An increasing number of borrowers chose to shorten their mortgage term during the first quarter, according to Freddie Mac's Quarterly Product Transition Report.

Of the borrowers who refinanced an existing 30-year fixed mortgage, 34% went with a 15- or 20-year fixed loan, the highest share since the first quarter of 2004.

Many homeowners were able to actually shorten their term and keep mortgage payments relatively similar because of the lower rate associated with these products, along with the fact that their starting rate was much higher prior to refinancing.

Meanwhile, 84% of borrowers who had a hybrid adjustable-rate mortgage chose to refinance into a fixed-rate loan program during the first quarter, continuing an ongoing pattern away from the uncertainty such products carry.

Overall, fixed-rate mortgages accounted for more than 95% of refinance loans, thanks largely to the ultra-low mortgage rates still on offer today.

You can get 1 credit report from each of the three major credit bureaus (TransUnion, Equifax, and Experian) once every 12 months from www.annualcreditreport.com. However, this site doesn't provide credit scores, or more specifically FICO scores.

Many web sites offer generic credit scores, but you need to think about why you want your credit score. If you're planning on making a major purchase, you probably want to check your FICO score and not just any credit score. If you really want to be sure that you are seeing the same information that your lender is judging you by, then ask the lender which score they are using and then purchase that exact score, or set of scores. For example, it's typical for a mortgage lender to check all 3 FICO scores when evaluating you for a loan. However, some auto lenders may only use 1 FICO score to qualify you for an auto loan. The point is, it's worth it for you to find out and make sure you're seeing the credit score that your lender is using to evaluate you!

Also, be cautious of web sites offering "free" credit reports. Many of them are only free for a short period of time and then you get charged. Always read the fine print before buying a credit product that you may not need.

Yes, we're talking about the greatest rivalries of all time.

So what's better, the almighty 30-year fixed-rate mortgage or an adjustable-rate mortgage (ARM)?

Obviously this isn't the easiest question to answer, despite fixed mortgages accounting for more than 90 % of the purchase money mortgages and refinance loans being originated nowadays.

Both Last 30 Years

Both loan programs are based on a 30-year amortization, meaning both will take 30 years to pay off, assuming you hold them until maturity.

The major difference is that the 30-year fixed is fixed, while the ARM is adjustable.

The big question is what type of ARM are we talking about?

These days, it's quite common to take out an ARM with a fixed-rate period, such as a 3/1, 5/1 ARM or a 7/1 ARM.

The above examples would be fixed for the first three, five and seven years, respectively, before becoming annually adjustable. They're known as hybrid ARMs.

This means you've got some breathing room before the rate adjusts up or down.

ARMs Go Up and Down

While this is true, mortgage rates are still near record lows, and will more than likely rise in the future.

So an ARM you obtain today will likely adjust higher at its first reset, meaning your monthly mortgage payment will go up.

But will you stay in the home for 5-7 years, or will you move? And will you refinance before that time? If there's a good chance you will, an ARM could make more sense than a 30-year fixed mortgage.

Does the Discount Justify the Risk?

Just make sure you're getting a good discount for taking on that risk.

Currently, 30-year fixed mortgage rates are hovering around 4.75 %, while the 5/1 ARM is pricing around 3.50 %.

On a $250,000 mortgage, you're looking at a savings of $182 per month with the ARM, or nearly $11,000 over the first five years of the loan.

Is it worth the risk? Well, that depends on a number of factors. As mentioned, if you don't plan to stick around long or hold the mortgage for the full term, it could be.

But interest rates are likely heading higher, so you may pay the price later once the ARM adjusts higher. And it may be more difficult to refinance in the future...

Risk appetite, age (retirement plans), job status, investment strategy, and downright stress will also come into play, so be sure to do plenty of math and compare different scenarios before deciding on anything! 

Jay Brinkmann, chief economist for the MBA, said the huge trade group is spending a lot of time researching employment data to determine who will be the first buyers back in the housing market. National data shows lower unemployment rates overall for people with college degrees even though this group experienced all-time unemployment highs in November, Brinkmann said. Since then, their employment levels have improved, making this cohort the one to watch, he said. When it comes to "who is going to be coming back into the market, we look to education." "Employment is most likely to improve among college graduates even though unemployment overall is still high," Brinkmann said. "There were more jobs added among (the college graduate) segment, so this will be the first group to buy homes."

