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Digital News Report – Industry watcher, Bankrate, says interest rates have moved upwards for the first time this year. The 30-year fixed-rate mortgage rose 2 basis points this week, to 5.15. A basis point is equal to 1/100th of a percentage point per annum (pa).
Why buy now?
Compared to 5 weeks ago rates are still very low. In January the rates fell every week. The rates have not changed much, but the direction may be important. They warn that there are bigger problems than the rate change.
Tax Credit Will End:
Soon the homebuyer tax credit will end. Right now first time homebuyers will receive an $8,000 tax credit. Credits are better than deductions because they are deducted direction from the tax owed. This credit will likely disappear at the end of April 2010 (unless extended). There are restrictions based on your income so talk to a tax professional first.
Federal Reserve Rate:
There are other potential problems. The Fed has been holding down the discount rate in the range of zero to .25 percent. This is the rate they charge member banks. Don’t expect that to last forever. If the Federal Reserve raises their rates, the banks will follow suit.
Fed Will Stop Buying MBS:
Compounding problems, the Fed may stop purchasing mortgage-backed securities (MBS). They originally began buying these instruments to un-freeze the lending market. Once they stop, lenders may run short of money to lend again.
Mortgage Insurance:
The Federal Housing Administration (FHA) is raising mortgage insurance premiums. If you are not buying an FHA backed loan, this may not affect you much.
Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Florida, says if you are planning on buying a home in 2010, get out and start looking at houses. Also, get pre-approved by your mortgage broker or lender.
By: Tina Brown
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