Interest rates recently took a hike, following the lead of big lender, Wells Fargo. Last week, for a 30 year fixed loan, you could find rates as low as 6.875%. This week? Try 7%. For some, that may not seem like a huge increase, but for luxury home buyers, (homes valued greater than $417,000), it could mean the difference in neighborhood and amenities. This rate increase was first proposed by Wells Fargo, but it seems other lenders will follow suit, and raise rates as well despite the fact that the Federal Reserve rate has not increased.
It seems, the risk for default on a jumbo loans (loans greater than $417,000) is actually a higher risk, as loans for less are backed by the government. In other words, once a lender has you locked into a loan, they make money by selling the loan to investors. Smaller loans are almost guaranteed to be bought by Fannie Mae, or Freddie Mac. Jumbo loans are now becoming more difficult to sell. This means a lender like Wells Fargo, takes a risk when issuing the loan, as they may not be able to sell it in the secondary market. A higher interest rate will provide the company the opportunity to make money with the loan, even if it is unable to be sold.
In other words, banks and lenders will always find a way to make money on loans. It is up to you, as a consumer to prepare and research to ensure that your interest rate, and subsequently your payment is exactly what you need.
Thanks Keisha for the information on interest rates. Do you think that an increase in interest rates is a major reason why I haven't sold my home in Chicago, Illinois. It is in a great location, accessible to public transportation and excellent schools.
My husband and I spoke the other day and decided that if the home did not sell by September, then we will re-finance for a lower mortgage payment. We owe less than $140,000.00 and feel a lower mortgage payment would help us out substantially.
What are your thoughts?
A.Pam
Posted by: pam | August 8, 2007 10:35 AM | Permalink to Comment