The general arguments concerning the bailout have gone something along the lines of

"The taxpayers should not have to foot a 700 billion dollar bill to bail out Wall Street"

"But if taxpayers do not bail out Wall Street the economy will fall apart and those same taxpayers will be hurt"

If we could be sure the bailout would work the second argument has some merit. While the bailout will certainly help the banks, the problem is we have almost no guarantee the bailout will help the real estate market and the general economy.

First let's look at some recent history of how the Fed has tried to help the troubled real estate market. The Fed usually attempts to lower mortgage interest rates to help the real estate market. By lower mortgage rates houses become more attractive. In addition, with lower mortgage rates home buyers can buy more expensive houses with the same monthly payment. Therefore lower rates can help stop falling prices. So it was not surprising in early 2008 the Fed cut the Fed rate. In normal markets lowering the Fed rate helps banks and causes them to lower mortgage interest rates. And after the fed cuts mortgage rates for a period of time dropped to 5.50. If they had stayed down there we might have averted some of the problems with the current housing crisis. But instead a few weeks later rates had jumped backed up to 6.2. Basically banks said thanks for the lower fed rates but we are not going to alter our rates. In fact, over the next few months mortgage rates rose all the way to 6.6. The next big move was acquiring Freddie Mac and Fannie Mae. This was one of the largest government takeovers in US history. The move was risky because the government was providing insurance for trillions in loans. And it initially had a positive effect on the housing market. But a few weeks later AIG ran into financial problems. It was almost as if the government takeover of Freddie Mac and Fannie Mae never happened.

So the previous moves the federal government has made to stop the financial crisis have not worked. Should the 700 billion dollar bailout be different? It could certainly help the markets. But it might not. Lets look at why.

One of the benefits of the 700 billion dollar bailout has nothing to do with banks. It has more to do with perception on Main Street. The hope is that the bailout will restore confidence in the real estate market on Main Street.

In politics people often talk about news cycles covering up the last news cycle. Basically the last piece of news stays in people's minds until the next piece of news comes along. The Fannie Mae and Freddie Mac news cycle (and the billions the government will spend on it) only lasted until the next piece of news, which was about a week. While the 700 billion dollar bailout should restore some confidence into the real estate market, that confidence might only last until the next piece of news. And with things happening so quickly that news cycle might not last very long and given the current market the next piece of new is likely to be negative.

The other benefit of the 700 billion dollar bailout is that the government is hoping to influence banks to start lending again. The idea is that by taking billions in toxic loans off the books for banks they will start lending again. The problem is that their is no guarantee this will happen. In fact when the fed lowered rates banks said thanks but decided that prospects for the housing market looked negative and continued to add restrictions to lending. In a similar fashion banks could say thanks for the 700 billion but we continue to see negative prospects in the housing market and therefore we will continue to have strict lending practices. But thanks for the 700 billion taxpayers.

Escapeso real estate is a small brokerage in Austin Texas. Their realtors works with clients looking for Austin real estate. Their site offers a free search of the Austin MLS along with current mortgage interest rates.

Mortgage Interest Rates Mortgage Rates Widget

If you have been hoping interest rates would drop your prayers have been answered. Interest rates plummeted over half a point last week falling from 6.35 to 5.78. The last time mortgage interest rates fell this fast this quickly was the beginning of 1995 when rates fell from 8.32 to 7.57. Rates have basically fallen following the government takeover of Freddie Mac and Fannie Mae. Below are the rates for the major mortgage products for the last few weeks.

September 18, 2008
30-yr 5.78 15-yr 5.35 5-yr ARM 5.67 1-yr ARM 5.03

September 11, 2008
30-yr 5.93 15-yr 5.54 5-yr ARM 5.87 1-yr ARM 5.21

September 4, 2008
30-yr 6.35 15-yr 5.90 5-yr ARM 5.97 1-yr ARM 5.15

30 Year mortgage rates fell less this week (.15 points) compared to last week (.42 points). 15 year and 5 year arms both fell about .2 points this week. 1 Year arms which was the only major product to not fall last week fell .18 points this week. The other interesting point is that because interest rates were falling before the Fannie Mae and Freddie Mac takeover (based on rumors of the takeover) rates have fallen an incredible amount (.74 points for 30 year rates) over the last month and a half.

Ok so let's see what these drops mean as far as a mortgage payment. Using our mortgage calculator widget lets look at a payment based on a 200k loan. We will run the numbers based on today's mortgage rates and rates on September 11, September 4th and July 24th.

