For buyers and refinancing households throughout South Carolina , adjustable-rate mortgages are a relative bargain as compared to fixed-ones.

According to Freddie Mac’s weekly survey of more than 125 banks nationwide, |**CITY**| mortgage applicants electing for a conventional ARM over a conventional fixed-rate mortgage will save 105 basis points on their next mortgage rate.

“Conventional” loans are loans backed by Fannie Mae or Freddie Mac.

Today’s average, conventional 30-year fixed rate mortgage rate is 3.91% plus points and closing costs. The average rate for a comparable 5-year ARM is 2.86%, plus points and closing costs.

In other words, for every $100,000 borrowed, a conventional 5-year adjustable-rate mortgage will save you $58.15 per month, or $698 per year.

That’s a 12 percent savings just for choosing an ARM.

12 percent is a big figure that adds up over 5 years — especially for households that plan to sell within those first 60 months anyway. There is little sense in paying the mortgage rate premium for a 30-year fixed-rate mortgage when a 5-year ARM is perfectly suitable.

For the reason why adjustable-rate mortgages continue are so much lower than their fixed-rate counterparts, look no further than the U.S. economy. ARMs reflect Wall Street’s short-term economic expectations; whereas fixed-rate mortgages reflect medium- to long-term expectations.

In the short-term, analysts expect the U.S. economy to grow slowly, with low levels of inflation. This supports the U.S. dollar, the currency in which mortgage bonds are denominated. When the dollar is strong, demand for mortgage bonds tends to increase.

This supports lower interest rates.

Conversely, over the longer-term, inflation is expected to return, which devalues the dollar and everything paid in it (e.g.; mortgage-backed bonds). This is why inflation is linked to higher mortgage rates. When inflation is present in the economy, mortgage bonds lose value, driving mortgage rates up.

Adjustable-rate mortgages aren’t perfect for everyone, but in the right situation, they can be a big money-saver and a helpful tool for stretching a household budget. Given today’s rates, the money-saving potential is larger than usual.

Before you choose an ARM, discuss your options with your loan officer.

According to a recent report by Zillow, 27% of all homeowners are “underwater” on their mortgage. 

Being “underwater” or upside-down on your mortgage means that you owe more money on your mortgage than your home is worth. 

In some markets the numbers are even uglier.  More than a third of Chicago homeowners owe more on their mortgage than their homes are worth.  In Atlanta over 50% of homeowners are “underwater”.

And those numbers don’t include the homeowners whose current equity is between 0% and 20%.  Many people have purchased homes with a 20% down payment to avoid paying PMI (Private Mortgage Insurance) only to have their homes fall in value resulting in their inability to refinance at lower rates without paying PMI.

The surplus of existing inventory on the market, the current foreclosure moratorium, and falling prices are the reasons that home values have decreased across the country.

Some experts say that we are getting closer to the bottom.  Obviously!  The question is, “Just where is the bottom?”

The good news for some homeowners is that the government has extended the HARP program until June 30, 2011.  HARP stands for Home Affordable Refinance Program. 

You may qualify for the HARP program if you have a conventional (under $417,000) Fannie Mae or Freddie Mac mortgage and are not currently paying PMI.  If that is the case, you may be able to refinance at or close to the historically low mortgage rates now available, without paying PMI, even if you owe 25% more than your home is worth.  If you have two mortgages or an equity line that would have to be included in the refinance you would not qualify.

We can quickly determine whether or not you qualify for the HARP program.  If you have an adjustable rate mortgage or a fixed rate mortgage  with a rate that is higher than the currently available low rates, you should check to see if you qualify for the HARP program.

Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

Mortgage rates for the last few months have been extremely low.  Fixed, Adjustable, even Jumbo mortgage rates have fallen to levels never seen before.  

Unless you have refinanced in the last few months, it wouldn’t hurt to see if you can improve your mortgage situation.  You may be able to do a “No Cost” loan and reduce the term of your mortgage by several years with a payment that is the same or lower than your current payment.

But be forewarned, if you do decide to refinance, be prepared for a longer than normal loan process.  Loans that took less than 30 days to complete several months ago, are now taking 30 to 60 days to complete.  But it is certainly worth the wait if you can save some money and improve your current situation.

 Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

Jump back to January of 2008.  If you had a middle credit score of 700 and a loan-to-value ratio of 80% or under, you would qualify for the very best mortgage rate.  You were perfect!

Not anymore.

By April of 2008, Fannie Mae and Freddie Mac imposed Loan Level Pricing Adjustments (read…Penalties) for credit scores below 740 and LTVs over 60%.

There are also additional Pricing Adjustments imposed on Cash-Out loans (when more than one mortgage is being refinanced or cash is being taken out of a refinance).

Mortgage rates are advertised based on the “perfect” customer in a “perfect” scenario.  Don’t be surprised if you are offered a mortgage rate that is higher than advertised rates if your credit score or loan scenario doesn’t fit the “perfect” model. 

Posted by Mike Owens Partner/Mortgage Planner with Horizon Financial. Inc.  You can reach Mike at MOwens@HorizonFinancial.org or at (864) 907-2678

Adjustable rate mortgages or ARMs can be a wonderful mortgage tool or they can be downright ugly.

ARMs typically come in flavors such as the 3/1, 5/1, 7/1 or 10/1.  The first number is the number of years that the initial interest rate is fixed.  The second number means that after the initial fixed rate period ends, the interest rate can change once a year.

