Fixed Rate Mortgages – Past, Present and Current Market Status

Mortgage loans and fixed rate mortgage history:

The fixed rate mortgage can be understood as a type of mortgage for which the interest rate has been “fixed”, or made “constant”, for the entire length of the mortgage term. Simply, it a mortgage loan with a constant interest rate, which does not change over the entire tenure of the loan. Mortgage loans are traditional types of loans, and have been in existence since centuries. In the past, moneylenders and “lords” (Europe 16th to 18th century) offered home mortgage loans to “needy” people, often the pheasants and laborers.

However, the middle class families too “borrowed” money to satisfy their financial needs, and later repaid the amount. In such cases, the lender generally decided the “final” fixed interest mortgage rate to be charged for the credit amount lent. The rate of interest was more or less standard, and did not change, but it was at the discretion of the moneylender to “decide” and “fix” the net chargeable home mortgage loan amount, since there was no “controlling authority” which “decided” which moneylender should charge what interest rate, and what kind of benefits the debtors should avail from the creditor, apart from the “loan” facility.

So, to summarize the mortgage loans scenario of the past, the loan procedure and working was not “standardized” or streamlined. There was little or no authority to question the creditor about “fair practice” or “ethical trade” related issues. The rule was quite simple. The moneylender was rich and had surplus money, and was ready to offer some amount at a particular rate of interest. It was for the borrower to decide how badly the credit facility was needed, and whether it was possible to accept the terms and conditions. If “yes”, the lender would give the money, and the borrower repaid the home mortgage loan rate amount as per convenience.

Mortgage and fixed rate mortgage status now:

Things are different now. Democracies and republics play the part of deciding how fixed interest mortgage rate and credit finances should be lent, and recovered. And since the governments are composed of “common people”, financial market has been greatly influenced by how creditors should lend their money, and what kind of protection the debtor should have while paying back the money borrowed. There are regulations in place, along with checks and counter checks, which balance the market economy, and ascertain that creditors do not “harass” their debtors, and also help the lenders to recover their capital in case the debtors fail to redeem. It has to be a two way street, a path which can be used by both the creditor as well as the debtor, in a harmonious manner.

Mortgage and fixed rate mortgage current market conditions:

As far as the current mortgage indices are concerned, mortgage rates are indicating yet another strong move higher this week. This is owing to the focus amongst bond investors, who have strong concerns regarding the budget deficits and inflation. Even with the prevailing market conditions, mortgage rates still remain well below the 6 percent mark. The rates do not pose an impediment to deserving borrowers. The Federal Reserve currently has a $1 trillion deficit in terms of outstanding mortgage payments, and if this deficit is catered to, it is possible to bring the mortgage rates down.

No further announcements are likely to take place before June, this year, by the “Federal Open Market Committee” meeting. Mortgage rates sharply increased last week, indicating that the average 30-year fixed mortgage rate increased up to 5.65 percent. As per the national survey, the average 30-year fixed mortgage is associated with an average of 0.44 discounts, as compared to its origination points. The average 15-year fixed rate mortgage rose to 5.06 percent, and the average jumbo 30-year fixed rate rebounded back to 6.68 percent.

As far as the average adjustable rate mortgages are concerned, the rate decreased to 5.01 percent while the 5-year ARM jumped to 5.20 percent. Everything said and done, the mortgage rates still remain significantly lower as compared to what they were a year ago. At this time last year, the average 30-year fixed mortgage rate was availed at 6.52 percent, indicating that a $200,000 loan would ideally carry a monthly payment of $1,266.77. With the average rate remaining stable at 5.65 percent, the monthly payment for the same loan amount would be $1,154.47, suggesting a savings of $112. 30 per month.

Teresa G. Diggs Administrator
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