Mortgage Rates Tips

Finding Today's Current Mortgage Rate

If you have been mortgage shopping for some time now, you know how often mortgage rates can change. To keep up with the current mortgage rate, all you have to do is find a trustworthy mortgage resource and stick with it.

There are certain websites and publications that you can visit or subscribe to that can provide you with detailed information regarding both the current mortgage rate as well as how the current mortgage rate is likely to change in the future. Sites such as Bankrate.com provide you with more than just the current mortgage rate.

You can also view trend graphs and other expert opinions regarding how the current mortgage rate may change in the near future. If you are interested in educating yourself about how mortgage rates vary and why, these types of resources are the answer for you. To find today's current mortgage rate in your area, pick up the local newspaper and then the phone and call one of the many mortgage brokers that is sure to advertise locally.

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Have We Seen the Lowest Mortgage Rates

As mortgage rates have begun to come back up over the past year or so, many people are asking, have we already seen the lowest mortgage rate we will see for some time? The answer is a simple one. Yes, mortgage rates were at their lowest point in over 40 years recently. Yes, they have risen slightly since then. This does not mean that they will continue to rise. We may still have even lower mortgage rates coming in the future.

There are many factors that influence mortgage rates and nobody can predict how each will change in the future. They main key to maintaining the lowest mortgage rates in maintaining home values. Mortgage lending is investment by the lenders. If their investments keep paying off for them, they will do what they can to maintain the lowest mortgage rate they can offer. However, if home values begin to fall, their investments wont be panning out quite as much.

Therefore, they will need to raise rates to make up for the slower market. We very well may have seen the lowest mortgage rate we will see for some time, but rates are still very low. If you are interested in getting a new mortgage or refinancing your current loan, you should still take advantage of current mortgage rates to save on your home expense.

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Negotiating the Lowest Mortgage Rate Possible

Many people believe that mortgage rates are static and not subject to negotiation. They couldn't be more wrong. The truth is that most mortgage brokers make their income based on commissions from the loans they originate or sell. Also true is that lending institutions would just as soon get cash up front on a loan than to lend it out over 30 years.

Because of both of these factors, finding the lowest mortgage rate is often a matter of negotiation. When you are working with a mortgage broker, ask about different options to get the lowest mortgage rate. They may suggest a ‘buy down' or a shorter term on the loan. Either of these factors can reduce your rate, but will that get it to the lowest mortgage rate you can find? Maybe not.

Keep asking about incentives, credit worthiness, and other questions regarding lower rates until the broker simply cannot provide any more answers. Once you have gone through this process with one broker, the smartest thing to do if you truly want to get the lowest mortgage rate is to go to another broker. Bring the lowest quote that the first could give you and shop it around to see who can beat it. Shop online as well as locally. Typically, you will have more success online, so check with these websites first and you will get the lowest mortgage rates available.

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The Best Way to Lower Mortgage Rates

Saving money is appealing to everyone. If you ask the average person what their single largest expense each month is, it will invariably be their home mortgage. Today, there are many ways to reduce your mortgage payments and specifically to reduce your mortgage rates. Refinancing is by far the best way to go about this, and here is some info on how to get your refinance started.

Refinancing your higher rate loan is the easiest way to quickly reduce your rate and payments. Refinance mortgage rates are at all time lows and more people each day are taking advantage. If you have had your current mortgage loan for more than 5 years, chances are great that there are mortgage rates available to you today that can greatly reduce your mortgage costs.

Look around for the best available mortgage rates for your specific loan. Be prepared to provide a broker with all of your current mortgage and home information so that they can prepare the best possible mortgage rate quote for you quickly. Mortgage rates change from day to day so don't waste a single one paying too much for your home expenditure.

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Buying Down Mortgage Rates

When you are shopping for mortgage rates with different lenders, you will find that many offer you the option of buying down your rate. Sometimes, a buy down can reduce your rate up to a whole percentage point. As low as current rates are, they can always be lower. A rate buy down is an easy concept.

Basically, mortgage brokers make a different amount depending on what rate they sell to you – the higher the rate, the higher the commission. Many lenders allow their brokers to substitute their commission for an up-front buy down. This way, the broker makes their commission and you get a better rate. As much as mortgage rates can vary, it is difficult to say specifically how much it currently costs to buy down a mortgage rate. The fees will vary based on the lender.

