Everyone has seen the news that the Fed has cut interest rates several times recently. The general public naturally thinks mortgage rates have been going down. Unfortunately that is not the reality. The 30 year fixed rates are up over .5% since the last Fed cut. The big news that most people miss pertaining to the recent Fed cuts is how it affects the adjustable rate loans.
For example, all equity lines of credit loans are tied to the Prime rate. Prime is now at 6%. In the summer of 2007, Prime was at 8.25%. That means, if you owed $100,000 on your line of credit and you paid the rate of Prime plus zero margin, your payment was $687. Today your monthly payment is only $500. We've been conditioned over the past 5 years to think adjustable loans are bad because they only go up when they adjust. For the next 2-3 years, adjustable loans will be outperforming the fixed rate loans.
Many borrowers have adjustable rates that are scheduled to adjust this year. Everyone has been conditioned to be afraid of the "day of reckoning" when their loan makes its first adjustment. They are all going to be in for a pleasant surprise.
Quick update on the higher conforming loan limits - although the bill was signed by the President over two weeks ago, it may be many more weeks before we are able to offer the new higher loan limits. We do expect the higher FHA loan limits to go into affect in the next two to three weeks. I want to remind you that FHA is an awesome option for your clients that have less than 20% down payment or less than perfect credit or need help to qualify. If you are not completely comfortable with FHA, get hold of me and I'll give you an overview of the benefits of the program as well as what to watch out for when writing contracts. FHA is simple and you need to know it. I have put together a booklet that covers everything you need to know.