What Affects Your Investment Property Loan Rate?

Posted on: January 17, 2012

Categories: Other Articles

Author: lbuen

230px ARMs Indexes 1996 2006.svg What Affects Your Investment Property Loan Rate?

Investment Property Loan Rate Image via Wikipedia

Adjustable Investment Property Loan Rates Fluctuate with General Interest Rates

Some people stay clear of adjustable rate mortgages because of the lack of stability. Some people may be attracted by the very low rates, but these often last for a year or two and then you enter the sphere of uncertainty. You are fortunate if the interest rates in the general economy drop because they say that an adjustable mortgage rate is dictated by the ups and downs of these rates. But what particular rate or rates are they really referring to? The news say that the Feds are slashing rates or the T-bill rates have taken a nosedive, but you wonder why your mortgage rate has not budged yet. If you are about to sign that ARM contract, then you better know what you are getting yourself into. So let’s get to know what really affects your investment property loan rate.

Why Hasn’t Your Investment Property Loan Rate Dropped When T-Bill and Other Rates Already Have?

If it is not the 10-year Treasury Bill, then what determines your investment property loan rate? Just like the other variable mortgage rates, it is actually based on mortgage bonds or mortgage backed securities. If you study the fluctuations of mortgage backed securities and mortgage rates side by side you may get confused thinking if mortgage backed securities are an important bellwether of mortgage rates, then why do they sometimes head opposite directions?

What Happens to Your Investment Property Loan Rate If The Fed Lowers Rates?

The Fed will at appropriate times bring down short-term discount rates to encourage consumers to spend on short-term credit. This has an effect on some lines of credit, credit card rates and car loans. However, its effect on your long-term investment property loan rate is minimal. Try regularly tracking down mortgage rates and you will discover that the rates usually fall rather slowly. If you trace back the history of interest rates, you will find out that even when the Feds had substantially slashed rates, interest rates did not change much but rather remained as they were when they were set months before the cut. So do not fall hook, line and sinker for mortgage promotional campaigns using the Fed’s slashing of rates as a cue to get an investment property loan, suggesting that mortgage rates will also go down.

So does this mean that rate cuts by the Fed has no significance over your investment property loan rate? No, despite its little effect, it is still somehow linked to mortgage rates, but its effect is indirect and delayed.

Fed Rate Cut and Locking in Your Investment Property Loan Rate

When considering to lock in your loan, waiting for a rate cut by the Fed may not always be a good idea. If you foresee the Fed lowering rates the following week, do not bother waiting for it before switching to fixed rate because, sometimes, a huge Fed rate cut can initially trigger a surge in 30-year fixed rates, before they eventually realign or recover their losses, depending on the present market trend. So instead for waiting for that Fed rate cut, consider locking your investment property loan rate in already to preserve the original low interest rate.

Fed rate cuts and T-bill rate reductions do not necessarily point towards a reduced investment property loan rate. It is the mortgage-backed securities that are the true determinant of mortgage rate fluctuations.

 What Affects Your Investment Property Loan Rate?
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