Be sure to ask about this option when you are working with a broker or lender. Usually, you can pay between .25% and 2% up front to buy your rate down between 1/8th and over a full percentage point. If you are going into your home purchase or refinance with some extra equity or cash on hand, think about buying down your mortgage rate to reduce your monthly payments.

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The Current Mortgage Rate is Always Changing

When you apply for a home loan, you need to know what the current mortgage rate really is. Home mortgage rates are always changing, and they can also be affected by things like your credit score and how much money you have for a down payment. A lot of companies advertise low home mortgage rates, but those are the absolute lowest rates, and are only for the most qualified people. They might be the current mortgage rate - but not for people with a credit score less than 750 who don't have 20% to put down.

If you really want to know what your current mortgage rate will be, you'll have to talk with a lender and get preapproved. A preapproval shows you which of the home mortgage rates offered will be the one you'll actually be paying. Then you'll know whether you want to proceed with the home loan at the current mortgage rate, or whether it would be better if you waited a while and worked on improving your credit. Raising your credit score and saving up for a 20% down payment can help you get better home mortgage rates, which will save you a lot of money over the life of the loan.

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How To Qualify For The Lowest Mortgage Rates

When searching for that perfect home, there are a few things that you need to know.

First of all, you need to search for a home that is within your budget. There are mortgage payment calculators available online to use to figure out what a monthly mortgage would be based on amount financed.

It is important to have good credit. The higher your credit score is, the lowest mortgage rate you will qualify for. The interest rate is important because that will affect your payments. The higher the interest rate, the higher your payment will be.

Shopping around at different banks will allow you to see what bank mortgage rates are and which bank offers lower interest rates for you.

Searching for a new home is a lot more challenging than just finding that home that suits you. You need to be able to afford the home.

Qualifying for a loan that is higher does not mean that you should jump on buying a home that is more expensive. It needs to meet your budget. You do not want to be struggling to make ends meet or at risk of losing your home.

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Guarantee The Lowest 30 Year Fixed Mortgage Rates By Boosting Credit Scores

There's one secret to landing the lowest 30 year fixed mortgage rates: Boost your credit scores.

Today's mortgage lenders rely heavily on your three-digit credit scores, numbers that tell them how well you've handled credit in the past. If you've missed credit card payments, paid late on your auto loan payments or defaulted on a personal loan, your credit score will suffer. If you have a history of paying all your monthly bills on time, your credit score will be higher.

Lenders reserve their best 30 year fixed mortgage rates for those borrowers who have the highest credit scores. In the popular FICO credit score system, the best scores are 720 or higher.

Getting this score is relatively simple: You have to make all of your payments on time every month. Your score will rise, too, if you pay down your credit card balances. Lenders will view you as less of a risk to default on your mortgage loan if you're not saddled with a significant amount of credit card debt.

This all takes time. There is no way, depsite what Interent pop-up ads might promise, to boost your credit scores overnight. But if you commit to responsible spending habits, you'll be rewarded with the lowest possible 30 year fixed mortgage rates.

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Things to Look for in an Adjustable Rate Mortgage (ARM)

There are five prime components in most Adjustable Rate Mortgages (ARM) which must be understood and examined. One that, at first, appears to be the best option may, in fact, be the worst of your choices if ALL components are not reasonable. Here is a brief guide to help you become informed and enjoy some money-saving knowledge.

