light of the credit crisis caused by bad loans, a weak labor market, and a slow housing market, and as a result these soft economic indicators long-term mortgage rates have seen steady declines. Since the Federal Reserve leverages rate cuts to stimulate economic growth, there is a good possibility that investors will abandon conservative bonds and seek out more aggressive variable rate investments (i.e. stocks) as soon as recession fears pass, causing bond prices to drop and mortgage interest rates to rise.
Our goal is to give you the tools necessary to be an educated buyer. Please contact us at info@coloradohousefinders.com if you have questions about this or any other topic related to the buying or selling real estate in Denver.
La Mirada Real Estate
Dr. Ben Bernake and the Federal Reserve have cut short-term interest rates for the last two consecutive months by a total of .75% in an effort to prevent the U.S. economy from slipping into a looming recession. Since most consumers do not understand how short-term interest rates actually impact their ability to borrow money, these rate cuts often create a common misconception that a decrease in the Federal Funds Rate translates to an equal drop in mortgage interest rates when these cuts often cause the latter to rise.
There are two primary interest rates controlled by the Federal Reserve that dictate the overall cost of borrowing money on a short-term basis: the Discount Rate and the Federal Funds Rate. The Discount Rate is the interest rate the Federal Reserve Bank charges member banks when these institutions borrow money from the government. The terms of these loans are usually no longer than 30 days and generally do not have a direct impact on the consumer. The Federal Funds Rate is the interest rate that commercial banking institutions charge each other over night for the use of Federal funds to meet their individual reserve requirements. This interest rate tends to impact the individual consumer and the economy as a whole over time more directly.
Mortgage interest rates, on the other hand, are determined by the trading price of mortgage-backed securities and fluctuate based on the performance of the bond market. The 30 year fixed rate mortgage tracks the yield on the 10 year Treasury note and usually runs about two percentage points higher than the 10 year Treasury yield on any given day. In accordance with basic rules of supply and demand, when investors purchase mortgage bonds the price of the securities increase, causing yields and interest rates to drop. Conversely, when investor appetite for mortgage-backed securities decreases, bond yields and interest rates rise as the bond prices drop.
Over the last few months bonds have been favorable investments in light of the credit crisis caused by bad loans, a weak labor market, and a slow housing market, and as a result these soft economic indicators long-term mortgage rates have seen steady declines. Since the Federal Reserve leverages rate cuts to stimulate economic growth, there is a good possibility that investors will abandon conservative bonds and seek out more aggressive variable rate investments (i.e. stocks) as soon as recession fears pass, causing bond prices to drop and mortgage interest rates to rise.
Our goal is to give you the tools necessary to be an educated buyer. Please contact us at info@coloradohousefinders.com if you have questions about this or any other topic related to the buying or selling real estate in Denver.
La Mirada Real Estate
Pre-Qualify To Purchase Real Estate
Rose asked:
When planning to purchase a home, a lot of people commit the common mistake of just being impulsive to take a look at the homes they like. However, this could lead to such a disappointment once they perceive that they can’t afford the cost of the house which looks amazingly good. The process of prequalifying can secure you of the price range that you are looking at and to stabilize your financial standing once the loan is already approved. To pre-qualify gives you “power” to make better negotiations with the property owners.
Here are some steps on how to pre-qualify to have the power to buy a real estate property:
1. First is to list down all the details of your monthly expenses which includes groceries, gas, bills, school expenses, work expenses, etc. Also add in the yearly expenses and after you have totaled everything, divide it by 12 before adding to your monthly expenses.
2. Think about how much you are earning and all the sources that you are getting it from. Focus on your net income and not on the gross. Subtract your expenses from your total income to be able to know how much you can afford still for a house payment. Do not ever go beyond what you can just afford.
3. You can search Google to access an online mortgage calculator. In fact, a lot of bank websites offer this feature in their home page and you do not even have to be a customer first. Another option for this step is to buy an amortization book in the nearest bookstore. This particular step is very helpful in making you save money and time on a long term basis since it will explain to you the right process of calculating your payments in accordance with interest and years to pay-off.
4. After you have finally determined the amount of your monthly payment that your budget can afford, you will now need to determine the total price of the house as well. If you have settled this already, then it is about time to call the lending institution that you will run to since you already have your figures all tidied up when you start your call.
5. Be specific to the mortgage specialist of what you exactly want, the kind of loan you are planning to have and the terms that you want. Inform the mortgage specialist that the lump sum amount is what you want to pre-qualify for and that you want a locked in current fixed rate as soon as you qualify.
6. Finally, ask the mortgage specialist to issue you a letter of qualification and send your realtor a copy of it as well. Remember that homeowners are more trusting to those whom they know who have a loan already than someone who is still in the process of getting a loan.
Nowadays, pre-qualification can be easily done over the phone or by getting online. The systematic approach it offers will not only assure you of the house you are dreaming of but also help you save time on getting a loan approved.
La Mirada Real Estate
When planning to purchase a home, a lot of people commit the common mistake of just being impulsive to take a look at the homes they like. However, this could lead to such a disappointment once they perceive that they can’t afford the cost of the house which looks amazingly good. The process of prequalifying can secure you of the price range that you are looking at and to stabilize your financial standing once the loan is already approved. To pre-qualify gives you “power” to make better negotiations with the property owners.
Here are some steps on how to pre-qualify to have the power to buy a real estate property:
1. First is to list down all the details of your monthly expenses which includes groceries, gas, bills, school expenses, work expenses, etc. Also add in the yearly expenses and after you have totaled everything, divide it by 12 before adding to your monthly expenses.
2. Think about how much you are earning and all the sources that you are getting it from. Focus on your net income and not on the gross. Subtract your expenses from your total income to be able to know how much you can afford still for a house payment. Do not ever go beyond what you can just afford.
3. You can search Google to access an online mortgage calculator. In fact, a lot of bank websites offer this feature in their home page and you do not even have to be a customer first. Another option for this step is to buy an amortization book in the nearest bookstore. This particular step is very helpful in making you save money and time on a long term basis since it will explain to you the right process of calculating your payments in accordance with interest and years to pay-off.
4. After you have finally determined the amount of your monthly payment that your budget can afford, you will now need to determine the total price of the house as well. If you have settled this already, then it is about time to call the lending institution that you will run to since you already have your figures all tidied up when you start your call.
5. Be specific to the mortgage specialist of what you exactly want, the kind of loan you are planning to have and the terms that you want. Inform the mortgage specialist that the lump sum amount is what you want to pre-qualify for and that you want a locked in current fixed rate as soon as you qualify.
6. Finally, ask the mortgage specialist to issue you a letter of qualification and send your realtor a copy of it as well. Remember that homeowners are more trusting to those whom they know who have a loan already than someone who is still in the process of getting a loan.
Nowadays, pre-qualification can be easily done over the phone or by getting online. The systematic approach it offers will not only assure you of the house you are dreaming of but also help you save time on getting a loan approved.
La Mirada Real Estate