Interest Rates will raise

A CLEAR PRESIDENTIAL WINNER EMERGED, OIL FINALLY DROPPED BACK UNDER THE $50 PER BARREL MARK, AND A SUPER-SIZED JOBS REPORT HIT THE SCREENS. Rates for various mortgage products moved up by .125% to .250%.
ON THE ELECTION FRONT…MORTGAGE BONDS WERE UNDER SOME SELLING PRESSURE AS STOCKS RALLIED, FOLLOWING THE ANNOUNCEMENT OF GEORGE W. BUSH EMERGING AS THE WINNER OF A HEATED AND VERY CLOSE RACE. Kerry’s concession finally removed the uncertainty from the financial markets, which had been benefitting bonds and keeping rates low. Less uncertainty= good for stocks, bad for bonds. With the election over, the bond market’s focus will shift back to economic fundamentals like job creation and the long term economic outlook.
ON THE OIL FRONT…AN INCREASE IN U.S. CRUDE OIL INVENTORY BROUGHT SOME CALM TO THE OIL MARKETS WITH THE PRICE OF CRUDE OIL NEAR A TWO MONTH LOW. Declining oil prices eased the bond-friendly concern that soaring energy costs will dampen economic growth.
ON THE JOBS FRONT…FRIDAY’S HIGHLY ANTICIPATED REPORT WAS A BLOCKBUSTER. While 175,000 new job creations were expected, a whopping 337,000 were delivered. Further- the strong revision of the September number, showing the previously reported 96,000 jobs was actually closer to 139,000, resulted in bonds taking it on the chin. If the jobs number had been lower, anxiety about the economy’s rebound would probably have stopped the Fed’s plans to raise its target borrowing rate as much as the market is expecting….traders are pricing in about a 50% chance that Alan Greenspan and his team will raise the rate to 2.25% by the end of the year after a .25% increase

Picking the right mortgage

Interest rate and term of loan are fixed in advance and do not change over the length of the loan.
PRO: Security of having monthly payment that will not change, even if rates increase.
CON: Stability has a cost, in the form of a higher rate; payments don't go down if rates fall.
BEST FOR: Risk-averse borrowers.
TIP: Tried and true; still the best option for borrowers whose top goal is security of knowing their payment will never change.
Examples
30-year fixed: Most traditional of the traditional loans.
Rate: 5.875 pct. Monthly payment: $883
40-year fixed: By stretching the repayment period, the payment is lower. But equity builds more slowly, and the borrower's total cost over time is much greater. Rate: 6.25 pct. Monthly payment: $848
15-year fixed
Much higher payment, but much shorter payoff period; lower payback over time. Rate: 5.25 pct. Monthly payment: $1,200
ADJUSTABLE
Term of loan is set in advance, but after an initial period, the rate varies.
PRO: Lower initial rate means lower monthly payment, or the ability to afford a larger loan; if rates fall, the payment falls.
CON: If rates go up, the payment increases.
BEST FOR: Those who want a lower initial payment; can tolerate the risk of increased rates; are likely to sell or refinance before the rate adjusts.
TIP: Understand how the rate is adjusted, such as by being based on U.S. treasury bonds.
Examples
1/1: Rate fixed for one year, followed by annual adjustments. One of the lowest available.
Rate: 4.875 pct. Monthly payment: $790
3/1: Intermediate option for adjustables; rate fixed for three years, then adjusts annually.
Rate: 5.0 pct. Monthly payment: $801
7/1: Rate fixed for seven years, then adjustable annually. Longer preadjustment term carries higher beginning rate.
Rate: 5.375 pct. Monthly payment: $836
HYBRID
Initial period of level payments--typically five to 10 years--followed by refinancing, loan payoff, or conversion to straight fixed-or adjustable-rate loan.
PRO: Lower initial rate; steady monthly payment for an extended period.
CON: Rates can be higher at time of refinancing or conversion; during the initial period, payment doesn't fall if rates do.
BEST FOR: Those wanting a midrange option between fully fixed and adjustable.
TIP: Can be a better fit than traditional loans.
Examples
Interest only: Initial payments are for interest due, so balance does not decrease. Lower payments initially, but the total payout can be much higher. For six-month initial period--Rate: 4.0 pct. Monthly payment: $498
Hybrid: Begins as fixed or adjustable, then converts into opposite. For five-year fixed rate, converting to 25-year adjustable--Rate: 5.5 pct. Monthly payment: $848
Balloons: After initial period, typically five or seven years, loan balance must be paid off; could mean selling the property. Rate: 5.5 pct. Monthly payment: $847