• Start Rate : The initial interest rate you receive at closing. While important for debt-to-income qualification and future increase reasons, it also might be the least critical of the components. This rate will be charged until the first adjustment date. If you choose a one year ARM, the start rate is important, but surely neither critical nor overly advantageous. However, if your loan is a five year ARM or a 5/1 (five years fixed, then becoming a one year ARM), the start rate can be very important and beneficial. Make sure the start rate is discounted enough from the 30-year fixed rate to warrant the future risk of increases.
• Index : The third party rate used as the basis for interest rate adjustment calculations. Ask your prospective mortgage lender to give you the past ten years' history on any index used by a loan you're considering. They have this information and will give it to you. The most popular of these are the U.S. Treasury Bill index, the LIBOR (London InterBank Offered Rate), and the 11^th District Cost of Funds (COF) rate. These have been used for many years and normally have reasonably slow changes, which is good for you. If you consider any ARM using an index different from these, be careful. Examine the past ten year history of the index and see how their rates changed. If you find a program that works for you and it's a true third party index, you should consider this loan.
• Margin : The percentage that will be added to the Index at the adjustment periods to determine the new interest rate for the coming time frame. This component is very important and will affect your rate greatly in the future. Margins vary widely, often from 2 to 4 percent. Question any margin that appears to be too high or just ignore that loan and move on. While you should have “adjustment rate” protection, a high margin could force your rate up very quickly even if your index remains reasonable.
• Adjustment Rate Cap : The maximum your interest rate can increase at any adjustment date. This is important protection for you and should not exceed 2 percent per rate adjustment if you choose a one year, a 3/1 (three years fixed), or 5/1 (five years fixed) ARM. Should you select a true three year ARM (rate adjusts only every three years), you might find an adjustment cap of 3 percent, which should still be acceptable. Any adjustment rate caps higher than these (or a loan without an adjustment cap at all) should probably not be considered. How does this work? If your current rate is 4.75 percent and your index and margin at the adjustment date add up to 7.50 percent, your maximum new rate would be 6.75 percent because of your 2 percent rate cap.
• Lifetime Rate Cap : The maximum rate than can be charged over the life of the loan, regardless what the market rate may be. For long term considerations, this may prove to be the most important component. The most common life rate cap is 6 percent. How does this cap operate? If your start rate was 4.75 percent, you can never pay more than 10.75 percent for the term of the loan, typically 30 years. While this is a critical protection, paying an interest rate of 10.75 percent would put a severe strain on almost everyone's cash flow and budget. If you look at a loan with a lifetime rate cap in excess of six per cent, either discard this choice or determine that there are one or more major rate protections included.

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Rates With Government Mortgages

While there are benefits that the Federal Housing Administration (FHA) and the Veterans' Administration (VA), their interest rates are not usually much higher than the regular market. In the case of the FHA, your interest rate will usually be a bit higher because their fee for guaranteeing your loan (0.5%) is added to your regular monthly payment of principal and interest. Therefore, regardless of your balance, if the current rate offered for FHA loans is equal to the normal market rate, your payment will still be slightly higher.

VA mortgage rates are also right around market. The Annual Percentage Rate (APR) you will see on your Truth-In-Lending (TIL) statement will be a bit higher because the VA charges a “funding fee” instead of an ongoing guarantee fee. For instance, a veteran using his/her “exemption” for the first time and putting no money down will pay a funding fee of 2.15 percent of the amount of the loan. This rate fluctuates depending on how many times a veteran has used this benefit and how much money being put down on the new purchase.

There is another issue with VA loans that can sometimes pose a problem for you. The majority of closing costs (title examination, settlement fees, lender fees, etc.) are classified as “non-allowable”, meaning that the buyer is prohibited from paying them. Since these fees are normally charged by these entities even in a VA closing, this puts the obligation on the seller to pay these. As you can imagine, sellers are less than thrilled about this and many will simply refuse to sell to a VA buyer. However, many buyers and their real estate brokers will negotiate deals with sellers to more or less include these fees in the selling price. In reality, this means you, as a buyer, will have much less wiggle room to pay less than the asking price for a home you want to buy.

The note interest rates of both government mortgage products will be at or right around market. You will pay just a bit more with these loans to pay for the guarantees they provide to mortgage lenders and to receive the benefits they offer.

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Best or Worst Time to Apply or Lock an Interest Rate?

There is no best time to apply for a mortgage loan. You need or want one when you need or want one. If you want to refinance, you will have some choices of timing. But the market will be what it is, always outside of anyone's control. In a rapidly increasing interest rate market, you should not apply for a mortgage loan if you have an option. The problem is usually you do not have such a choice. If the rates are still “affordable” and you wish to purchase a home, you will just have to make the best decisions available.

