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Real Estate Investment Properties |
Mortgage Index & Interest Rates |
Saturday July 5, 2008 |
The Mortgage Index RateThere are several things that affect the rate associated with your mortgage loan. Generally, however, rates follow a trend, both nationally and regionally, set by the mortgage index rate. The mortgage index rate provides borrowers, lenders, and economists the most recent averaged rate. The rates are compiled by financial institutions, which base their data upon the Federal Housing Finance Board (FHFB).Federal Housing Finance BoardThe FHFB was created during the Great Depression to help monitor the twelve Federal Home Loan Banks. These banks were used to increase funds to local lenders in a time where financial stability was desperately needed. The FHFB now focuses on publishing monthly compilations of interest rates, housing prices, loan terms, and organizes the data into such categories as property type, loan type, and lender type. By organizing the data, lenders and economists are able to configure the rate trends in a given region or city. These configurations are then used to project future rates and fluctuations.The Mortgage Index Rate Sets the StandardThe data compiled by the FHFB becomes the information used by primary and secondary loan institutions to determine the types of mortgage available to certain clients. Fannie Mae and Freddie Mac, the two loan agencies that dominate the market, also use the FHFB to set the limit on the loans that are purchased from other lenders. These guidelines set by Fannie Mae and Freddie Mac are also the guidelines generally followed by other lenders, like your local bank.Rates and LoansDespite the averages established by the index rate, you may find your interest rate to be different. Depending on the region in which you live, rates may vary in comparison. For instance, the market in Michigan offers a very different atmosphere than the market and rates found in California. Rates may also vary depending on the type of loan that is taken out. A fixed-rate mortgage will lock in a hopefully low interest rate loan. That interest rate will not change throughout the payment period. While there are options to refinance in case the market rates decrease, a fixed-rate holds the title of its name. However, an adjustable-rate mortgage may start at a lower interest rate than the index. However, depending on the loan agreements, the rate will adjust incrementally over time. The adjustments are done on a percentage with the index rate and usually have a cap limit. If looking toward a second mortgage for investment purposes, rates for a home equity loan usually provide a consistent return. When shopping for a loan, remember that good or bad credit history may affect your rate as well. Depending on your down payment, the amount paid may also send an alarm to your lender about financial stability. In an 80/20 mortgage, the second 20 percent loan will more than likely carry a higher interest rate. Before locking in to any lender, be sure to shop around to find the best rates for you. It really does depend on your current financial status. Author Credit: Eric Paul is a featured financial columnist for online publications. He is a guest writer for Citylight Financial and works for 10-Spaces Consulting. Citylight Financial is a resource for consumers interested in the mortgage process. They provide homeowners with tips about interest rates, mortgage programs, and mortgage lenders available on the web. |
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