ARMs have caps, typically 5/2/5.  The first number means that the interest rate can go up 5% in the first adjustment after the fixed rate period.  The second number means that the interest rate can go up a maximum of 2% per year after the initial adjustment.  The third number means that the interest rate can only go as high as 5% over the initial fixed rate.

So, if you have a 5/1 ARM with 5/2/5 caps and an initial fixed rate of 4%, the interest rate could go up to 9% at the very first adjustment after 5 years.  But if the ARM rate only went up to 6% after the first adjustment, the rate could only increase by 2% in the second adjustment to 8%. And the rate could never go above 9%.

ARMs can be a great mortgage tool if you are planning to pay off your mortgage or move within the fixed rate time frame.  Rates on 5/1 ARMs are below 4% at this moment.

If you are not planning to move or pay off your mortgage within the fixed rate time frame, ARMs can pose a big risk.  With the U.S. Government spending money as fast as they can print it, mortgage rates are going to go up in the near future.  And rates are probably going to go up dramatically.  If you are in an adjustable rate mortgage and are not planning to move or pay off the mortgage, it would probably be wise to refinance into a fixed rate mortgage while rates are low.

And now for the ugly.  If you have an Option ARM and have been paying the minimum payment, you probably have a negative amortization loan, meaning that the amount of principle that you owe is increasing every month.  You are either underwater or sinking fast.  Refinance if you can, as soon as you can.  

Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

The reason Fannie Mae has started its Loan Quality Initiative is to improve its loan pool’s performance.    

Better loan quality should help keep conforming mortgage rates down, while reducing the taxpayer’s burden for foreclosures. Unfortunately, it’s also going to lead to more mortgage denials and a lot of busted purchase closings. Therefore, be extra careful with your credit between the date of application and the date of closing. If you must buy something “big”, consider paying cash.  Anything that goes on a card can be used against you as grounds for revoking your approval. Even if your loan is underwritten and ready to close.   

What the bank will do: Look at the Credit Inquiry section of your credit report to look for “non-disclosed liabilities”. If items are found, the bank will ask for supporting documentation on the inquiry, and will use the information to re-underwrite your mortgage.

What you should do about it: Don’t go looking for new credit until after your loan is funded.  Period.  Now re-read the prior sentence, please, to help it sink it.

 For help with your mortgage approval, or questions about the Loan Quality Initiative, let us explain your options in easy terms.

Posted by Bob Dangelo, a senior Loan Officer with over 20 years mortgage lending experience.  You can reach Bob at Horizon Financial (877) 627-9211 ext 110 or email at bdangelo@horizonfinancial.org.

God Bless Our Troops And Veterans!

Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

The stock and bond markets of Wall Street are driven by unemotional numbers like profits, P/E ratios, return on investment, etc.  But they are also driven by emotions.

A New York broker once said, “Downtown, there are two emotions: Fear and Greed.  The rest is bull*$x&.”

Greed as in the late 1990’s when investors jumped to buy any stock that ended with a “.com”.  Of course that bubble exploded in 2000.

Fear as in the last week when the debt problems of Greece and Portugal and maybe Spain caught the attention of the investment community.  Will these problems spread to France and Germany?  Will the debt crisis affect the United States?  Are Europe’s biggest banks facing insurmountable strains?  Will the crisis have a negative impact on China’s exports to Europe?  What are the implications for the LIBOR?

The anxiety in the investment community has led both institutional and retail investors to flee the stock market and shift their funds to gold, bonds and money markets.

When money is poured into bonds the price of bonds goes up.  As the price of bonds goes up the yield or interest rate on those bonds goes down.  As a result mortgage rates have fallen dramatically.  The 15 year fixed rate is at its all time low.  And the 30 year fixed rate is close to its all time low.

If you have an adjustable rate mortgage or can benefit by refinancing, this may just be the time to pull the trigger.

Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

The Dead Cat Bounce is a Wall Street term that refers to a brief recovery in the price of a declining stock, bond, security or market. The term is derived from the concept that “even a dead cat will bounce if it falls from a great height”. This phenomenon may apply to the mortgage bond market in the near future.

First of all, remember that when bond prices go up, rates go down. When bond prices fall, rates go up.

In the latter half of 2008, 30 year rates moved in a range from 5.875% to 6.5%. 15 year rates moved in a range from 5.75% to 6.125%. That is until November 25th, 2008. On that day the U.S. Federal Reserve Board announced that it would initiate a program to purchase mortgage backed securities from Fannie Mae and Freddie Mac, artificially propping up the prices of bonds and keeping interest rates low. The very next day rates on a 30 year fixed went down to 5.125% and ensuingly headed further south.

Over the last year and four months, the massive purchases (1.25 trillion dollars worth) of mortgage backed securities by the Federal Reserve have kept mortgage bond prices up and interest rates down. The 30 year rate has fluctuated between 4.5% and 5.25%, while the 15 year rate has moved in a range from 4.25% to 4.875%.

Now the bad news. The Federal Reserve has officially stopped buying mortgage backed securities as of March 31st, 2010. Mortgage rates have started to move up. While there may be some short term volatility, some experts expect rates to rise by 1% this year.

If you need to get out of an adjustable rate loan, or would benefit by refinancing, this may be your last chance to do so at a great rate.

And lets hope for the “Dead Cat Bounce” or bounces. Because this cat is officially DEAD!

Posted by Terry Brunner. Terry is a Senior Loan Officer with Horizon
Financial. Terry can be reached toll free @ (877) 627-9211 x150 or
email TBrunner@HorizonFinancial.org. Visit Horizon’s website at www.horizonfinancial.org