The best time to lock a mortgage rate is usually all the time. However, in a declining rate market or an unusually stable one (like the period from 2001 through 2005), a rate lock is not critical. In fact, you might even end up with a rate lower than the one available at your application submission date. If your lender of choice during declining market conditions wants to charge you a substantial fee for locking a rate, you might want to pass. However, in a rising or unstable market, locking a rate is always an excellent idea. If you are buying an owner-occupied home and your debt-to-income ratio is “tight”, you should definitely lock your rate to prevent any increases that could actually limit your ability to complete the purchase. It simply is not worth this risk when you can avoid it.

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Interest Rate Increases After Application

There are times when mortgage interest rates remain stable for weeks at a time and other periods when fluctuations, particularly increases, can occur daily, sometimes even hourly. As Clint Eastwood said “Do you feel lucky today?” You don't want your mortgage loan interest rate to depend on pure luck. It can be much too expensive for most of us. Here is how to evaluate rate conditions.

Do your homework. Learn what is happening in the mortgage interest rate market when you are ready to apply. This information is available in all daily newspapers, via the Internet, and available if you shop around and ask potential mortgage lenders what the current trends are in the market. If you have any concerns about a potentially increasing interest rate market, demand that your mortgage source “lock” your rate at application. You want a sixty day lock or forty-five days at a minimum. You must close your loan within the lock period to be guaranteed this rate.

You may have some protection if any delays in closing your loan cannot be attributable to you. First, make sure no delays are your fault. Be sure to provide all information and documentation needed by your lender as soon as it is requested. Be diligent with your lender. Ask for updates in the completion of your application file regularly. In a declining rate market, you might “win” a lower rate. That is wonderful, obviously. However, in a rising market, the results could be disastrous for you. Protect yourself. Lock your rate if you have the slightest question if the rate might increase before you are formally approved for the mortgage loan.

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How to Know an Interest Rate is “Legitimate”

If you are shopping for a new mortgage, you need to be very careful and specific. Be aware that most of the people with whom you will speak generate most or all of their weekly income is generated from originating and closing mortgage loans. While the overwhelming majority of mortgage brokers are honest, dedicated professionals, there are some people that will attempt to continue your discussion by giving you a rate that is legitimate today but may fluctuate tomorrow. While this is perfectly legal, this rate is basically useless to you.

Here is an effective and safe (for you) way to protect yourself and get a good interest rate, too. First, learn what the current market rates are before you shop. For instance, if the market rate for a 30-year fixed rate mortgage is 6.00% and a mortgage officer tells you he/she can offer you 4.75%, one of two things is true: 1) the loan officer is not being truthful, or 2) there are multiple points, probably 4 or 5 at least, involved in this loan.

Second, if you are given a rate that appears to be fair (including any points to be paid), ask the loan officer how long this rate will apply to your application. If there is no rate lock, or this rate has a lock of less than thirty days, this rate, once again, is probably useless to you. If rates are projected to decline in the next 30-45 days or are expected to be very stable, you might consider taking the risk of letting your quoted rate “float”, hoping it will decline at your approval date or at least remain the same.

If mortgage rates are unstable or increasing, request the rate to be locked for 60 days before you make a formal application. If there is a fee to lock the rate you have been quoted or if the rate increases slightly for this lock (one-eighth to one-quarter per cent), make a decision on the reasonableness of this cost. Under these market conditions, it is almost always in your best interest to take the rate lock to avoid any unpleasant surprises. Finally, do not accept a purely oral guarantee of any rate lock. Always get confirmation of your rate lock in writing. No exceptions. This approach will protect you and make the mortgage loan process a more comfortable experience.

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Adjustable Rate Mortgage Interest Rate Changes

You should understand all the components of an adjustable rate mortgage (ARM) loan to be clear on how the rate calculations work. It may seem a bit confusing at first, but the math is pretty simple once you understand the process. Here are the components and how they work:

