Transcript ADJUSTABLE RATE MORTGAGES THE FACTS, THE

ADJUSTABLE RATE MORTGAGES
THE FACTS, THE FIGURES,
AND
THE FUTURE
Darren Meade
Victory Mortgage Lenders
www.VictoryLenders.net
FACTS ABOUT ARM's
• Two Trillion Dollars Set To Convert
• 40% Of All Mortgages Nationwide ARM's
• 70% Of All Mortgages in Certain Areas
(California)
• Home Equity Loans Average Rate 9%
FACTS ABOUT THE FED
• New Fed Chairman “Big” Ben Bernanke
• Bond Market Weakened
• Known As “Inflation Wimp”
• Will Flex Some Muscle
INFLATION – WORRY TO
BONDS
• Inflation Erodes Value Of
Payment To Investor
• For example:
– Lend Money To Individual
– Individual Pays $2,000 Per Month
– Inflationary Pressure =
Can’t Buy As Much Goods And Services
– Increase Interest Rates On Next Loan
– Inflation Up – Rates Up / Inflation Down – Rates Down
BIG BEN TO FLEX
• “Big” Ben Bernanke Will Flex Some Muscle
• First Set - Flexed Muscles 25bps (March 28)
• Second Set - Flexed Muscles 25bps – (May 10)
• Fed Funds Rate = 5%
• Pause To Reflect And Rest Before Next Set
WHY PAUSE?
• Not Too Hot, Not Too Cold, Just Right
• Fed Has Historically Gone Too Far
• Change Takes 6 Months or More To Filter
Into Economy
• Goes Too Far – Kills Golden Goose
WHERE ARE RATES HEADED?
• Fed Funds Rate =
• Prime Rate
=
5% (May 10)
8% (May 10)
Translating into adjustable rate mortgages:
• Average HELOC
=
9%
• Loan With 6 Month LIBOR =
8%
• MTA
• COFI
• Inverted Yield Curve
BEST CHOICE FOR REFI
• If Adjustable Choose MTA
• Combine 1st and 2nd Mortgage
• Consider 2/1 Buy Down
• Above 80% - Consider PMI Option
• One Rate / Tax Deductible / .125 increase to rate
OVERALL OUTLOOK
• Annual Loan Review With Trusted Mortgage
Advisor
• Adjustable Rate Mortgages Are Good For
Some
• Potential Fed Fund Cutting Cycle In 2007
• Fixed Rates Are Still Great – 9% in 2000