Deja Vu 2: Not Crying

by Larry D. McGee, Denver Realtor on November 7, 2007

In this post I will tell you why I am not crying for big builders and big lenders.

As for the big lenders, it is important for the consumer to understand where mortgage money comes from. Today, it mostly comes from Wall Street, in the form of bond investment. Billions of dollars in bonds, sold with the promise of repayment by homeowners, securitized by the home they are living in. There is absolutely nothing wrong with this, and the basic process is not going to change. The problem arises when Wall Street gets greedy. Mortgage loans are made available based on the premise that home values will rise, and, in the event of a homeowners need to sell, there will equity available to pay off the mortgage. When there is no equity, and homeowners have to move, foreclosures occur. The greed part is [click to continue...]

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

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Rising Bond Prices and Your Mortgage

by Larry D. McGee, Denver Realtor on November 7, 2007

Taking a look at the world economy today, there appears to be a better than even chance that bond prices will go up. You can do your own research, my point here is what that means to mortgage rates. Most casual observers mistakenly believe that the lowering of rates at the Federal Reserve Bank results in a lowering of mortgage interest rates. Not true. Mortgage rates are tied to bond prices. If bond prices go up, mortgage interest rates will go up. Here is one example:

NOW LOWER PRICE SAME RATE

Purchase Price: $300,000. Waiting for Lower Price: $280,000.
Todays Interest Rate: 6.25% same interest rate: 6.25%
Down Payment @ 10%: $ 30,000. Down Payment @ 10% $ 28,000.
P & I Payment: $ 1,662. P & I Payment: $ 1,552.

HIGHER INTEREST RATE LOWER PRICE, HIGHER RATE

Purchase Price: $300,000. Purchase Price: $ 280,000.
Later interest Rate: 7% Higher Rate: 7%
Down Payment@ 10% $ 30,000. Down Payment @10% $ 28,000.
Later Payment: $ 1,796. Later Payment: $ 1,676.

As you can see from the table, waiting for a price to drop $20,000 with a correspondent interest rate increase of 3/4 % will actually result in a [click to continue...]

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

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