Get Ready For An 8 1/2% Mortgage

Well, if there's one good thing about high interest rates, it further drops home values and makes going in with cash that much sweeter. plus, further depreciating home values hurt the financials, and I'll be looking to short those guys once again after the Dow runs to 12,000. I actually need to lock in a student loan fairly soon. Why tap into the Roth when I'm making 50% returns on my money and I can borrow at 6-8%? I say let inflation take care of your long term debts people. That's how Uncle Sam is going to pay down it's debt obligations, so you may as well join the club. The bad news is that we're on the hook for freddie and fannie, so with further depreciating home values, we will be taxed via inflation when the government issues more junk treasuries for the federal reserve to "buy" up with their fake money that they create out of thin air by creating a credit on their books. Be long gold people. I'm buying when it drops below $900 an ounce or the Dow hits 12,000. And don't confuse this rally for a bottom. There's ALOT more pain to come. Trust me. I'm 19 and I've seen it all before. =)

Lock in a fixed rate, not just an ARM! The long period of cheap, easy mortgage money is over. It was abused by lenders and borrowers, and the huge house prices were the result. The prices will have to come down to levels that are affordable to the person who has a 5-10% (minimum) down payment, and can actually afford to pay down the P&I on a monthly basis with the income they have when they get the loan. We are not there yet, and the system still wants to allow people to borrow money on shaky terms, on houses that are still too high. So we have a ways to go to bring everything into balance. 8 1/2% by historical standards is not high, and that is where we are headed for the long term! I'm no genius, but thank God I was able to put down 20% on a reasonable house back in 2003, and got a 5%, 15 year loan.

Considering we have gone from 5.875 to almost 7% in about 30 days you are probably not far off!!! With FHA the only game in town for many home buyers and congress fooling with the rules there it could get even more interesting in the months to come.

Foreclosures and its cascading effects, damages to the economy can be stopped by using technology to replace greedy lenders and their collaborators and thereby make mortgages affordable at 5% for 30 yrs fixed for almost all by direct internet based applications/lending by GSE,FHA as most mortgage financing already guaranteed by them & charge additional risk based premium from more risky borrowers non qualified borrowers may be allowed to stay as tenant Save economy

Save economyby technology to minimize Foreclosures and its cascading effects, damages to the economy can be stopped by using technology to replace greedy lenders and their collaborators and thereby make mortgages affordable at 5% for 30 yrs fixed for almost all by direct internet based applications/lending by GSE,FHA as most mortgage financing already guaranteed by them & charge additional risk based premium from more risky borrowers non qualified borrowers may be allowed to stay as tenant Save economy

Cheryl is so hot!

Adi - You're dreaming

The interest rates are devastating news to me in the middle of building a home. We are solvent, owe no money, but could finally afford to build and now this.

I believe that the way that things are going, 8.5% for a 30 year fixed might be correct. The federal reserve can help here, though. The 30 year fixed is influenced by inflation expectations. Right now, the fed is not helping to minimize or reduce inflation - with the fed funds rate at 2%, people are scared of pending inflation, as they should be. If the fed RAISES short term interest rates, it will help to push down long term rates, because the market will believe that the fed is serious about fighting inflation and the dollar can stabilize. When this occurs, the longer term rates will fall. If, however, the fed stands pat as inflation rises - the dollar will continue to weaken and long term rates will continue their trend upward. Does it not make sense to some of you that the fed raising the fed funds rate can make long term rates fall? Well, long term rates are higher now with the fed funds rate at 2%, then they were when the fed funds rate was at 5.25%.

Ms. Casone, I am not sure I agree with your logic. Interest rates on 30 year mortgages is determined by trading mortgage-backed securities. The main factor driving their pricing is outlooks on inflation. When the Fed raises the short-term rate, mortgage bonds usually increase in price (= drop in rate) because it is deemed favorable by the market. Housing prices and the economy do play a factor in the pricing of bonds, but bad news in the economy is usually good news for bonds. Thus, if your analysis is correct - and the Fed does it's job by fighting inflation - mortgage bonds could very likely be the winner instead of the stock market (which hates high Federal Funds rates)... leading to consistently low 30 year mortgage rates. If inflation spills into wages, then I would agree interest rates will head much higher. Up until now, that has not happened. Dennis Kline Executive Loan Officer Pathfinders Mortgage, Inc. Portland, Oregon 971.327.8054 Direct

My parents borrowed for their home in the late 60's and loans were in the double digits. They survived, and so did the economy. So what if you can't buy a new i-phone every year, or a new car every two years. Strap down and-- as the t-shirt says--"suck it up". The US has produced a generation of softies, time for the tough to get going! (Oops, I guess that means we have to take personal responsibility for our actions.)

Suzanne, I agree with you! I like your logic.

I always hear this ridiculous spiel that it's better to own than to rent. Well I've owned for the last 5 years, and my financial position is worse than it was 5 years ago when I got in. I would much rather pay $2k/month in rent than that in mortgage+property taxes+HOA and lose money on top of that. Plus, my quality of life was better in an apartment. I payed $625k to live next to a bunch of thugs and losers(and this is Orange County btw, not Riverslime). Thank you Southern California.

Ms. Casone, While in today's market 8.5% 30 yr mtg might seem high, I rememver when in the late 70's and early 80's the prime rate was around 24% and mortgage rates where the 10 to 12% range. In the early 1980's when rate where still high Fannie Maw was promoting the ARM loan with lower rates and my lender and customers took advantage of this offering and Fannie Mae alone ended up owning 1000's of homes. Back than and even today sadly some people just don't need to own a home unless they can truely qualify at market rates. Granted housing plays a important part in our economy but if u look back a few years for whatever reason we where giving away funds to people who should not have recived a mortgage and today we are paying for it. It is my understanding the 30 year mtg is priced off the 10 yr Treasury.

Tom- the Fed can try to fight inflation right now, and it sure as heck might win that fight. However, if you look at the history of the Fed, they are not concerned with seriously fighting inflation. One man, that's it, ONE MAN- Volcker, has been the only Fed chief serious about fighting inflation. It led to his being loathed by Washington, Wall Street, and just about everyone else when he kept the Fed Funds at double digits for longer than ever had been or will be done. We're not facing that kind of inflationary pressure, but make no mistake, Bernanke will do what Greenspan did- Keep rates low a little bit too long, because they want the economy to grow, the president to look good, and wall street to be happy. That's why raising rates at this point in the game is a Dream, Bernanke has things he'd rather be doing with his power, like making everyone happy and helping the economy rebound in growth, so that inflation can take over and put us through this trend again in approximately 3 years.

If one is making payments, they don't own. If your not an owner, your still renting, just from the bank. Paying higher taxes in an area that is somewhat secure has its drawbacks. Depends on vision.

lets see, 8.5%. Thats not so bad. I remember buying my first house @ 11.25% in the late 70's. It forced me to buy a house I could actually afford, instead of the one that I really wanted. Re-fi'd it twice in the late 80's before I sold it. (lower payments allowed me to pay it off in 1994) Point is, that if Interest rates stay this low, then the value of the dollar will be so bad that everything, (and I mean EVERYTHING) we buy will be so expensive, we will become a nation that is "house poor". Inflation will occur, regardless of the interest rates, when so much of what we buy comes from overseas, and must be purchased in ddelavued dollars. Better to "fix" the dollar (And not paying almost 1 trillion dollars for foreign oil would be a good start, but thats another topic) first.