The Blue Crown Capital Management Specialists As interest rates rise - PowerPoint PPT Presentation

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The Blue Crown Capital Management Specialists As interest rates rise

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Higher mortgage rates for 2014? Count on it. Could this be the year to check out hybrid mortgages, which haven't been popular lately? Maybe. – PowerPoint PPT presentation

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Title: The Blue Crown Capital Management Specialists As interest rates rise


1
The Blue Crown Capital Management Specialists As
interest rates rise
http//www.bluecrowncapital.com/news
2
  • Loans that provide a guaranteed fixed rate for a
    pre-defined period of time, then convert to a
    variable rate, are usually less expensive than
    traditional 30-year fixed loans.
  • WASHINGTON Higher mortgage rates for 2014?
    Count on it. Could this be the year to check out
    hybrid mortgages, which haven't been popular
    lately? Maybe.

3
You can count on interest rates going higher
because
  • The Federal Reserve intends to continue reducing
    its monthly purchases of mortgage bonds and
    Treasury securities, which will have the side
    effect of raising rates.
  • The national economy finally appears to be
    picking up steam, based on the latest quarterly
    data. Higher growth rates in turn will increase
    demand for available credit and probably nudge
    rates higher.
  • New federal regulations for mortgage lenders
    aimed at avoiding another bust take effect Jan.
    10. Not only will loan officers and underwriters
    scrutinize applicants' income, debt ratios and
    credit extra carefully, they'll probably charge
    more for borrowers whom they see as a higher
    risk. Some mortgage economists predict that
    conventional 30-year, fixed-rate loans could go
    to 5.5 before year-end.

4
  • So what does this mean for you if you're thinking
    about buying a house or refinancing and you want
    to nail down the most favorable interest rate and
    terms? Should you shop primarily for a
    traditional mortgage product that guarantees you
    a specific rate for 15 to 30 years?
  • Or should you check out what's also on the shelf
    in the way of hybrids loans that provide a
    guaranteed fixed rate for a pre-defined period of
    time, say five, seven or 10 years then convert
    to a rate that can change annually?
  • The case for sticking with a traditional
    fixed-rate mortgage is straightforward. Though
    30-year rates are more than a percentage point
    higher this month than they were a year earlier,
    they are still not far off multi-decade lows.

5
  • Bruce A. Calabrese, president of Equitable
    Mortgage Corp. in Columbus, Ohio, is adamant "My
    advice for home buyers" in the new year, he said,
    "is to lock early into a 30-year fixed" while
    rates are still under 5. "Take a 30-year fixed
    at 4.75 and be happy" because that's still far
    below average rates over the last several
    decades.
  • Paul Skeens, president of Colonial Mortgage Corp
    in Waldorf, Md., agreed. "If fixed rates are
    under 5.5 and you are going to live in your home
    for five years or more, they are still a great
    deal," he said. "I'm very partial to fixed rates
    since I remember when anything under 7 was a
    great deal.
  • To illustrate Skeens' and Calabrese's historical
    point, consider these average annual 30-year
    fixed rates In 1974, they averaged 9.19
    nationwide, according to mortgage investor
    Freddie Mac. By 1984, they were at 13.88. In
    1994, fixed rates averaged 8.38 and in 2004,
    5.84.

6
  • But what if you say I don't care about what
    rates were in previous decades. I'm more
    concerned about being able to afford today's
    housing prices on today's income and household
    expenses.
  • Jeff Lipes, a lender in the Hartford, Conn., area
    and former president of the Connecticut Mortgage
    Bankers Assn., said that hybrids with fixed rates
    for five to 10 years "are fantastic options for
    borrowers" in 2014, and can lock in rates that
    are one or more percentage points below competing
    30-year fixed loans.
  • "Most first-time buyers purchase a home that will
    be sold when the family income increases or the
    family outgrows the house," Lipes said. "That
    usually occurs in the first 10 years, so that is
    why a hybrid is a great option. The borrower
    saves a lot of money" sometimes hundreds of
    dollars a month "paying a lower rate."

7
  • A check of Bankrate.com's online rate monitor in
    late December found five-year hybrids averaging
    around 3.4 nationwide, seven-year hybrids at
    3.81 and 10-year hybrids at 4.16. Thirty-year
    fixed-rate mortgages averaged 4.63.
  • Ted Rood, senior mortgage consultant with
    Wintrust Mortgage in St. Louis, said he's already
    seeing a shift in demand toward five- and
    seven-year hybrids. He just closed a seven-year
    hybrid at 3.5 on a house in Wyoming for a
    borrower who fully understood the risk that he
    could face higher rates at the conversion point
    in late 2020.
  • Bottom line for you if you're in the market
    Check out all the options on the menu. If you are
    comfortable with the potential risks, and the
    monthly savings advantages of a hybrid are
    substantial, go for it.
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