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Unlocking the World of Mortgage Rates BY | PATRICK SCOTT CHILD, WELLS FARGO Everyone at some point has made that phone call asking for a quote on a mortgage rate, soon realizing that there are multiple options with adjustable rate loans (ARM) and of course fixed rate programs. We also know that rates on all of these programs fluctuate up and down. But what is rarely explained is just what is behind the movement in rates, that is to say what causes them to go up or down. So let’s take a moment to get the scoop on just what the catalyst is for each type of loan. We have been hearing a lot in 2017 about the Federal Reserve and their intent to raise short term rates. Although the move by the Federal Reserve causes prime rate to go up which in turn raises rates on things like car loans, credit cards, and home equity lines of credit, it really has little to no effect on mortgage rates. Rates on fixed rate mortgage loans are 6 HILTONHEADHOMES.COM closely tied to the yield on the 10 year US treasury note. Normally you will see the spread between the 30 year fixed rate and the yield on that note to be about 160 basis points. During the recent economic downturn in an effort to keep long term rates down, the board began purchasing treasuries and placed them on their balance sheet. With these large scale purchases of treasuries, it allowed the yield to stay low and thus kept mortgage rates down. At the most recent meeting of the board it was announced that at some point in 2017 they would begin to reduce that balance sheet. When that happens, it is safe to assume that we will see an increase in mortgage rates. Adjustable rates area a bit different. Lenders have some flexibility as to where they set the start rates for these products. However, most of these loans are indexed to the 1 year LIBOR (London Interbank Offered Rate) with a margin of about 2.25%. So this means that after the fixed period for the ARM is up, the lender will look to see what the libor rate is at that time, add 2.25% to it, round up to the nearest 1/8% and that will be the new rate on the loan. The bottom line for any potential buyers currently in the market is this, at some point this year it is safe to say that mortgage rates will start to go up. Currently projections are for us to see the rate on a 30 year fixed rate about .50% higher by year’s end. To put that into dollars, on a $400,000 loan, an increase of .50% in rates means an additional $116/ month in monthly payment. So if you are serious about buying, waiting will only cost you money. Private Mortgage Banking Focused knowledge and insightful service As Private Mortgage Bankers, we are experienced in high-end real estate transactions and can provide a full-service approach to your transactions, as well as help simplify complex financial arrangements. Wells Fargo Home Mortgage may have the products and programs you are looking for, including: • Jumbo financing up to $6 million available, working with a Wells Fargo Private Mortgage Banker • Fixed-and adjustable-rate mortgages • Product selection for home purchase or refinance Experience a clear difference. Call today. Patrick Scott Child, Private Mortgage Banker 843-686-9342 patrick.s.child@wellsfargo.com www.wfhm.com/patrick-child NMLSR ID 450486 Information is accurate as of date of printing and is subject to change without notice. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N. A. © 2012 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801. AS1751780 Expires 05/2016


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