September 18th
30-yr $1170.96
15-yr $1618.29
5-yr ARM $1157
1-yr ARM $1077.31


September 11th
30-yr $1190.11
15-yr $1638.41
5-yr ARM $1182.43
1-yr ARM $1099.45

September 4th
30-yr $1244.47
15-yr $1676.92
5-yr ARM $1195.24
1-yr ARM $1092.05

July 24th
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32

So the obvious thing to see here is that the now lower interest rates have had a large effect on mortgage payments. A mortgage with a 30 year interest rate dropped from 1281.28 to 1170.96 (9.1 percent) in the last month and a half. So that brings up the point that it's probably a good point to start looking at refinancing your mortgage even if you received a mortgage somewhat recently.

So what is in store for the market in the next few weeks? It's hard to tell but the market is very volatile. One day the stock market drops 400 points because Lehman Brothers goes bankrupt. Then the government proposes to takeover the bad mortgage debt and the market rises. Because of this volatility if you are thinking of refinancing I might lock in to an interest rate now because its hard to know what rates are going to be like in a few weeks.

Ki is a realtor down in Austin Texas. His website provides a search of the Austin MLS along with information on Austin Commercial Real Estate.

Mortgage interest rates moved down again this week. This marks the fifth week in a row where 30 Year mortgage rates have either fallen or held steady. This is of course good news for people looking to buy a house. This is also good news for the real estate market. A few weeks ago a weakened real estate market was dealing with additional burden of some of the highest mortgage rates we have seen in a year [mortgage rates graph]. Below are the mortgage rates for the major mortgage products for the last few months. As we can see while the 30 Year rate has fallen both the 5 year and the 1 year arm have for the most part held steady. This brings the difference between the 30 Year rate and the 5 year and 1 year arm back to roughly normal levels. The 15 year mortgage rate has been falling as well over the last month but not as much as the 30 year rate.

August 28,2008
30-yr 6.40 15-yr 5.93 5-yr ARM 6.03 1-yr ARM 5.33

August 21,2008
30-yr 6.47 15-yr 6.00 5-yr ARM 5.99 1-yr ARM 5.29

August 14,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.02 1-yr ARM 5.18

August 7,2008
30-yr 6.52 15-yr 6.10 5-yr ARM 6.05 1-yr ARM 5.22

July 31,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

While 30 mortgage rates have fallen they are still above what we saw a few months ago when mortgage rates where hovering around 6.0. So while mortgage rates are relatively high I still think this is a pretty good sign. Why? Basically mortgage rates have fallen in spite of the fact that recently the FED has decided not to lower rates. Does this mean that banks are feeling better about handing out mortgages? I would not go that far. If anything I would think that rates rose suddenly a month ago and simply overshot. And now they are simply reacting to that original large increase by moving down a bit. So let's look at what the mortgage rates mean for an actual mortgage. Using our mortgage calculator let's run through the numbers based on a 200k mortgage. We looked at what a mortgage would be this week plus a week and a month ago.

August 28th
30-yr $1251.01
15-yr $1680.15
5-yr ARM $1202.96
1-yr ARM $1114.33

August 21st
30-yr $1260.19
15-yr $1687.71
5-yr ARM $1197.81
1-yr ARM $1109.36

July 24th
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32
So what is going to happen over the next few months? It's always hard to predict but here is my guess. I think rates will hold steady or fall a bit over the next two months. I am expecting rates to come down a bit after the election. Of course a lot could happen between now and then. If the market runs into more problems I would expect rates to increase. Why? The Fed has their hands tied behind the back they cannot lower the Fed rate too many more times.

Escapeso Austin Real Estate provides information on mortgage rates. They have a graph of historical mortgage rates along with a free mortgage calculator and a mortgage interest rates widget.

Mortgage Interest Rates Mortgage Rates Widget

Mortgage interest rates moved down slightly this week. This was a good sign since it was not preceded by any rate cuts from the FED. The 30 year mortgage rate fell from 6.52 to 6.47 and the 15 year mortgage rate fell from 6.07 to 6.00. For arms the 5 year rate fell from 6.02 to 5.99. The 1 year arm was the only one of the 4 rates to increase going from 5.18 to 5.29. If anything the mortgage rates are not more in align with each other. Over the past few weeks the difference between the 1 year arm and the other rates has seemed larger than normal.

To put this weeks changes in context of what has happened over this summer mortgage rates are still quite a bit higher than earlier. For the 30 Year mortgage on May 22 rates fell to 5.98. Then by July 24 rates raised to 6.63. So rates have fallen since then but we are still quite a bit higher than the rates we saw in May. Below are mortgage rates for the last few weeks.

