Has it been 10 years since you purchased your home? How many times did you refinance to obtain a lower interest rate and how much did it cost in equity or from pocket expense?
Many homeowners have been devastated by our newest downturn in real estate values, and the lenders happen to be traumatized as well. Certainly, it is difficult for individuals who are currently "under water" on their mortgages to possess sympathy for the lending hierarchy that created this dilemma for that housing public. Fortunately, signs of recovery are being observed in many locations. Some major cities and their suburbs actually declared a rise in residential sales volume and in sales costs during 2010. Low interest rates and reduced home values have fostered a fluid buyer's market affected by basic economic "supply vs. demand" principles.
There's additional exciting, good news. The lending hierarchy is starting to make adjustments to its mortgage products that really seem sensible. At the forefront of our new mortgage market generation may be the Automatic Rate Cut (ARC) loan provided by a national bank for most locations in the usa. ARC is offering cutting edge of the market interest rates on all the standard FNMA/FHLMC 30 year and 15 year set rate loan programs including conventional, FHA, and VETERANS ADMINISTRATION mortgages. What separates this mortgage from the norm is that anytime interest rates drop more than 1/4%, the loan is recast in the lower rate. This mortgage product is promoted as "the only loan you'll ever need". Because it is not a refinance, you will find no loan fees or closing costs. ARC simply recasts the eye rate. Refinancing creates a new loan and the payment schedule or amortization starts at year one. The ARC loan does not. When the current mortgage is 5 years into a thirty year amortization, the new rate and subsequent lower payment doesn't change the term so the loan will be repaid in 25 years instead of 30 years just like the refinance. What a financial break that is perfect for the mortgagee!
It is very simple. Why didn't the financial wizards consider this earlier? As did just about everyone associated along with mortgage banking, it is with certainty that they probably did consider this solution; however, there are reasons that many creative innovations aren't introduced to the public. It has much related to how the financial markets are structured. The overwhelming most of standard mortgages are securitized by FNMA and additional institutional investors; investments in these loan pools can be purchased to other investors through investment firms. What makes these investments appealing to end investors is a guaranteed rate of return in the institution creating the security. If the interest rate is on all the loans in the pool is recast at once, which could be the case with the ARC mortgage, the rate of return on investment is reduced and also the entity creating the security cannot justify guaranteeing or warranting the go back to the end investor. This is an oversimplification, but the end result is that certain creative loan products do not squeeze into the financial market's structure.
The ARC loan structure could be applied to standard mortgage products including VA, FHA as well as conventional programs. It simply applies an interest rate adjustment when rates drop below the initial interest rate. No matter how low the price is adjusted, the rate never goes back upward.
Even if interest rates are currently at their own lowest level as some market follower's project, the ARC mortgage is a good safety net. As long as the interest rates and mortgage fees compare favorably with other lenders who don't offer this innovation, it certainly should be considered when searching for a mortgage.
