Karl's Blog Report

Just a quickie blog today!

The FED CUT RATES, but why did mortgage rates go up? 

Answer: It's a point that's always worth repeating:

Ben Bernanke and the Federal Reserve do not control mortgage rates

When Corporate America is struggling (or expected to struggle), investors don't like to be over-exposed to the stock market because of its variable nature.  By contrast, the fixed return of the bond market provides a little bit more safety.  As demand for stocks wanes during a recession, therefore, demand for bonds can pick up.  

Mortgage rates can fall at times like this because rates are "born" from the price of mortgage bonds.  The higher the price, the lower the corresponding rate.  So, as investors leave the stock market and buy bonds -- including mortgage bonds -- the increased demand raises prices and pushes mortgage rates lower.

All of this happens independent of the Federal Reserve -- it's a natural function of the stock and bond markets.  The Federal Reserve does not control mortgage rates but it does control the Fed Funds Rate.  And both tend to respond to economic weakness.

This was an article for .

Karl Holub

The year is 2008 and the mortgage industry is not going to get any better. But wait! Interest rates are still very low, currently at 5.875% / 5.930 APR. The rates have not been this low since September 2005. Why is no one buying? I will attempt tell you why. It's because the media has scared everyone into thinking the real estate market stinks! Well there is some truth to that but not nearly as much as the media would like you to believe. Property Values are down, but really, as we all know, a matter of time that the real estate market came back down to earth. Nice neighborhoods and good schools will always be in demand and less desirable areas will take longer to sell.

According to Fannie Mae and Freddie Mac over 2 trillion dollars of adjustable rate mortgages will be due this year in 2008. When these adjustable rates come due homeowners will see a jump in their monthly mortgage payment. Solution: Refinance before the ARM adjusts. The ARM adjustment will mean significantly higher payments and will be a shock to most people, possibly causing them to miss payments. Adjustable rates seem to be great initially, but the 30 year fixed is always the better option. "It Makes Sense!!!" Many borrowers thought the lower rate was best because it would allow them to buy a bigger home, one they truly couldn't afford. What they were not shown in their paper work by their mortgage consultant or bank was what the payment would be after that ARM adjusted. This why I'm such a big supporter of the 30 year mortgage!! Sit, do nothing, or refinance when rates go down.

Not until 2009 will real estate start to bounce back, but it doesn't mean there aren’t good deals out there to be had; a good realtor can help you find the right home for the right price, in an area where the value will increase. If you're feeling rushed odds are that the realtor is: A. Looking out for themselves, B. Needs Money fast, or C. Doesn’t care about you! If you need a realtor, I work with a couple realtors who are very professional. If you are looking in the Lake County, Illinois please contact Chuck Shattuck of Century21 Kreuser and Seiler. Chuck is the utmost professional and provides service second to none! He is ranked number 23 out of 5600 Century21 agents in Illinois. Chuck has all the right ingredients to make a difference. Click for Chuck's Brochure