Introducing California Mortgages Online: Mortgage Refinancing Redefined

(2005-03-16) Pete Wagner

Refinancing and mortgages have become the hot topic of discussion during recent years due to a precipitous decline in the short and long term interest rates. A creative California broker has programs for nearly all buyers and people needing refinancing with all of the latest money saving loan options.

Refinancing and mortgages have become the hot topic of discussion during recent years due to a precipitous decline in the short and long term interest rates. Though the nation has struggled with declining jobs and anemic growth since 2000 coupled with a stock market collapse, housing prices and home ownership have continued to increase. Even experts question the reasons for this, but most agree the basic factors are as follows: New and creative mortgage options for first time home buyers that allow up to 100% financing, interest only mortgages that reduce monthly payments and a huge number of minorities and immigrants jumping on the home buying bandwagon.

A creative California broker ( http://www.californiamortgagesonline.com ) has programs for nearly all buyers and people needing refinancing with all of the latest money saving loan options.



With all of the excitement around the housing market and low interest rates, many question whether the continuation of low rates is a possibility. This is a question even the Federal Reserve cannot explain in short concise verbiage. Though the Federal Reserve controls interest rates on the short end of the yield curve, they have little control over long term interest rates. If one were to observe the 10 year Treasury note over the last year, they would see that the yield has stayed relatively flat. During that same period, the Federal Reserve has consistently tightened and raised short term interest rates.



You may ask, "If the Federal Reserve doesn't control interest rates, who does control interest rates?" Simply put, buyers and sellers of bonds and notes much like the stock market control long term interest rates. Since a bond has a coupon rate and a price, buyers and sellers control the price of a bond of a stated coupon rate. This equates to a given yield. If there are more buyers than sellers, bond prices go up affecting the overall yield of the bond when the bond matures. For example, if a bond has a par value of 100 and you pay 104 for a bond that yields 4.00, your effective yield will be less than 4.00%. This means that when the bond matures you get 100 back though you paid 104. During this time, you are paid usually semiannually half of the coupon rate, in this case 2.00% twice per year.



Higher bond prices mean lower bond yields and hence lower interest rates in general. Mortgages and government bonds follow each other closely because if mortgage backed securities are yielding significantly more than government bonds, bond buyers will put their money in mortgages. Hence mortgage bond prices go up and the yields go down resulting in lower mortgage rates.



What is the biggest threat to low mortgage rates and a slowing housing market? Government deficits are the enemy of the bond market. As the government issues more and more bonds to fund a government that is taking in less than it is spending, bond prices go down and yields go up resulting in higher interest rates. There are simply not enough buyers of bonds to absorb the shear volume of government debt being placed on the market. This results in lower bond prices and higher yields. So if you ask yourself, "How does the deficit affect me?" Now you know, over the long term, you pay more in the way of higher interest rates and debt service to the largest debt you have, your mortgage.