August 21,2008
30-yr 6.47 15-yr 6.00 5-yr ARM 5.99 1-yr ARM 5.29

August 14,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.02 1-yr ARM 5.18

August 7,2008
30-yr 6.52 15-yr 6.1 5-yr ARM 6.05 1-yr ARM 5.22

July 31,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

July 24,2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

So let's see what these mortgage rates would mean for an actual mortgage payment. We ran today's mortgage rates through our free mortgage calculator for a 200k loan. We also looked at what the payments would have been on the same mortgage a week and a month ago.

August 21st
30-yr $1260.19
15-yr $1687.71
5-yr ARM $1197.81
1-yr ARM $1109.36

August 14th
30-yr $1266.76
15-yr $1695.28
5-yr ARM $1201.67
1-yr ARM $1095.75

July 24th
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32

So what else is going on in the mortgage industry. First it looks like the government might take over Freddie Mac and Fannie Mae. A few months ago it was made clear that Freddie Mac and Fannie Mae would be protected while other smaller banks would be allowed to fail. Now with Freddie and Fannie running into serious financial problems (Freddie Mac stock has sank from 65.88 to 4.75). Oddly enough one of the problems Freddie Mac faces is that because the US government has made it clear Freddie Mac is too large to fall, investors are hesitant to give funds to Freddie Mac under the assumption that their investment will not be repaid following a government takeover.

So what will happen following the government takeover of Freddie Mac. Personally I think it will be positive. Over the last several months Freddie Mac has created a pretty large list of loans they will not provide backing for. This has hurt the ability of people to get loans and in turn has been one of the negative factors dragging down the national real estate market. If the government takes over Freddie Mac a lot of these restrictions will probably be pulled back. So while it won't magically cure all the problems with the national real estate market it will alleviate at least one of the negative factors weighting it down.

Ki works as a realtor in the central Austin real estate market. His site provides a search of the Austin MLS and a free mortgage calculator along with general information for buyers about Austin real estate.

For the second week in a row 30 year mortgage rates held steady at 6.52. 15 year mortgages last week moved from 6.07 to 6.1. The week they returned to 6.07. So basically the fixed rates are holding steady. 5 Year Arms fell from 6.05 to 6.02 and 1 Year Arms fell from 5.22 to 5.18. So they didn't move that much. But what is interesting is the overall trend. This week marks the 3rd week in a row that both 5 and 1 year arms have fallen. The 1 year arm has fallen from 5.49 to 5.18. This continues an overall trend of the difference between 30 Year Fixed mortgages and 1 Year growing. On May 1st 30 Year Arms were at 6.06 and 1 Year Arms were at 5.29. Mortgage rates since then have risen up to 6.52 while 1 Year arms have fallen to 5.18. The question of course is why banks are making arms (the mortgage product that is partly responsible for the high rate of foreclosures) more attractive. And I don't have an answer on that. Below are the mortgage rates for the last few weeks.

August 14,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.02 1-yr ARM 5.18

August 7,2008
30-yr 6.52 15-yr 6.1 5-yr ARM 6.05 1-yr ARM 5.22

July 31,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

July 24,2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

July 17,2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

As always I like to translate the mortgage rates into an actual mortgage payment. So using our free mortgage calculator below are what today's rates would translate into for a 200k mortgage. I also run the numbers based on what mortgage rates were at on May 1st.

August 14th
30-yr $1266.76
15-yr $1695.28
5-yr ARM $1201.67
1-yr ARM $1095.75

May 1st, 2008
30-yr $1206.82
15-yr $1643.73
5-yr ARM $1164.60
1-yr ARM $1085.89

On the one hand in general I am against arms. They are generally dangerous so I don't like to recommend them. But with such a wide gap between arms and traditional mortgages they are hard to ignore. If you do get an arm I would be prepared for your mortgage to jump substantially. For the most part I would consider an arm if you had enough money in savings to pay off the property if rates jumped up dramatically over the year.

The other factor to consider when getting a mortgage is credit scores. While for the first half of 2007 all one had to do to get a mortgage was show up at a bank over the last years banks have gotten a lot tighter. Additionally, interest rates now more than ever are tied to ones credit score. So if you are planning on buying a house sometime in the near future its a good idea to figure out what your credit score is now to make sure there are no outstanding debts or problems you need to fix.

Escapeso Realty provides current information on mortgage interest rates on their site. They also provide a free mortgage calculator and a mortgage rates widget.

Mortgage interest rates were virtually unchanged this week. The 30 Year rate stayed even at 6.52. The 15 year rate moved up a little from 6.07 to 6.10 and the 5 year arm moved down from 6.07 to 6.05. The only rate that moved much was the one year are which fell from 5.27 to 5.22. The one year Arm had the biggest fall last week as well. So in total for the last two weeks the 1 year arm has fallen from 5.49 to 5.22 while the other 3 major mortgage products have not fallen more than .11. Why the one year ARM is looking so good is another question. A high percent of the foreclosures the country is currently dealing with are from ARM based mortgages. So it seems odd to encourage ARMs when they are partially responsible with the current mess we are in. Of course the people in charge of the various mortgage companies didn't lose billions in shareholder wealth in just two years by making prudent decisions. So who knows what their current strategy is. Here are mortgage interest rates for the major mortgage products for the last few weeks.