• Start Rate : The initial interest rate you receive at closing. It will remain constant per the terms of the loan until the first adjustment date. A one year ARM means the start rate will be constant for 12 months. A three year ARM mandates that the start rate will remain in effect for the first three years of the loan.
• Index : The third party rate used as the basis for interest rate adjustment calculations. The most popular of these are the U.S. Treasury Bill index, the LIBOR (London InterBank Offered Rate), and the 11^th District Cost of Funds (COF) rate. These have been used for many years and normally have reasonably slow changes, which is good for you.
• Margin : The percentage that will be added to the Index at the adjustment periods to determine the new interest rate for the coming time frame. Margins vary widely, often from two to four per cent. On sub-prime loans, they can increase to five or six per cent.
• Adjustment Rate Cap : The maximum your interest rate can increase at any adjustment date. The most common adjustment rate cap has historically been two percent. You could find higher adjustment rate caps with three or five year ARM's since the rate is fixed for longer than the most common one year time frame. How does this work? If your current rate is 5.25% and your index and margin at the adjustment date add up to 8.00%, your maximum new rate would be 7.25% because of a two per cent rate cap.
• Lifetime Rate Cap : The maximum rate than can be charged over the life of the loan, regardless what the market rate may be. The most common life rate cap is six per cent. How does this cap operate? If your start rate was 5.25%, you can never pay more than 11.25% for the term of the loan, typically 30 years. If your loan has a two per cent adjustment cap, you could not reach your lifetime cap until at least the third adjustment period (e.g., four years in a one-year ARM, fifteen years in a three-year ARM, etc.)

You can see why it is so important to understand all components of the ARM's you are considering. Once you do, you will be able to compare the varieties to determine which is best and most comfortable for you.

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40-Year Fixed Rate Mortgage Loan Information

The 40-year mortgage loan is a rather new animal. The primary benefit to using this product: Your required monthly payment will be less than a 30-year fixed rate mortgage loan without the risk of an Adjustable Rate Mortgage (ARM) loan. In the highest cost markets of the Northeast and the West Coast of the U.S., using this loan can be of benefit. Those buyers with a small down payment can also be helped with a 40-year loan, which will keep their payments more affordable.

The interest rate, however, will be higher than a 30-year mortgage loan. You can expect to pay a premium of one-quarter to one-half per cent higher if you choose a 40-year loan. Because of this higher rate and the added ten years to pay off, the impact on your principal balance, particularly in the first years of the loan, is minimal. If you're looking to build up equity as quickly as possible so you've got more available cash for your next purchase, you will be disappointed with this loan.

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Better Interest Rate With a 15-Year vs. a 30-Year Mortgage Loan?

You will receive a lower interest rate if you select a 15-year loan. Your savings should be between one-quarter and one-half percent. It's possible to get an even lower rate if some lenders are trying to generate more 15-year loans.

The potential savings goes beyond the discounted interest rate, however. If you can afford the 15-year payment – which is not close to double the 30-year payment, only about 40-50 percent higher – you will save thousands, possibly hundreds of thousands of dollars in interest over the life of the loan. The quicker amortization (pay back) makes a huge difference in the interest cost, regardless of the rate of your loan.

Therefore, even if your goal is not to pay off your mortgage loan, a 15-year term is very advantageous to you. If your cash flow permits, you will have a lower interest rate and save a large amount of money if you choose a 15-year mortgage loan.

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Better Interest Rate If Purchasing or Refinancing Real Estate?

There is normally no interest rate difference whether you are purchasing or refinancing real estate. The mortgage loan itself does not distinguish a difference in a purchase or refinance. However, there are times when you might find a “deal” just when you need it.

For instance, a lender may be having a “no closing cost sale” that might fit into your plans. While the interest rate will probably be a bit higher than market, you could save over a thousand dollars using this feature. Also, in a period of declining rates, you could refinance multiple times without incurring repeat closing and settlement expenses.

You might find that one or more lenders want to close more purchase-money (real estate purchases, not refinances) mortgage loans and offer a slightly discounted interest rate (one-eighth to three eights per cent) for home buyers. Conversely, during a period of declining rates, some lenders might offer periods of discounted interest rates, particularly for refinances to generate more volume. They believe they are covered, as rates decline, because they hope to be at market rate soon after closing.

In normal conditions, however, there is not usually a difference in interest rate whether you are purchasing or refinancing. The rate differences are normally attached to the type of mortgage loan product (15 year fixed, 30 year fixed, one year ARM, three year ARM, etc.) you select, not to your purpose for it.

