Here are some good links on the subject.
CnnMoney.com-http://money.cnn.com/2008/02/05/news/economy/bond_insurers.ap/index.htm?postversion=2008020513
FinancialWeek.com-http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080123/REG/676016275/-1/FWDAILYALERT01
International Herald Tribune-http://www.iht.com/articles/ap/2008/02/08/business/NA-FIN-MKT-US-Closing-Stocks.php
Consumer Mortgage Reports-http://www.consumermortgagereports.com/mortgage-bond-insurers-downgrades/
Will Blog For Food-http://willblogforfood.typepad.com/will_blog_for_food/2007/11/collateralized-.html
FindLaw.com-http://library.findlaw.com/2000/Jan/1/131290.html

Travis Mitchell
Debt Free Project

Just wanted to say that at least some ARMs are tied to the fed funds rate. We got a “fixed for five years, and then float for 25 years” ARM that is (we knew we’d be moving within 5 years… and then weren’t able to sell our house).

Our ARM is set to the fed funds rate, and resets in July to that rate +2 points - we’re at 4.125% now, and hoping it won’t change when it resets this summer. Keep your fingers crossed for us

where he talks about the real difficulty of understanding any of these financial questions because the banks are so shrowded in secrecy. This fits also with the apparent unregulated way the credit card industry functions. It is like they are a law unto themselves.

At least in my area, last week 30 year rates were being offered at 5%, or even slightly less. They’ve gone back up a half percent or so since then.

My husband and I jumped at the chance when it hit 5% and are refinancing. Our current mortgage is 6.25%, our credit is excellent, our LTV is good, and we can pay closing costs out of pocket. The end result should be a principal + interest payment of $200 less per month. If the Good Faith Estimate is even close we’ll recoup our out of pocket expenses in 15 or so months.

Apparently lots of other people jumped, too, because the loan dept at our credit union is absolutely swamped. When we locked the rate it was good for 45 days; a customer service rep told me that they were extending it to 60 days because the loan dept was totally overwhelmed.

I’d say that even now you do way better than 7% on a 30 year note. Obviously personal circumstances vary, but if you’re in your house for the long haul, it’s at least worth investigating.

My favorite calculator for fooling around with principal & interest payments under varying circumstances is at

http://ray.met.fsu.edu/~bret/amortize.html

http://www.bankrate.com/brm/news/pf/20080128_issues_a1.asp

Someone asked about things that are affected by the Fed rate cut. Here are a few:

*variable rate HELOCs
*some ARMs
*credit card interest rates
*cash investment yields

However, it is evident from the graphs that many other factors influence mortgage rates aside from the federal funds rate (the rate at which banks make loans to each other).

Mortgage rates more closely will follow whatever t-bill is the closest to their maturity window.

These cuts are supposed to increase monetary liquidity…ie, encourage banks to continue to loan, or keep their current loan portfolio. Credit drying up really puts the brakes to an economy.

There are other factors at work here which might make historical comparisons imperfect.

The Fed is doing everything it can to encourage banks to lend money (by lowering discount rate, accepting junk collateral, lowering Fed Funds, etc.). But, banks are still reluctant to lend, especially for bigger mortgages that they can’t sell off easily. Now, larger or riskier mortgages have to sit on the balance sheets of the banks…. just like the old days.

Although, as has been pointed out, Mortgate rate ups and downs are correlated to the Fed cuts and increases, they are more inflation and risk senstitive. As a result, they more closely follow the changes in the 10-year treasury. But as many banks have been tightening their lending standards and have had less money to loan, the rates will probably be higher than anticipated/hoped for.

I just finished a refinance from 6.75% (22 of 30 years left) to a 5% 15 year. Looking at bankrate you should still be able to get ~5% on a 15 year or ~5.5 on a 30 year fixed. However, beware of the fees! I got a bunch of quotes and the fees varied by thousands. Expect to pay at least another $3000 for closing- that does NOT include the reserves you will need for an escrow account.

Also, try to close with the same title company you should be able to get a discount. It was quite a process… I’ve been thinking that describing the process might make a good guest article of JD is interested.

There is no place or market you can go to find out what Prime is. You would have to check with each of your banks to find out what their prime is currently. Banks can use that to set a higher prime and offer you below prime to make you feel like you are getting a good deal.

Those comments came direcltly from a former bank president who taught my Entreprenureal Finance course for my MBA.

This is a great post. I didn’t realize that mortgage rates were not based on the Fed rate. There goes my dreams of nabbing a 5% fixed 30, with the way these Fed drops have been going