August 7,2008
30-yr 6.52 15-yr 6.10 5-yr ARM 6.05 1-yr ARM 5.22

July 31,2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

July 24,2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

July 17,2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

July 10,2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17


As always what do all these crazy numbers mean. To put these numbers in perspective lets see what these rates translate into for a mortgage on a 200k house.

August 7th
30-yr $1266.76
15-yr $1698.53
5-yr ARM $1205.53
1-yr ARM $1100.69

July 31th
30-yr $1266.76
15-yr $1695.28
5-yr ARM $1208.11
1-yr ARM $1106.88

July 24th
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32


On the one hand I am usually pretty against ARMs. But a difference of 166.07 a month is pretty hard to ignore. If you are thinking of getting a 1 Year ARM this my advice. 1) Make sure you have 12 months of mortgage payments in a liquid account. 2) Watch the rates over the next year and wait for rates to come down a bit. If they don't come down and instead come up make sure you can afford to refinance at a higher rate. 3) this should be obvious from point one and two but if you are getting a 1 Year Arm dont get anywhere near your maximum loan amount. So if you are approved for a 300k loan it might be ok to get a 1 Year ARM if you are buying a house that is 150k-200k. If you are approved for a 300k loan and get a house for 280k get a 30 Year loan its simply not worth the risk. With an ARM your mortgage rate will simply start to flucuate after a year unlike a balloon where you are forced to refinance.

Escapeso Realty is a small brokerage in Austin Texas. Their site provides updated graphs on mortgage interest rates. They provide a free mortgage calculator along with a mortgage rates widget

Before we talk about what happened with mortgage rates this week lets do a quick recap of what happened last week. Last week mortgage interest rates made a sudden jump over the previous week. For the entire month of June and July 30 year mortgage interest rates fluctuated from 6.09 to 6.45. Then last week 30 year mortgage rates jumped from 6.26 to 6.63. At the time we predicted that rates would probably fall this week because usually after big spikes there is a bit of correction. We saw exactly that with all four of the major mortgage products falling, but not back to their levels from two weeks ago. 30 Year rates from 6.63 to 6.52. The only mortgage product to fall substantially this week was the 1 Year ARM. Last week the 1 Year rate rose from 5.10 to 5.49. This week the 1 Year mortgage rate lost most of that gain falling to 5.27. Below are rates for the major mortgage products for the last month.

July 31, 2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

July 24, 2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

July 17, 2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

July 10, 2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17

July 3, 2008
30-yr 6.35 15-yr 5.92 5-yr ARM 5.78 1-yr ARM 5.17

Ok so mortgage interest rates tell part of the story. But how does this translate into a mortgage payment. Using our free mortgage calculator lets translate the mortgage interest rates over the last few weeks into a mortgage payment for a 200k loan.

July 31th, 2008
30-yr $1266.76
15-yr $1695.28
5-yr ARM $1208.11
1-yr ARM $1106.88

July 24th, 2008
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32

July 17th, 2008
30-yr $1232.73
15-yr $1664.03
5-yr ARM $1173.5
1-yr ARM $1085.89

So it looks like for now rates are still relatively high. The only mortgage product that remains relatively low is the 1 year mortgage rate. Comparing it to the 30 Year mortgage rate at 6.52 the 1 Year mortgage rate is 5.27. For a 200k mortgage the mortgage payment with a 30 Year loan would be 1266.76. For a 1 Year Arm the mortgage payment would be 1106.88 or about 12.6% less. The only problem with 1 Year ARM's is that their is no guarantee mortgage rates will be less in one year. And with all the volatility in the mortgage markets right now they could be somewhat higher.

Ki works in Austin Texas as a realtor. His website provides information on mortgage interest rates along with a free mortgage calculator. Their is also graphs that show historical mortgage interest rates

After falling for most of the month of July Mortgage interest rates jumped up. And not only did they move up they jumped to the highest levels we have seen in 2008. 30 Year rates jumped from 6.26 to 6.63 last week. To put that in perspective for the entire month of May mortgage rates fluctuated between 5.98 to 6.08. The increases were not confined to 30 Year rates, 15 year rates went from 5.78 to 6.18, 5 Year Arms went from 5.80 to 6.16 and 1 Year Arms went from 5.10 to 5.49. The interest rates we saw this week for all the major 4 mortgage products were the highest numbers we have seen for all of 2008. When was the last time we saw mortgage rates this high? I looked back through 2007 to find the last time we saw rates this high for the different mortgage products.

