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Subprime Mortgages Back on the Rise or Still Shrinking?
Mortgages given out without backing from the government, also known as the primary cause of the 2008 financial crisis, continued to shrink according to new data from the last financial quarter, reports Bloomberg. For the first time in nearly a decade the market for these mortgages dropped below $1 trillion dollars.
What’s Causing this Contraction?
According to Bloomberg the primary reason why these securities are falling is due to the massive number of homeowner defaults that occurred over the last 4 years.
Interestingly enough even as the market for these loans shrinks investors continue to pour money into them. The subprime mortgage market has delivered huge 30% returns over the last quarter and an increase in the number of individuals re-entering the housing market seems to bode well for investors looking to turn a profit with these bonds, sparking a few concerns that the same “herd mentality” among investors leading to the 2008 financial crisis may be rebounding as well.
While many of the subprime mortgage schemes from yesteryear are now illegal or defunct, there will always be lending institutions that try to game the system by offering deals that may not be in the best interest of the consumer. Make sure you refer to your home mortgage calculator to understand all of the implications of the deal you are being offered, both in the short term and long term.
Mortgage Rates Drop to Record 3.4% Low
The Federal Reserve recently dropped mortgage rates by purchasing mortgage-backed securities once more, which dropped the average APR for a 30-year mortgage go to a staggeringly low 3.4%, with rates for 15-year terms falling down to 2.73%. Mortgage rates for 30-year terms previously sat at 3.9%, according to Bloomberg.
Are Low Interest Rates Working?
Interest rates were already very low before the Feds recently purchased $40 billion in securities and these favorable figures seem to have been helping drive the home-buying market back up out of recovery, which indicates the Feds’ recent actions will provide even greater actionable incentives for would-be home owners to consider purchasing a home. Low mortgage rates equals higher affordability across the board, and higher affordability almost always translates into an increased incidence of new mortgages hitting the market.
Still, even though the housing market has been showing signs of recovery, as a whole demand for homes isn’t the sure thing it once was, which means even with interest rates sitting at historic lows, we have no concrete proof of a substantial rebound on the horizon.
With that in mind, there are two messages to take away from The IOU Calculator: a sluggish economy can mean opportunity for a first time home buyer or someone looking to refinance at a lower interest rate. Additionally, utilizing our online resources can help you decide if making a move right now is a good idea for your specific situation.
Article Posted by Expert Author: 3 on 04/08/2013
Article Posted In: Consumer & Industry News
Is the Fed About to Switch Up Mortgage Interest Rates?
If you’re looking to take on a new mortgage or if you’re considering either renegotiating the terms of your existing mortgage or refinancing the loan altogether, then you need to pay attention to the news in the coming weeks as the Feds may be making some big buys in response to recent news regarding the relative yields on big-name mortgage securities.
Bloomsberg Businessweek reports that the relative measures attached to Fannie Mae and Freddie Mac’s home loans dropped to lowest they’ve been in five years. This is distressing enough news on its own, but made worse by the fact these relative yields tend to be the guiding force for the rest of the mortgage market. In response the Fed is likely to buy up more bonds and continue with their promise to keep rates for borrowing as close to zero as possible, but until the Fed makes an official announcement it’s too soon to tell how they’ll respond to this troublesome news.
The good news in all of this is that interest rates for borrowing remain at historically the lowest prices ever. This will bode well for anyone who is able to purchase a home for the first time, or who is able to refinance their existing loan. Check out our home mortgage calculator to do the initial homework and determine how taking action might impact your budget.
What Does the Decrease in Use of the Mortgage Break Mean?
There are many advantages to owning a home, and one of the major ones is the tax write-offs available to those who are paying interest on their home loan. However, an interesting trend has been discovered: In 2011 there was a drop in mortgage interest deductions. It wasn't a small drop either – it was almost 7.5%. But what does this drop mean? Does it mean fewer people are buying homes or that they've already paid them off? There are many different possibilities and at first glance the drop may seem alarming to some. However, a closer look reveals some interesting truths.
Experts point to two factors. First, home values have dropped compared to 2010. As a result, the amount of interest has changed. Second, interest rates have dropped as well. It only stands to reason that if interest rates are lower then people will be paying less interest. It's also interesting to note that the deduction for student loan interest also dropped, though the use of the charitable deduction rose slightly by a little over 1%. While none of these changes are astronomical, they are still an interesting snapshot of our economy.
Article Posted by Expert Author: 3 on 03/29/2013
Article Posted In: Consumer & Industry News
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