Federal Reserve s Balancing Act Creates Unique Situattion
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Federal Reserve's Balancing Act Creates Unique Situation
Summary
Since June 2004, the Federal Reserve's consistent rate increases, coupled with recent statements by its new Chairman, Ben Bernanke, have opened up unique opportunities for consumers. Typically, adjustable-rate mortgages (ARMs) have rates significantly lower than fixed-rate mortgages. However, for many, these rates have now converged.
Article
Tampa, Florida, February 21, 2006 ?" The Federal Reserve's steady rate hikes since mid-2004, along with recent comments from new Chairman Ben Bernanke, have created a rare chance for consumers. During a Senate Banking Committee hearing, Bernanke refrained from specifying how high interest rates might climb to stabilize the economy. Economists predict at least one more increase at the end of March, marking Bernanke's first meeting as Fed chief.
"There are two possible mistakes. One is to go on too long and one is not to go on long enough," Bernanke stated, highlighting the challenges of this balancing act.
At the House Financial Services Committee, Bernanke echoed his Federal Reserve colleagues' January assessment, indicating that interest rates may continue to rise. Due to these gradual increases, fixed and adjustable-rate mortgage rates have converged and, in some cases, even inverted.
"For the first time in five years, many lenders offer fixed-rate mortgages nearly matching adjustable-rate mortgage (ARM) rates," said Karen C. Pooley, President of Star Mortgage, Inc. "This allows many who avoided refinancing because favorable rates were only available for ARMs to now secure better fixed rates. Even those whose ARM rates have spiked recently may refinance at lower fixed rates."
Previously, in early 2004, Federal Reserve Chairman Alan Greenspan had suggested that many Americans were overpaying for fixed-rate mortgages and could benefit from considering ARMs. A Federal Reserve study back then indicated significant potential savings from ARMs. However, the Federal Reserve's 14 rate hikes since June 2004 challenge this view today. Typically, ARMs have rates more than 1% lower than fixed rates, but now they are almost identical for many consumers.
Millions of homeowners with fixed-rate mortgages at 8% or higher could save thousands annually by refinancing before the upcoming Federal Reserve meeting on March 27-28. Some might believe it's too late and rates are prohibitive, but numerous programs from Licensed Mortgage Brokers dealing with wholesale lenders offer fixed rates in the 6%-7% range, below the Prime Rate.
"A 1% rate drop on a $200,000 loan can decrease annual payments by over $1,500," Ms. Pooley explained, "and often, we can lower rates by 2% or more."
"They can typically recover the total cost of the new loan in 2-3 years or less," she added, "with little or no out-of-pocket expense."
Economists predict the Fed will increase rates by another quarter percentage point to 4.75% at their next meeting, with an expected half-percent rise in home loan rates by year-end. While there's disagreement on future rate increases, most agree the rate-raising campaign might soon end.
According to Ms. Pooley, "This opportunity likely won't last long, so anyone aiming for below-Prime fixed rates should act quickly before it's gone."
Star Mortgage, Inc., a licensed mortgage broker in Tampa, Florida, offers free mortgage analysis and consultations. They specialize in the Florida market. More information and an online application are available at [Star Mortgage](http://www.starmortgagebroker.com) or by calling 813-882-8878.
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