Your Guide to Credit and Personal Finance

Fed holds interest rates steady
By Marcie Geffner – LendingTree.com

The Federal Reserve decided Wednesday to keep its key interest rate unchanged at 2 percent. That’s good news for home buyers and homeowners who feared an increase in the benchmark federal-funds rate might trigger higher interest rates on home loans.

The Fed held steady because it is trying to balance the different pressures on the U.S. economy. On the one hand, the Fed suggested in its statement, the economy has been strong enough to continue growing and withstand the current risks. But on the other hand, the Fed statement noted, “the upside risks to inflation and inflation expectations have increased” and “uncertainty about the inflation outlook remains high.” Inflation, which refers to higher prices, is one of the Fed’s chief concerns.

The Fed doesn’t directly set the interest rates that borrowers pay on home mortgages, auto loans or credit cards. But the Fed’s actions indirectly affect the rates that lenders charge on those loan products. Nonetheless, interest rates that you’ll pay on your loans could change even though the Fed decided to hold to its current course and neither raise nor lower its key rate.

Homeowners who have an adjustable-rate mortgage (ARM) should be especially diligent about the outlook for higher interest rates. Find out when your ARM will reset and how much your monthly payments might increase at that time. If you’re concerned about the risk of even higher payments in the future, you might want to refinance your ARM with a fixed-rate mortgage.

If you’re shopping for a home or want to refinance your current mortgage, be sure to discuss the interest rate outlook with your loan officer.

The bottom line for borrowers is that higher interest rates on home loans may still be on the horizon despite the Fed’s inaction this week.

© 1998 - 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Is now a good time to buy a home?
By Marcie Geffner - LendingTree.com

Ask some of your friends, relatives and neighbors whether now is a good time to buy a home, and you’ll probably get conflicting answers. Some may say yes since home prices have fallen, but others may caution you against buying now since prices may continue to fall.

The right answer is that buying a home should depend more on your own personal situation than on market conditions–or other people’s advice.

To assess your own situation, you’ll want to weigh the pros and cons of buying now or waiting and hoping that prices fall further. Here are six factors to consider:

● Employment. If your income is steady, you may feel confident buying a home now. But if your job feels insecure or you might relocate to take a different job, you might not want to commit to buying a home just yet.

● Mobility. If you’re planning to move within a few years, buying a home now could turn out to be a costly choice if prices in your area are declining. But if you’re planning to stay put for a while, a home could be a good long-term investment.

● Budget. If you aren’t certain you can afford to own a home, buying now might not be realistic. But if you’ve assessed your budget and feel you’re financially ready to handle a house payment, plus property taxes, homeowner’s insurance and maintenance costs, becoming a homeowner may make sense for you.

● Prices. If you already own a home, you may be hesistant to sell it at today’s prices. But keep in mind that if you sold your current home for less money now, you might be able to buy your next home at a lower price too.

● Rent. If you’re renting and your rent is affordable, you may want to hold on to your apartment. But if rents are on the rise in your area, you might value the security of a fixed housing payment. Trading your apartment for a home also could give you several additional tax deductions.

● Interest Rates. Remember that higher interest rates can wipe out the benefit of lower home prices. For example, if you had a 30-year, fixed-rate loan of $300,000 at 5.75 percent, your monthly payment would be approximately $1,751. If instead, your loan amount was only $280,000, but the interest rate was 6.5 percent, your payment would be $1,770, which would be $19 more per month.

© 1998 - 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

FHASecure program expanded
By Marcie Geffner - Lending Tree.com

The Federal Housing Administration (FHA) has announced an expansion of its FHASecure loan program, which is designed to help homeowners who can’t afford the monthly payments on their existing subprime adjustable-rate mortgage (ARM).

The FHASecure program allows borrowers to use an FHA loan to refinance a subprime ARM if the original lender agrees to reduce the amount the homeowner owes as an alternative to foreclosure. The lender may require a separate loan for repayment of the “gap” between the amount owed and the reduced amount. Homeowners who have used the FHASecure program were able to cut their mortgage payments by $400 a month on average, according to the FHA.

The expanded program is scheduled to take effect in July 2008 and will be open to:

● Borrowers who were late on three monthly mortgage payments, either consecutively or three times in the previous 12 months. A loan-to-value (LTV) ratio of 90 percent is required. (The LTV ratio is applied to the refinance and based on a new appraisal prepared by an FHA-approved appraiser.)

● Borrowers who were late on only two monthly mortgage payments, either consecutively or twice in the previous 12 months. An LTV ratio of 97 percent is required.

Like all FHA-insured loans, the FHASecure program requires mortgage insurance, which is paid for by the borrower and protects the lender in case the borrower defaults on the loan. The expanded FHASecure program will give borrowers who are more creditworthy a price break on their mortgage insurance.

Homeowners who want to refinance a subprime ARM or other type of loan, but don’t meet the FHASecure guidelines may be able to utilize another FHA loan program or obtain a non-FHA loan.

The FHA is a federal government agency within the U.S. Department of Housing and Urban Development. The agency has helped 220,000 borrowers refinance their mortgages since September 2007 and plans to stretch that figure to 500,000 borrowers by the end of 2008.

© 1998 - 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.