| In 2004, the Federal Reserve made it clear that | | | | have an affect on homeowners with adjustable |
| short-term interest rates would be increased at a | | | | rate mortgages (ARMs) tied to indexes that are |
| "measured pace" because of a fluctuating US | | | | based on short-term interest rates. This includes |
| Dollar, unstable oil prices and an evaluation of | | | | the 11th District Cost of Funds, 12-Month |
| other economic indicators. In an effort to curb | | | | Treasury Average (MTA), London Inter Bank |
| inflation, the Federal Reserve has kept its word | | | | Offering Rates (LIBOR) and others. |
| and continued to raise rates, including one | | | | This doesn't mean that everyone with an |
| incredible streak of 17 consecutive hike | | | | adjustable mortgage is in immediate danger. Some |
| announcements following meetings of the | | | | indexes are more volatile than others. COFI |
| FOMC. | | | | moves much slower than other adjustable rate |
| As a result of these interest rate increases, | | | | indexes, while the LIBOR fluctuates with more |
| millions of homeowners with adjustable rate | | | | volatility. But remember, when an ARM adjusts, |
| mortgages will feel the sting of corresponding | | | | the new interest rate is a sum of the borrower's |
| increases in their annual adjustments. Consumers | | | | fixed margin plus the current rate of the index |
| with revolving debt accounts tied to the prime | | | | the mortgage is tied to. In addition, slower moving |
| rate have already felt the impact, as the prime | | | | indexes, like COFI and MTA, are still likely to reach |
| rate always rides 3% above the current Fed | | | | the levels of their volatile counterparts in a |
| Funds Rate. | | | | market where interest rates are rapidly climbing. |
| And although an increase in the Fed Funds Rate | | | | It may just take them longer to do so. |
| does have a direct impact on financial markets as | | | | Consumers who foresee paying an interest rate |
| a whole, mortgage rates are affected rather | | | | that is significantly higher may want to consider |
| indirectly, and may go up or down based on the | | | | refinancing to take advantage of the stability of a |
| prevailing perception investors have of current | | | | fixed-rate mortgage. |
| economic statistics and their reaction to the | | | | This is also a good time for borrowers who -- due |
| Federal Reserve's after-meeting statements. | | | | to a poor credit score -- started out in an |
| In general, when economic data indicates we have | | | | adjustable rate loan to transition into a fixed-rate |
| a slow-down occurring in our economy, investors | | | | loan if they can. If a positive track record of |
| tend to sell off stocks and reallocate that money | | | | making mortgage payments on time and in full |
| to the safe haven of bonds and mortgage-backed | | | | can been established, there's a very good chance |
| securities. The purchase of mortgage-backed | | | | the borrower may now qualify for a loan with a |
| securities drives interest rates down. When | | | | lower interest rate. |
| economic data indicates growth in the economy, | | | | However, as with any decision to refinance, it is |
| the stock market typically rallies and | | | | important to take the terms of the existing loan, |
| mortgage-backed securities sell off to fuel that | | | | the cost of the new loan, and the borrower's |
| stock market rally. This drives mortgage interest | | | | long-term needs into consideration. A qualified |
| rates up. | | | | mortgage professional should help weigh out the |
| Our current market reflects the reaction of | | | | options by providing a clear assessment of |
| investors having read between the lines on | | | | available loan programs for the consumer. |
| comments made by the Fed. This will continue to | | | | |