Ascent Home Loans

Every month the mortgage industry and also the federal government report on whether mortgage applications have increased or decreased. Since the government has started purchasing loans, interest rates have fallen into the mid 4 to 5% range. This has brought about the opportunity many have been waiting for to refinance out from under their option arm mortgages or those that have high interest 30 year fixed loans. It has also given many potential borrowers the chance to buy that dream home they have been eyeing for months.

So why not wait a little longer to see if rates will drop further? What a borrower who may want to refinance or purchase a home must realize is how it stands right now. The government will only be purchasing loans until June of this year. Unless something changes, once June rolls around borrowers who waited will see rates up once again in the high 5’s and low 6’s. If one keeps track of interest rates on a daily basis, they can see that rates have already started to increase in anticipation of the June deadline.

For rates to continue at this level, 2 things need to happen. Either the government continues to purchase loans, or banks aggressively start to lend. So far the latter has not happened. Although banks are receiving money from the governments TARP fund, they are using that money to keep their bottom lines from showing just how bad things really are. In a recent survey, it was reported that 45 percent of the chief executives from banks and other lending institutions answered that they would likely use TARP to cushion their capital base, while 15 percent stated they would use TARP to fund acquisitions. What this means is that many banks are using Tarp funds as a cushion for any future losses on loans and credit cards. Will this policy continue? Until banks and lenders stop having more losses than profits, they will continue this course of tightening their lending standards and hoarding the TARP funds.

Now, what about the government? One thing that is important to remember is that the government will have their own limits too. With the 1.2 trillion dollars they have already used to bolster the financial system, that will eventually start inflation creeping back into the economy. So what does inflation have to do with interest rates? It means rates will be going higher.

What does this all mean to you as a borrower? Now is the time to seriously consider either refinancing or purchasing that home you have been looking at. If the government does not extend it’s policy of purchasing loans, this small window of opportunity will be closing shortly, leaving you with a missed opportunity and higher interest rate.