Your Questions About Home Loan Interest Rates

Ruth asks…

is it good to repay home loan with the monthly savings or should the monthly saving be invested somewhere else?

i have 2 home loans from HDFC which is charging 11.50 interest rate

John answers:

I would refinance to a lower interest rate. You can put the money you save in savings. If you can’t re fiance and want to shorten the term of the loan, make as extra payment to be applied the principal only. Mark in bold letters somewhere on the check ‘for interest only.’ The smaller the principal the less interest you pay and the loan will be paid off sooner. I woked for a mortgage company 15 years and this was always our advice to people who wanted to refinance to change the the term from 30 to 15 years.

Helen asks…

Why are home interest rates rising when the fed keeps lowering the interest rate?

I am a bit confused at why the interest rate on 15 and 30 year mortgages is rising and the Fed is lowering the interest rate. Shouldn’t the mortgage companies be passing the savings on to the consumers? Isn’t that the whole point behind the Fed trying to help our economy? Just wondering. If anyone knows the answer please let me know. Thanks.

John answers:

The Fed has lowered their rate. The objective is to lower the cost of short term money for banks and businesses.

Interest rates on long term loans have traditionally trended inversely to the bond markets. Because of the “crisis” in lending this trend is not so much the case any more. Additionally the turbulence in the stock market, the devaluation of the dollar just add to the concerns of lenders.

Mortgage Banks/Whole Sale Lenders are for profit businesses. The cost of money which a bank lends has gone down. The partially valid excuses of risk, foreclosure and program tightening are really only that- excuses. The losses many of the “Big Banks” incurred were caused by greed and carelessness. The rate of foreclosure of up in many areas of the country, but not all- something rarely mentioned. Another thing glossed over is inflation. Gas, Corn, Soy Beans are up as much as 300% in the open market. (I digress.)

Just a note: Banks are not required to loosen up loan programs. They are not required to make loans to borrowers who pay too much for homes and can’t affford them. Banks choose to lend in these markets because higher risk means higher profit. The type of loans provided to good borrowers, people with good credit, good income, low debt to incomes and reasonable loan to values; are no more difficult to sell/securitize than before.

2.5 weeks ago I could offer my clients 5.125% on a 30 yr fixed today the rate was between 6.00% and 6.25% depending on the investor. What changed in a week—not much. The chairman of the fed said nothing new but nothing good. Large federally subsidized businesses reported lower than expected proifts or losses. And becasue of this instability(?) banks have the power of spin to reap higher rates.

Short term money costs should have gone down. Which means credit card rates should have gone down – they are up….Hmmm.

If you are shopping for a loan as the banker/broker you are working with to look at 7/1 or 5/1 arms. I locked (30 day) several cleints in today at 4.875%. I’d have rather given them a 30 yr fixed had rates co-operated but based on the math this was the best way to go. It may not be the case for everyone but your lender can run the numbers and tell you for sure.

Good Luck

This answer could really be sooo much larger.
Edit: 02/28/09 – Rates lowered by as much as .375% this morning– Good time to call your lenders an look at locking (not a must do).

Carol asks…

Home loan question regarding slow reduction of balance?

My home loan or mortgage is with one of the Australian Banks and My repayments are P&I on a monthly basis. At the start of this year, I has a balance of $ xxx,x70. Now after eleven months and $ 37,000 in repayments, the balance is $xxx,x67 with a fixed interest rate. I have checked the statements and their fees are not irregular, except that I don’t understand what recapitalization is. Why is my loan reducing so slowly?

John answers:

Recapitalization means any balance you should pay while haven’t been paid will be put back to your loan balance and interest will be charged.

If you believe you have made full payment on a monthly basis, you should contact the bank. 11 months with only $3 reduction in principal is not right.

Mandy asks…

Do fixed low rates exist for a home equity loan?

Although I can lock in later on during the life of the loan, I am only being offered a variable interest rate home equity loan. Are fixed low rates being offered when you are accepted for a home equity loan?

John answers:

The mortgage broker WORKS FOR YOU. And not the other way around. Tell him/her that you want a fixed rate loan, or you will look for another broker!!!
If your credit is good, there are good fixed rate loans out there. I closed on a home 1 mo. Ago. Got 4.9% for 30 yrs. With rates at historic lows, go for a fixed rate. Don’t let this guy/gal bs you.

Lizzie asks…

Which nationalised bank have easy process to get home loan?

I am working in a private organization and having salary around 11.5 K. Which nationalized bank have minimum headache to pass the home loan (e.g. clearing days, interest rates, documentation etc.)

John answers:

SBI

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