(Source: HousingWire)

Home buyers appear ill-prepared to take out a home loan, answering basic questions about loan information wrong nearly half (46%) of the time according to a Zillow Marketplace survey. In fact, 44% admitted they are not confident in their knowledge of home loans or the process. Zillow®, with Ipsos, surveyed prospective home buyers, asking them to gauge their own knowledge of home loans, and asking basic questions about home loan facts. For example, more than half (57%) of prospective home buyers who were polled do not understand how adjustable rate loans (ARMs) work. When asked if rates on 5/1 ARMs always reset higher after five years, the majority of home buyers answered yes. In fact, the rate will adjust to the prevailing rate after five years, even if rates have declined(iii). Currently, many borrowers whose ARMs have recently reset have lower rates than they did when they took out the loan. Additionally, one-third (34%) of the respondents who are prospective home buyers do not uderstand that lender fees are negotiable and that they vary by lender. They believe lenders are required by law to charge the same fees for credit reports and appraisals, when in fact home buyers can save money by shopping for the lowest fees. "Most people wouldn't jump out of a plane if they didn't know how to use a parachute, yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about home loans," said Zillow Director, Erin Lantz.
(Source: The Wall Street Journal)

74.6% of homes affordable to median-income households
Source: NAHB/Wells Fargo Housing Opportunity Index 

Housing affordability hit a new record high in the first quarter, surpassing the previous high set in fourth-quarter 2010, according to an index released by the National Association of Home Builders and Wells Fargo today.

The Housing Opportunity Index found that 74.6 % of new and existing homes sold in the first quarter were affordable to families earning the national median income of $64,400. That's up from 73.9% in the fourth quarter of 2010, and it's the highest level recorded in the more than 20 years the index has been measured. 

Michigan, Indiana and Ohio were among the most affordable states.

BEST AND WORST - The average home price in North Dakota increased +17.3% (in aggregate, not per year) over the 5-years ending 3/31/11 compared to an average drop of 55.9% for homes in Nevada. (Source: OFHEO)ource: National Bureau of Economic Research, Department of Labor)

 
SINCE THE RECESSION ENDED - The last official recession in the USA was 18 months in length and ended on 6/30/09 or 23 months ago. The unemployment rate in the nation was 9.5% on 6/30/09 and was 9.0% on 4/30/11. (Source: National Bureau of Economic Research, Department of Labor)

VERY LOW -The average interest rate nationwide on a 30-year fixed rate mortgage was 4.55% last Thursday (6/02/11), just 0.38% higher than its all-time low. From January 1978 to September 1991, the average interest rate nationwide on a 30-year fixed rate mortgage never got below 9%. (Source: Freddie Mac)

LOWER RATE, CHEAPER PAYMENT - Borrowing $100,000 at 9% over a 30-year period requires an $805 monthly payment. Borrowing $100,000 at 4.55% requires a $510 monthly payment. (Source: BTN Research)

 

WHAT IS YOUR PERCENTAGE? - As of 3/31/11 the average American has total household debt equal to 114% of the size of his/her annual after tax income, down from 120% as of 3/31/10. (Source: Federal Reserve)
 

In a June 15 forecast, MBA economists said they expect rates on 30-year mortgages to average 4.9% in July, August and September and climb to an average of 5.2% during the final three months of the year.  The forecast calls for a gradual rise in rates all next year, to an average 5.7% during the fourth quarter of 2012.

Mortgage rates held steady this past week, remaining at or near their 2011 lows for the second week in a row.  The weekly Freddie Mac survey showed rates on 30-year fixed mortgages averaging 4.5% with an average 0.8 point, unchanged from the prior week.

Rates on 30-year fixed mortgages hit an all-time low in Freddie Mac records dating to 1971 of 4.17% during the week ending Nov. 11, 2010, before rebounding to a 2011 high of 5.05% in February.  At this time a year ago, the 30-year mortgage averaged 4.69%. Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes. 

Source: American Banking News

More than half - 53% - of home owners recently surveyed say they want Congress to leave the federal tax credit for home owners alone, according to a recent opinion poll at HousingPredictor.com. Those surveyed also say they want Congress to instead focus its efforts on instituting other tax advantages to stimulate the real estate market. 

Pete,

People need to know how amazing you are! I really felt taken care of by you,
throughout the whole process. Buying a house is extremely overwhelming and
daunting especially when you are a first time home buyer. I am very grateful for
everything you have ever done particularly the years before that you had helped
us know what we could afford and always having my best interest in mind.

That is a priceless quality in a lender. You Rock Pete!

Anastasia S.

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Hi Bill,

I have to say my experience with you and all of A2 mortgage was excellent. Can't think of anything I wish could have gone better and I certainly can't argue with the end result either.

I will certainly recommend you to anyone looking for a house.

Thanks again,

Dan S.