Personal Finance Blog By MoneyRates - August 2008

Should I Convert to a Fixed Rate Mortgage?

It is mentioned everyday in the newspaper, on TV, or around the water cooler at work: variable interest rates are making it difficult for home owners to afford to pay their mortgage. If you are in an adjustable rate mortgage (ARM), it may be time for you to convert to a fixed rate mortgage.

30 Year Fixed Rate Mortgage
The most common and well known fixed rate mortgage is 30 year fixed mortgage. This mortgage has a fixed interest rate for the entire 30 year term of the loan. This is the most conservative mortgage providing absolute rate stability but is most likely offered at higher rates than the variable ARMs. Along with the slightly higher interest, its payments include both principal and interest causing monthly payments to be higher than other available loan programs

30 Year Fixed Interest Only
If you want the stability of a fixed rate mortgage rather than the variable rate of an ARM, but need to minimize the monthly payment increase, the 30 year fixed interest only mortgage may be the program for you. This combines the conservative fixed rate mortgage with the interest only option allowing you lower monthly payments, while maintaining rate stability. The most common structure of this loan has a fixed interest rate for the full 30 year term while allowing you to make interest only payments for the first ten years.
Keep in mind that your lender will still want to have the entire balance of your loan paid off by the end of your 30 year mortgage term, so at some point, most likely in 10 years, your monthly payments will increase to include principal as well. Talk to your trusted lender to see if a conversion to a fixed rate mortgage is right for you.

Source: Guidetolenders.com

Moneyaisle.com and Zionsdirect.com are two online CD auctions where visitors can compete in a bidding process to find rates on CDs. A comparision made today on the two sites shows that the auction process (while very cool to watch) returns much lower rates than the rate aggregator sites:

5-year CD rates

5-year CDs on Moneyaisle.com ended up with a winning bid of 4.65% today vs 5-year CD rates listed on Money-Rates.com which are as high as 5.30% with another 25 banks over 5.00%

1-year CD rates

A recent auction on Zionsdirect for a one-year CD ended up with a winning rate of 3.60% vs 1-year CD rates listed on Money-Rates.com where the highest rate is 4.75% and another 40 banks are over 4.00%

There is no comparision in finding rates on the auction site versus the rate aggregator sites. The auction sites are also extremely limited in the number of banks that participate in comparision to the rate aggregator sites which lists hundreds and hundreds of different banks.

The Olympics are over and there is debate over which country won? Was it China the host nation who won the most gold medals or the United States which won the most medals overall? How about a third choice?. The Bahamas was the country that won the most medals per capita, which may be the fairest way to measure the success of a nation's Olympic program.

Olympics Ranking by Population per Medal

1 Bahamas 153,725

2 Jamaica 254,939

3 Iceland 304,367

4 Slovenia 401,542

5 Australia 447,844

6 New Zealand 463,717

7 Norway 464,445

8 Cuba 475,998

9 Armenia 494,764

10 Belarus 509,777

11 Trinidad and Tobago 523,683

12 Estonia 653,802

13 Lithuania 713,041

14 Bahrain 718,306

15 Latvia 748,474

16 Mongolia 749,020

17 Georgia 771,806

18 Denmark 783,531

19 Slovakia 874,124

20 Croatia 898,284

21 Hungary 993,091

22 Netherlands 1,040,332

23 Azerbaijan 1,168,245

24 Kazakhstan 1,180,041

25 Switzerland 1,263,586

Source: Wikipedia

A lot of media attention has been directed to the new legislation aimed at supporting the mortgage heavyweights Freddie Mac and Fannie Mae. While the cost of the bill to the US taxpayer has been hotly debated, the other parts of the bill aimed at the individual homeowner have been largely ignored. The bill which passed the House of Representatives 272-152 and the Senate 72-13 before being signed by President Bush contains the following items which could aid homeowners:

• Increases the size of mortgages Fannie Mae and Freddie Mac can buy up to 115% of the local median price to a cap of $625,000
• Provides up to $7,500 in tax credits for first-time homebuyers with additional tax benefits
• Helps qualified homeowners refinance existing mortgages with better terms
• $4 billion in aid pledged to depressed neighborhoods

The most important part of the bill is the unprecedented power that the Treasury Department has to inject capital into Freddie Mac and Fannie Mae to ensure the viability of the US housing market.

Intrade.com is the prediction market where members can buy contracts on the likelihood of certain future events occurring. Whether it be the next US President or the Academey Awards this site will let members bid on the outcome. A contract for Barack Obama winning the US presidency will cost a member a price of 60.8 for a future value of 100.0 if Obama is elected president. Just like the stock market prices go up and down by the minute as relevant news is occurs. One of the most recent additions to the site is the trading on whether or not certain banks will fail before December 31, 2008. The most recent bids include:

Downey Financial 55.0

Bank United Financial 45.0

FirstFed Financial 30.0

First Horizon Bank 30.0

Wachovia Bank 20.0

Washington Mutual Bank 20.0

Zions Bankcorp 20.0

US Bank Corporation 15.0

Regions Financial 15.0

M&T Bank Corporation 15.0

Is this information relevant or insightful? Nobody knows for sure, although it will be interesting to follow the prices for the remainder of the year.

View the live Intrade News Feed