30 year - August 2 , 2007
15 Year - August 16, 2007
5 Year - September 20, 2007
1 Year - December 27, 2008

Below are mortgage rates for the last few weeks.

July 24,2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

July 17,2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

July 10,2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17

July 3,2008
30-yr 6.35 15-yr 5.92 5-yr ARM 5.78 1-yr ARM 5.17

June 26,2008
30-yr 6.45 15-yr 6.04 5-yr ARM 5.99 1-yr ARM 5.27

Ok so mortgage rates are one thing. But what does this mean for an actual mortgage. using our free mortgage calculator and pulling a number out of a hat we looked at how these rate increases would affect a 200k mortgage.

July 24th
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32

July 17th
30-yr $1232.73
15-yr $1664.03
5-yr ARM $1173.5
1-yr ARM $1085.89

So starting off the monthly payment on a 200k mortgage with 30 Year loan would be $48.55 more this week compared to last (1232.73 to 1281.28). A 15 Year mortgage would have increased $43.19, a 5 year mortgage increased $46.25, and a 1 year mortgage would have increased $48.43.

So why have rates risen so dramatically. A few bank closures have probably caused some uncertainty in the market. Additionally the FED spent the early part of the year trying to keep rates down and basically ignoring the risk of inflation. That has changed as inflation signs have started to crop up. So now the FED is worried more about the risk of inflation.

So usually when one mortgage product rises I advise potential home buyers to look at the other mortgage products. But this week all the mortgage products rose more or less equally. Therefore my advice would be to start looking at putting down more cash. With interest rates moving up near 7 it might be a good idea to evaluate other investments and consider putting a large down payment on a house. If you are thinking of buying a house in the next few months its probably a good idea to start paying more attention to savings.

So what is going to happen next week? Usually after we see a sudden large increase or decrease the next week we see rates move a little bit in the opposite direction. But what happens with mortgage interest rates over the next week and the next few months to a large extent is going to be based on what happens with the banks and the mortgage industry and at this point with all the turmoil in the markets its a little hard to predict what is going to happen next.

Ki provides updated information on mortgage interest rates along with a mortgage interest rates widget. His site also provides a free mortgage calculator.

For the second week in a row mortgage rates have fallen. For those that don't read my updates regularly I wanted to give a short background on what rates have been doing. From the end of April to the beginning of June 30 year mortgage rates hovered around 6 percent. Then during the month of June 30 year mortgage interest rates rose peaking out at 6.45 at the end of June. But since then rates have fallen through the month of July ot 6.26. So we are not down to 6 but rates have come down quite a bit from their recent high. Its also interesting rates have fallen although the FED has cut the Fed Funds rate or the discount rate since April 30th. Below are mortage interest rates for the major mortgage products for the last 5 weeks.

July 17,2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

July 10,2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17

July 3,2008
30-yr 6.35 15-yr 5.92 5-yr ARM 5.78 1-yr ARM 5.17

June 26,2008
30-yr 6.45 15-yr 6.04 5-yr ARM 5.99 1-yr ARM 5.27

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

Mortgage rates are nice to look at but what do these mortgage rates flucatuations mean for a mortgage. Using our free mortgage calculator we can run the numbers and see how these mortgage rate changes would affect the mortgage on a 200k loan.

July 17th
30-yr $1232.73
15-yr $1664.03
5-yr ARM $1173.5
1-yr ARM $1085.89

June 26th
30-yr $1257.56
15-yr $1692.03
5-yr ARM $1197.81
1-yr ARM $1106.88

June 5th
30-yr $1210.69
15-yr $1650.11
5-yr ARM $1136.83
1-yr ARM $1080.98

For a 30 Year mortgage on June 5th the monthly mortgage payment would have been $1210.69. Three week later on June 26th a mortgage on the same amount would have risen 4% to $1257.56. Now another 3 weeks the mortgage payment has fallen 2% to $1232.73

The other major change occuring with mortgages is that banks are becoming more selective in giving out mortgages. We have noticed over the last month that more restrictions from lenders have been coming into play. So although mortgage rates are relatively low it has become more difficult to get a loan. Over the last few years lenders would give a loan to anyone that could walk in the door this has changed over the last year. This is why potential home buyers should start paying more attention to their credit scores. Also lenders are expecting larger downpayments. Lenders are also cracking down on investment loans. The biggest change has been that most lenders are not allowing borrowers to get more than 4 investment loans. This has essentially stopped many investors from purchasing new properties.

