Mortgage Rate News

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Right now, interest rates are near record lows. The Fed funds rate is extremely low right now. The Fed has made noises about a new benchmark, rather than the Fed funds rate, but either way, things could be changing toward the end of 2010 and the beginning of 2011. Last quarter’s GDP data made it clear that the economy is starting to grow — even though unemployment remains an issue. Gather Little By Little offers this observation on GDP and inflation:

However, if the GDP keeps going up, inflation will surely come back sooner or later. Unfortunately, the best way to stop inflation is to increase the intraday interest rate. By doing so, all interest rates go up and this motivates (read: forces) consumers to spend less and concentrate on their mortgage loan and other debt. This is how the FED can slow down the consumption and inflation at the same time.

This means that the Fed is going to probably raise rates, either the Fed funds rate or use some other means to control inflation, at some point toward the end of the year. While this does not have a direct effect on fixed mortgage rates (which are tied more closely to the 10-year Treasury note), it can have an immediate effect on variable mortgage rates and on the rate you pay for revolving debt. And, eventually, as the economy heats up, investors will move toward riskier assets and out of Treasuries, forcing yields higher — and even fixed mortgage rates will rise.

This means that 2010 might be a good year to get your financial house in order. It is probably a good year to refinance, and it is definitely a good time to pay down debt. With interest rates low, you can save money on your mortgage interest when you refinance, and with rates low more of your revolving debt payment goes to the principal. If you want to save money on your debt, it is best to do what you can before 2010 draws to a close. Make your plan now.

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In these economic times, many people are wondering what they need to do in order to make sure that they can pay their most important bills. It is prudent to make sure that you can afford your mortgage payment before you buy. And you should carefully consider your options before you buy a home. However, with the current climate, many people have found that they can’t afford all of their bills, no matter how careful they may have been initially when purchasing a home. As a result, it is not uncommon to find that some home owners are trying to decide which bills to pay.

One of the things to do is to make payment priorities. And one of the most important payments you need to make is your mortgage payment. This is because your mortgage payment is secured with your home — if you don’t pay, you may end up without a place to live.

Secured vs. Unsecured Debt

One of the main issues to consider when you are trying to decide which payments are most important to make is secured vs. unsecured debt. Secured debt represents loans that are made with collateral. When you fail to pay, it is possible for creditors and lenders to repossess what it is you are borrowing. This is true of homes, cars and even items that you may buy via rent to own. When you stop making payments, lenders can keep everything you have paid so far, and then seize the property in an attempt sell it in order to recoup losses.

Unsecured debt, on the other hand, is not connected to collateral. Credit cards and certain personal bank loans are unsecured. If you do not pay, there is not property connected to the loan, and isn’t subject to seizure. However, creditors can sue you for payment, although you usually do not have to sell your home in order to pay your debts.

As a result, it is important to consider payment priorities, making sure that you make payments on secured debt first, in order to better protect your property.

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One of the issues surrounding the current loan modification program is the fact that, in some cases, just entering a trial loan modification can affect your credit score. This can be very disheartening for those who are struggling to keep current on their mortgages, making payments on time and meeting the guidelines for trial loan modification in their quest for permanent loan modification.

Here is what CNN Money reports on the loan modification process and its impact on credit scores:

During this period, industry guidelines call for loan servicing companies to report borrowers to the credit bureaus according to their status before they entered the modification – either current or the number of days delinquent.

However, borrowers’ accounts are also designated with a code indicating they are in a partial payment plan.

The coding alone can impact credit scores, which measure a consumer’s financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.

Just what banks are reporting to the credit bureaus remains a matter of some debate. Some servicers have been inconsistent in following the guidelines, according to a Treasury official. Also, they don’t always report that their current borrowers have entered modification plans.

Clearly, this is a real problem. Many people, through no fault of their own, are struggling with mortgage payments. Some of these folks have seen a cut to their hours. They may not be able to make their current mortgage payments, but if they see a loan modification to 31% of their income, they can manage. However, once they get into trial modification, they are hit with a “partial payment” designation in their credit file.

Clearly, some sort of new designation is needed, since this one can impact credit score. For those that are already delinquent on their mortgage payments, the story is different. But for those who are current, and trying their best, it is very unfair to ding their credit scores in this way.