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Adjustable Rate Mortgages: Mortgage Interest Rates

Policy makers at the Federal Reserve, including Chairman Ben Bernanke, met yesterday and elected to leave interest rates unchanged at this meeting of the Federal Open Market Committee. This news was met with relief in the bond markets as it appears the Federal Reserve is going to wait for additional economic data before deciding to increase interest rates further.

Bond traders are not certain that increases in interest rates are done for the year. Current interest rate futures place a greater than 50% probability that we will see another increase before year end as part of the statement from yesterday’s meeting indicated “some inflation risks remain.” The Fed’s preferred economic indicator of inflation remains outside their comfort zone and continued pressure from rising oil prices will remain problematic. This leaves the Prime Interest Rate, which banks and lending institutions use as a benchmark for setting many interest rates, at 8.25%.

Many monthly payments are still going to increase!

Many Adjustable Rate Mortgages, which are better known as ARMs, are tied to indexes that are very sensitive to short term interest rate hikes. Those homeowners with ARMs must still be prepared to see them adjust higher this year as many of the indexes, which impact these interest rates, have risen from when these loans were originated.

Home Equity Lines of Credit now carry interest rates that may exceed 10.25%. Credit card interest rates, which are often tied to the Prime Rate, remain at recent historic highs. More importantly, recent payment increases on everything from gasoline to increases in minimum monthly payments on charge cards and other consumer debt continue to drain consumers’ wallets. Interest Rates for Fixed Rate Mortgages are still very attractive!

Fixed interest rates have fallen to their lowest levels since mid-May. This may offer you the best opportunity to grab the lowest remaining fixed rates of the year. If you’re considering purchasing a home or investment property, this is the time to do so. Waiting could lead to higher monthly payments for the same piece of real estate. Now is the best time to refinance your mortgage in a quarter! Consolidate higher interest rate loans and lines of credit into an affordable fixed rate loan, complete with lower monthly mortgage payments. To learn more about your mortgage options register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”

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