So what do we expect to happen in the future. The general feeling among mortgage brokers is that lenders are unlikely to return to the free wheeling style we saw in 2006. But at the same time its likely that the current extreme restrictions in lending might ease up some over the next six months.

Ki is a real estate agent in Austin. His website has current information on mortgage interest rates. Along with a free mortgage calculator and information on historical mortgage interest rates

So what has been going on in the world of finance and mortgages? Certainly the biggest news was the fall of IndyMac. Last week we heard that IndyMac had stopped giving out new mortgage loans and was going to concentrate on simply servicing the existing loans in its portfolio. Apparently this was due to the fact that regulators felt that IndyMac was not adequately capitalized.

Many experts speculated that the days of IndyMac were numbered and might not last the year. They were right and not only did they not make it through the year they didn't even survive the rest of the week. On Friday it was announced that IndyMac was seized by US banking regulators. This was preceded by a rush on the bank by panicked depositors. The insurance fund currently has around 53 billion so the failure of IndyMac should be a significant drain of the insurance fund. The failure of the bank should cost the government insurance fund between 4 to 8 billion.

Moving on what is going on with mortgage rates this month. After rates rose through the month of June rates have fallen off in the first 2 weeks of July. This is good news because the rates feel in spite of the FED choosing not to lower rates at their last meeting. Rates on all the major mortgage products (30 Year, 15 Year, 5 Year and 1 Year) from the week of June 26 to July 3. Then rates for the most part held steady from July 3rd to July 10th. Rates fell the most on 5 Year Arms.

Its interesting to note that the spread between 5 Year Arms and 30 Year fixed notes has increased over the last month making 5 Year Arms more attractive. Below are the rates for the major mortgage products for the last few weeks.

July 10, 2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17

July 3,2008
30-yr 6.35 15-yr 5.92 5-yr ARM 5.78 1-yr ARM 5.17

June 26,2008
30-yr 6.45 15-yr 6.04 5-yr ARM 5.99 1-yr ARM 5.27

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

Moving on lets look at mortgage payments. I like to translate mortgage interest rates into how they would affect a mortgage payment because at the end of the day that is what we are dealing with. So breaking out our free mortgage calculator lets see what these rates mean for a mortgage on a 200k house.

July 10th
30-yr $1247.08
15-yr $1678
5-yr ARM $1176.05
1-yr ARM $1094.51

July 3rd
30-yr $1244.47
15-yr $1679.08
5-yr ARM $1170.96
1-yr ARM $1094.51

June 5th
30-yr $1210.69
15-yr $1650.11
5-yr ARM $1136.83
1-yr ARM $1080.98

So what do we see happening over the next few months. At the beginning of the summer we felt rates would rise because the FED decided to stop cutting rates. Rates rose for a month and then recently have held steady and then felt a bit. Moving forward I don’t have a clear idea what will happen with rates. I would have thought rates might fallen but with the fall of IndyMac the mortgage industry does not seem to be stabilizing so its uncertain what will happen with rates over the next month.

Ki works in Austin. His site is filled with information about mortgage interest rates along with providing a free mortgage rates widget and a free mortgage calculator.

Mortgage Interest Rates Widget Mortgage Rate Trends

After rising drastically last week fixed mortgage interest rates moved up slightly this week. 30 Year notes moved from 6.42 to 6.45 and 15 Year notes moved from 6.02 to 6.04. ARMS on the other hand rose a decent amount. 5 Year Arms rose from 5.89 to 5.99 while 1 Year Arms rose from 5.19 to 5.27. Below are mortgage rates for the last few weeks.

June 26,2008
30-yr 6.45 15-yr 6.04 5-yr ARM 5.99 1-yr ARM 5.27

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

Using our free mortgage calculator lets run the numbers on a 200k loan based on todays rates. We also put in what the mortgage would be a week and a month ago.

June 26th
30-yr $1257.56
15-yr $1692.03
5-yr ARM $1197.81
1-yr ARM $1106.88

June 19th
30-yr $1253.6
15-yr $1689.87
5-yr ARM $1184.99
1-yr ARM $1096.98

May 29th
30-yr $1209.4
15-yr $1651.19
5-yr ARM $1150.68
1-yr ARM $1100.69

So looking at the numbers above one would have saved almost $50 by getting a 30 Year loan a month ago compared to today. In contrast a mortgage on a 1 Year Arm has remained relatively constant. Why Banks would want to promote 1 Year Arms is anyones guess. Based on the other recent decisions by banks it would not be a bad assumption to assume banks have no idea what they are doing this point.

