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Bi-weekly Interest Rate Update
Fed watch ~ U.S. Treasury Bond market
There is much talk about the direction U.S. Treasury Bonds are heading
and the effect this will have on mortgage rates. When you hear or
read that the price of U.S. Treasury Bonds are down, this means
the price to purchase these bonds is lower and therefore the yield
on the bond is higher. For example; if the price on the 10-year
U.S. Treasury Bond went from 100.00 to 99.26 the yield would go
up from 4.50% to let's say 4.55%. As a general rule, when
the yield goes up on the 10-year U.S. Treasury Bond, interest rates
on long term fixed rate mortgages also go up.
(click
here to view chart)
Generally the yield on U.S. Treasury Bonds rise (the price of the
bonds goes down) when the economy is doing well and mortgage interest
rates follow suit and also rise. When the economy is not doing well
interest rates on U.S. Treasury Bonds go lower and mortgage interest
rates also go lower.
'When the economy is growing (expanding), interest rates
rise, when the economy is contracting (moving toward recession)
interest rates fall.
It is believed we are in a period of a growing economy. That is
why the Federal Reserve has been raising the Federal Funds rate
for the past year and is believed to raise the Federal Funds rate
again by .25% on Tuesday, December 13th.
The Scoop on Option Arm Mortgages
Mortgage programs that offer you 3 to 4 different payment options
each month are commonly called 'Option Arm', 'Pay
Option Arm', and 'Pay Select Arm'.
Recently I've been asked by many friends and customers to
explain the details of this type of loan.
Each month these programs offer; a minimum monthly payment, an interest
only payment, a principal and interest payment and some also offer
a 15 year fully amortized payment. For the first year the minimum
monthly payment is based on the start interest rate (from 1% to
almost 4%). In years 2 through 5 the minimum monthly payment can
increase or decrease by 7.5%. After year 5 the loan recasts with
the minimum monthly payment becoming the fully indexed interest
rate (the index plus the loans margin), amortized over the loans
remaining 25 years. The loan recasts again after year 10.
By calculating the recast after year five, it's quite obvious that
those who don't refinance will face a very large increase in the
minimum monthly payment, as the interest rate will increase from
the start rate to the fully indexed rate and the monthly payment
will be based on a 25 year mortgage.
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This weekly interest rate update newsletter
is offered to you courtesy of Peter Gooler, Sr. Mortgage Consultant.
I'm available via phone (760-310-6988)
or email to discuss your
individual situation.
Have a great weekend!
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