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Fixed Rate vs. Adjustable Rate Mortgage (ARM) Interest Rate

At times, there is little difference between Adjustable Rate Mortgage (ARM) start rates and Fixed Rates. Sometimes, there are significant rate spreads between the two. In times of overall low rates, the differences tend to be minimal. Since all rates are low, there is only so much “room” between the rate level and zero. Therefore, as in the years 2002 through 2006, all mortgage rates were very low (5-6%), leaving little space to have a large difference between fixed rates and ARM's.

However, in periods of either rising and/or high rates, the difference between the two can be of serious importance, sometimes two to three per cent. This occurs because the published fixed rate must protect the mortgage lender from even further rate increases as much as possible, while the ARM lender can publish a lower discounted rate, knowing that the rate adjustment terms will allow them to increase the rate in the future, bringing them closer to market rate.

If you believe you will keep your home and the mortgage for the long-term, you may be better selecting a 30 year fixed rate loan so you can budget properly and will not be subject to future unpleasant rate increases. Should you be unsure of how long you'll keep the real estate and/or if the difference in interest rates is small, you might also be wise to choose a fixed rate product.

In periods of rising rates or high fixed rates, you might benefit greatly from an ARM. But – you must examine the ARM parameters and terms carefully. To compare the two choices properly, use the following analysis:

• How often does the loan adjust (re-price)? One, three, five years?
• What is the Index? – the third part rate that is the basis for your rate changes. The most common are the U.S. Treasury Bill Index, the LIBOR (London InterBank Offered Rate), and the 11^th District Cost of Funds (COF).
• What is the Margin? – the percentage that will be added to the Index to come up with your new rate at every adjustment period.
• What is the Adjustment Rate Cap? – the maximum your rate can increase at each adjustment period. This cap is often two per cent.
• What is the Lifetime Rate Cap? – the maximum your rate can increase above the start rate over the life of the loan. This cap is often six per cent.
• Do some math. Using a pencil and paper, make at least a quick calculation of your future cost IF the rate increases to the maximum at every adjustment period until it reaches its lifetime cap. Then use that maximum rate to compare to the fixed rate you can get today to compare.
• Based on the amount you want to borrow, do your savings in the first years of the ARM loan offset the future increases (at this worst case scenario) when compared to the cost of the fixed rate loan?
• Compare the fixed rate and start rate of an ARM. Then look at the ARM worst case (lifetime maximum) versus the fixed rate percentage. Is the difference significant to you? In your favor?

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Interest-Only Mortgage Summary

An interest-only mortgage loan can be a major money saving product or a loan that could generate financial problems in the future. Much depends on the type of person you are when it comes to money management and general finances. You should also carefully consider the terms available to you.

Here are some reasons to consider an interest-only (IO) mortgage loan:

• You can pay principal when it is financially convenient for you. The lender is not looking for a normal principal and interest payment, so you can choose how much to pay each month.
• You can buy a bigger, more expensive home. If you locate the right IO product, you can qualify for a higher mortgage and, therefore, a higher priced home.
• You can invest your excess cash. If you can earn more by investing the monthly cash you'll save and get a larger return than the tax benefit of paying down principal, an IO might make sense for you.
• If you're in a rapidly appreciating real estate market and you might turn over this property fairly quickly, you could enjoy rapid profit (as a capital gain, not regular income) upon the sale of the house.

• Contrary to some public opinion, an IO loan may not be less expensive than a normal mortgage loan. Those that start less than market often have escalation language that will schedule an interest rate higher than market in the future.
• An Adjustable Rate Mortgage (ARM) that starts at a low interest rate may escalate quickly to market or above-market interest rates.
• If you don't have the financial discipline to pay an amount to principal on a regular basis, you may be very disappointed at your profit and/or equity position when you sell this property.

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30-Year Mortgage Rates Expected to Continue Rising

The current trend of rising home mortgage interest rates is expected to continue. The inching-up began in the third quarter of 2005 and has steadily risen at a quarter percent per hike.

Economists do not predict a serious market slow-down as a result of the increses as rates are still historically very low and affordable. The Adjustable Rate Mortgages (ARM's) usually gain favor when fixed rates rise but the increases have not caused significant concern in the market.

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