At this point getting a 5 Year Loan doesnt really seem worth it compared to getting a 30 Year loan since the cost savings is not that high (5%). On the other hand if you plan on keeping the property for a short period of time a 1 Year loan seems attractive considering the cost savings(12%).

Ki lives in Austin. His website has information on Austin real estate along with search of the Austin MLS and market stats on his Austin real estate blog.

On May 2nd, The Federal Reserve issued a statement about the crisis in liquidity which has bottlenecked global growth for several months. Since last August, banks have written down $300 billion in sub-prime related securities, but the IMF has predicted that the eventual cost will exceed $1 trillion. As major banks unloaded debt over the last half of 2007, their balance sheets became spread too thinly. As a result, they have become increasingly less willing to lend, especially to each other, preferring instead to shore up capital.

The resulting credit crunch has had a knock-on effect on the larger economy, prompting the US central banks to slash the key Federal Funds rate seven consecutive times in as many months, from 5.25 percent to 2%. This policy has resulted in flat or slightly negative real interest rates, but mortgage and other interest rates remain artificially inflated, thus mitigating some of the benefits. Another problem with lowering interest rates is that it is difficult to gauge their effects on market conditions, as they typically take some time to work their way through the financial system.

Indeed, while interest rates have taken most of the headlines, the central bank has also taken extensive action in direct lending to banks. The most well-known example of this marked shift in policy is the Fed-backed bailout of the troubled investment bank Bear Stearns earlier this year. The floundering securities firm had problems with one of its hedge funds in early 2007, leading up to a well-publicized meltdown in March as other banks became wary of lending to them. This eventually forced them to seek emergency assistance, resulting in their buyout by JP Morgan with a guarantee of funding by the Fed to the tune of $29 billion. By extending the so-called "discount window" to an investment bank, the central bank took a de factor role as lender of last resort, a privilege usually reserved for commercial banks. Whether they overstepped any boundaries is now moot, of course. Likely the ensuing panic upon the failure of one of the largest US banks would have been worse than keeping them afloat. Their decision has proven to help provide short-term stability for markets.

Despite regular injections of capital from the European Central Bank, the Bank of England, and the Federal Reserve, investors seem unsure that the end of the credit crunch is nigh. Inflation has reared its head in recent months, leading to global food riots and record gasoline prices. The weakening dollar has contributed greatly, as the oil-producing nations which price their exports in the US currency are forced to raise prices accordingly. Interest rate cuts are likely over for a long while, as the Fed tries to balance continuing liquidity issues with inflation. $600 billion in Fed-issued loans has covered much of the cost of the credit crisis so far, but IMF estimates are only applicable for the numbers used to make them. Unless banks are growing, building capital, or both, liquidity will continue to hamper recovery. It will take time, but restoring confidence for investors and lenders is the only way economic growth can resume.

Ki provides information and analysis on his site about Austin real estate along with providing a search of the Austin MLS. He also posts regular market updates on his Austin real estate blog.

In the past I used to tell people to look at different mortgage rates for different loan products and determine what was best for them. If they were planning on moving soon a 5 Year ARM might work. If they planned on staying on the house longer they might consider a 30 Year Loan. I don't say this any longer. Why? Because of recent developments the 30 Year Loan is king. If you can get a 30 Year loan in the current market 95% of the time it's the best choice.

If we look back to the beginning of 2006 both 5 Year ARMS and 1 Year ARMS where significantly lower than the rates on 30 Year Loans.

Begin 2006
30 Year Fixed - 6.22
5 Year ARM - 5.79
1 Year ARM - 5.15
At the time banks saw 5 and 1 Year ARMs as a short time commitment. But now banks are starting to see more foreclosures on ARMs than they are on 30 Year Fixed loans. This has started to make banks more nervous about ARMS. In response banks have raised rates on 5 and 1 Year ARMs even as rates on 30 Year loans have decreased. Using a tool that graphs mortgage interest rates Here is a chart comparing the loan products over the last few years.



What we will notice is that historically all 3 products moved in concert with each other. But recently that trend has changed. 5 Year ARMs and 1 Year ARMs have gone up while 30 Year Rates have come down. So if we look at the rates today we will find them much closer together than what we saw at the beginning of 2006.

Today
30 Year Fixed - 5.85
5 Year ARM - 5.67
1 Year ARM - 5.24

So how much does this affect your potential mortgage payments? Let's look at the mortgage you would get on a 200k house based on the interest rates.



First let's look at the mortgage payments you would make at the beginning of 2006.

Begin 2006
30 Year Fixed - 1227.53
5 Year ARM - 1172.23
1 Year ARM - 1092.05

So the difference between a 30 Year Fixed loan and a 5 Year ARM was 4.72 percent or $55.30. Now let's look at the mortgage payments one would make based on today's rates for the different loan products.

