Posts Tagged 30 Year Fixed

A call to ARM’s

ARM’s, or Adjustable Rate Mortgages, have been given a bad name over the past couple of years with horror stories of borrower’s loans resetting and their payments going up and then they are not able to afford the payments.  However, there are many kinds of ARM’s and the ones that have been the problems have been the Sub-prime ARM’s and Option ARM’s. Conventional Adjustable Rate Mortgages, such as those backed by Fannie Mae and Freddie Mac, have been performing well, and in fact if you financed your home with an ARM in 2005 and it’s about to reset, chances are your interest rate is going to go down a full point or more right now.

This is because the indexes many Conventional ARM’s are based on have decreased.  In fact, the 1-Year LIBOR Index, that many Conventional ARM’s are based is much lower today than it was five years ago.

In August of 2005 the average 30-year fixed rate mortgage was 6.00%. The average 5-year ARM (fixed rate for five years) was 4.875%.  The median price of a home in Salt Lake County is $224,500.  On a loan of this amount, had chosen the ARM back in 2005 not only would you have saved $9,475 in monthly payments since you closed your loan, but your interest rate would be resetting from the 4.875% to 3.00% this month.

So you can see not all ARM’s are bad.  When used in the right borrower situations they can save thousands of dollars a year in monthly payments. The key is in thinking through your long-term plans with the house: Are you going to live there for 30 years and never refinance? Are you only going to be in that house for only 3, 5, 7 or 10 years before you move? Sometimes an adjustable rate mortgage is the right choice.

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Salt Lake City Mortgage Market Update for November 26, 2008

The good and the bad of the media

I make my living off the Evening News
Just give me something-something I can use
People love it when you lose,
They love dirty laundry

~ Don Henley from Dirty Laundry

It is the general consensus in any industry except the news media industry that the media isn’t helping the economy any.  It’s not like they should be hiding things from the American public, they shouldn’t.  What the problem is, is that they are not reporting the whole story.  The news media is reporting only the bad.  The sensationalist journalism that makes people watch, sells ad space and in general whips the public into a frenzy of panic and despair.  Well, and throw-in a cute puppy story every now and then and maybe a funny morning guy at remote locations.

The fact is, as Don Henley so eloquently illustrates in his song “Dirty Laundry”, the new media reports the worst of the worst because that is what makes people scared.   And scared people watch more news to see if they still have any reason to be scared.

What’s happened in the financial markets is the way everything has been reported, usually with just a fraction of the truth of the matter, the general public has become scared because they don’t have the whole story.  Because of this they’ve frozen their money and are not spending like they did in years past, which is just making the matters worse.

For instance, from today’s headlines:

“Ongoing unemployment claims highest in 25 years.”

The truth: they are the highest in 25 years, but 25 years ago there was way less people in the workforce, so looking at the number of ongoing claims does not paint the true picture.  But it’s the picture the media reports because the real numbers are not as interesting and cause people to talk around the water cooler.

If you listen to the media everyone is losing their home.  What they aren’t telling you is that about a third of all homes in default right now are what is called non-owner occupied, or investment homes.  Many of these were homes purchased by amateur real estate investors that bought too many Carlton Sheets and Robert G. Allen DVD’s from late night infomercials.  In fact, nearly half of all sub-prime mortgages in default are on non-owner occupied homes.  Sub-prime loans were used by amateur investors because of the more liberal underwriting guidelines and because they could get 100% financing.  The “Become a real estate millionaire with no money out of pocket!” gurus pushed this strategy very hard.

I’m not by any means saying the economy isn’t hurting, because it’s hemoraging.  However, I am saying that the news media hasn’t helped it at all.  In fact, they have made it worse through sensationalist and shoddy reporting of the facts.  Of course, they build the news around the lowest common denominator in society and they know that any story that takes longer than 45 seconds to present will lose their viewer’s interest and they’ll change the channel.  Lose viewers, lose ad dollars.  The amount of time the average American will watch a news story is hardly enough to present the whole story.  Thus, people would rather watch The Bachelor than 60 Minutes.

Okay, enough of that.  The good news is this.  Rates are down again today.  Not much lower, but holding steady from yesterday.  I recommend floating if you are closing a loan in the next couple of weeks.

For Salt Lake City, UT today’s mortgage rates are as follows:

30-year fixed: 5.500%

15-year fixed: 5.250%

Jumbo 30-year fixed: 5.625%

FHA 30-year fixed: 5.500%

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