Today
30 Year Fixed - 1179.88
5 Year ARM - 1157
1 Year ARM - 1103.16

So today the difference between a 30 Year Fixed loan and a 5 Year ARM is only 1.98 percent or $22.88. The difference has decreased by more than half. In addition, if we also consider the fact that mortgage interest rates today are relatively low compared to the last 15 years there is a good chance when ARM's expire interest rates will be higher.

Now if someone is absolutely certain they will sell their house in 5 years it still makes sense to get an ARM. But this is rarely the case. People often move to a city only planning on staying for a few years and then end up staying. Or they end up renting out their house instead of selling. The way life changes it's hard to predict what one will be doing in 1 year much less 5 years. I talked to someone recently that said every time they got a 5 Year ARM on a property they ended up keeping the property for longer than 5 Years and every time they got a 30 year loan they ended up selling in less than 5 years. In summary it's hard to tell what will happen in the future.

In the future the difference in mortgage rates between 30 Year Fixed loans and ARMs might start to make ARMs more attractive. But if you are looking to get a loan in the current market the security of the 30 Year loan outweighs the small savings you would gain from the different ARM products.

Ki is a realtor in Austin. He runs a site about Austin real estate that provides users a free search of the Austin MLS along with a free mortgage calculator and information on current mortgage interest rates

autoupdating mortgage rates widget
<a href="http://www.escapesomewhere.com/mortgageinterestrates.html"><img alt="Mortgage Interest Rates" src="http://www.escapesomewhere.com/mort_images/current-mortgage-rates.gif"></a>

Mortgage rates fell this week. 30 Year mortgages fell from 6.13 to 5.87. 15 Year rates fell from 5.6 to 5.27. It looks like lenders are trying to stay away from ARMS due to the heavy losses they are taking from ARM's from foreclosures. Although rates did not fall as much as the .75 points the FED cut the discount rate by last week but its encouraging that rates did fall somewhat as the last few FED cuts in 2008 failed to push mortgage rates down.

Ki is a realtor in Austin. He runs a site with information on the Austin real estate market. He also writes a Austin real estate blog. He also recently wrote a Mortgage Interest Rates Widget

The recent sub-prime crisis is unlike any faced by the financial system before in one dubious distinction: Its effects are exacerbated by globalization to an unprecedented degree. Recent developments help illustrate exactly how this credit crunch can be differentiated from others, such as the savings and loan scandals of the 1980's, by its fundamentally larger scale and complexity. To explain the sub-prime crisis adequately, first the causes must be clearly identified. Like the savings and loan problems, predatory lending on the part of real estate brokers and agents, combined with a fair amount of financial fan-dangling, many banks loaned out more money than they normally were allowed to. By keeping these loans off their balance sheets, they were able to loan out much more than the rule-of-thumb ten times their deposits. If you consider that the sub-prime fallout is considered by most to be over $250 billion dollars, then the loans made could be in the trillions. The vehicles in which the debt was stored were basically invented for the purpose of deceiving potential investors into believing that they were sound investments, not risky sub-prime mortgages. The savings and loan crisis took a similar tact, and ended in similar levels of indignation, consumer despair, and regulation. As the years have gone by, those who cried for deregulation in order to help the already unprecedented economic growth skyrocket higher still have gotten their wish, but at a price: now that the Fed has instituted more clear standards for informed consent for borrowers, a crisis like this will likely not emerge again for some time. However, this is a lone consolation for the amazing amount of debt that has yet to be declared throughout the financial system. The reason this crisis is so much larger is because the repackaged sub-prime debt was sold not just to other Americans, or even Canadians and Europeans. It was sold all over the world, to China and India and many other countries. This means that the problem increases in complexity, as differing international regulations for the timetable on debt declaration and a financial system that has turned a boom into a spider's web of uncertainty contribute to higher risk to any institution that lends money. This, in turn, places a de facto cap on the amount of economic growth that can happen. But the problem is also much, much larger because the entire world has some degree of stake in it. Now European central banks are cutting their interest rates as well, in order to combat a problem that won't even really exist in a measurable form until two million Americans default on their mortgages in the new year. When the fallout was limited to the US, as was the case with the savings and loan banks, the turnaround time was a matter of two years, give or take. Now, the sub-prime crisis has been high on the international public radar for well over a year, but less than a tenth of the lowest estimates on the total debt have been acknowledged by lending companies. This means that recession is a much more likely outcome of this global problem than it seemed even three months ago. Living in Austin Ki works for a small realty company focused on Austin real estate. They provide information about the market on their blog about Austin real estate news along with a allowing users to start searching for Austin homes online through the Austin MLS.