Student Loans

News: Mortgage applications in the U.S. sink to eight-year low

This guest post is by ‘mortgagespecialist’, a member of www.mortgagefit.com, the world’s largest mortgage community.

In the last week of October, 2008, the demand for mortgage application dropped to an eight-year low. According to a trade group, this has been propelled by an approximately 30% decline in demand for mortgage refinancing because the borrowing expenses have gone up.

The seasonally adjusted mortgage application index of The Mortgage Banker’s Association that comprises both home buying and home refinance loans, skidded 20.3% to 379.9 for the week ending 31st October, 2008. This has been labeled as the most pathetic showing since the month of December 2000.

From early September 2008, a drastic swing has been noticed in the application requests for home purchase and mortgage refinancing while global financial markets were facing turmoil.

A number of government interventions targeted at cutting down mortgage expenses still have not been able to control the situation.

Average 30-year fixed mortgage rates went up by 0.21% to 6.47% in the last week of October 2008 and this corresponded to the level of the week ending 10th October, 2008.

As per that trade group, the interest rate for fixed rate mortgage loans is inching closer to the highest rate of 6.59% of this year that was attained in the summer. Moreover, this is much higher than the 2008 low of 5.49% in the month of January, 2008.

According to the analysts’ opinion, there is no basis to anticipate that there would be a turnaround in the housing industry when 30-year fixed mortgage rates are on the upper limits for a period of six years, unemployment is at a 5-year high and still soaring, as well as an additional supply of houses that have not been sold is forcing prices to go down further.

Growing concerns about probable job cuts have lowered the confidence of the consumers and this has also stirred up a panic about an intensifying recession and led to reducing demand for home buys.

In October 2008, planned job cuts or retrenchments at U.S. based firms soared to an approximately 5-year high and this was an increase of 19% since September 2008. As per the report of Challenger, Gray & Christmas, an outplacement firm, this resulted from the problems stemming from banking and housing industries that impacted the wider economy.

Home prices in the U.S. have gone down higher than 20% off the ceiling that was fixed in the summer of 2006 on the basis of the Standard & Poor’s/Case-Shiller index. The prices are usually expected to lose another 10%.

The Mortgage Banker’s Association stated that its seasonally adjusted purchase index slumped 13.9% to 260.9 in the last week of October 2008, the minimum since the month of December 2000. At the same time, in the last week of October 2008, its refinancing applications index dipped 27.8% to 1,075.4.

In the summer of 2008, the number of mortgage refinancing applications had decreased because mortgage rates escalated during this period, resulting in the index to drop to a significant low till late August, 2008.

Could consumer confidence affect lenders?

Consumer confidence is important to the economy. It is the driving force behind the public’s willingness to spend money, and as such, businesses rely on confident consumers to keep them afloat.

Consumer confidence is a difficult thing to measure, but the latest Consumer Confidence Index (CCI) from Nationwide Building Society, which is based on a survey of consumer opinion, rates consumer confidence at its lowest in at least four years (the index did not exist before 2004).

The evidence is there: budget supermarkets are boasting their highest profits in years, sales of new cars have fallen 21% in a year, and more established High Street chains such as John Lewis and BHS have announced significant falls in profits. It would seem that consumers are becoming increasingly eager to save money where possible.

Consumer confidence and loan availabity

Traditionally, consumer confidence has primarily been a concern for providers of consumer goods and services. Banks and building societies, meanwhile, can sometimes benefit from reduced consumer confidence: when customers do not spend their money, it stays in their bank accounts, which provides funds for financial institutions to do business with. It also encourages taking out loans to finance more expensive purchases, which earns the lender interest.

However, with the uncertainty surrounding the financial sector at the moment, this situation could change. With a number of banks merging and others reporting large falls in profits, the old cliché of keeping savings under a mattress might not be such an exaggeration.

However, a spokesperson for Think Money said that savings are still very important – not only for financial security, but for the good of their lenders too. “Consumer confidence is important to lenders, because they too rely on continuous business,” she said. “If lots of customers withdraw their savings in a short period of time, the banks could be left with very little money to do anything with, meaning they would have little money left to fund loans and other forms of credit. In a worst-case scenario, they could even fail.

“Our advice to consumers is not to panic and to try to carry on as normal. Take confidence from the fact that lenders are still offering loans to customers, which they simply wouldn’t do if the money wasn’t there.

“The Government’s £50bn rescue plan, combined with the recent half-point base rate drop, will only serve to improve lenders’ ability to offer loans – it may just take a little longer to find the right deal.”

Free Guest post by loan and mortgage specialists www.ThinkMoney.com

Considerations for future Homeowners

Guest post by Melanie Taylor of Loan specialists Think Money.

These are strange times for would-be homeowners. On one hand, property prices have dropped, bringing the dream of homeownership within the grasp of many who couldn’t afford prices at their peak. On the other hand, no-one knows how much further they’ll fall, so buying property does take a certain amount of courage – assuming you can get a mortgage.

At a time like this, in other words, ‘knowing your stuff’ is more important than ever.

You might feel there’s no way you can keep on top of all the news in the housing market, but the good news is you don’t have to. Get a handle on just four areas and you should be able to make an informed choice.

1. The housing market’s future

2. Your future

3. Renting vs. buying

4. Interest rates

1. The housing market’s future

The house price speculation you hear in the news every day is largely that – speculation. No-one can really know where prices are headed, partly because prices depend partly on confidence, so the very act of publishing predictions (as long as they’re from credible sources) can have a positive or negative effect on them.

Anyone can see trends in prices once they’re underway, but spotting a high or low is a different matter altogether – and that’s what everyone really wants to know, as selling property in a slump or buying in a boom can cost you a frightening amount of money.

Anyway, even owning a crystal ball wouldn’t necessarily mean you’d benefit from house price changes. Even if you knew when prices would bottom out, you might be unable to get the right mortgage at the right time at the right price. (The same is true when you’re selling a house – even if you knew when prices were going to peak, there’s no guarantee you’d be able to find a buyer at the right time.)

Your future

In all probability, you’ll have a clearer idea about your own future than the housing market’s. If you’re thinking about buying, maybe you should pay less attention to housing market hearsay and more attention to your own finances:

Income

• Work. Is your job secure? Are you expecting a promotion / pay-rise?

• Benefits. Do you receive anything from the government? Could you? Is this likely to change for any reason?

• Windfalls. Any one-off sums of money coming your way (inheritance, sale of assets, insurance pay-outs, etc.)?

Expenditure

• Debts. Do you owe money? How soon will it be repaid – and how much extra will you have to spend when it is? Could you do it any faster?

• Spending. Is there anywhere you could cut back? Could you cut back enough to save up for a deposit and / or create a buffer against negative equity and fluctuations in mortgage costs?

• Change. Any major lifestyle changes coming up? Marriage, divorce, starting a family… Would it make sense to assess their impact before you think about buying?

You can’t know what’ll happen to your finances in the next year, but your own future’s probably more predictable than the housing market’s. It’ll probably have more of an impact on you, too: losing $15,000 on a house might be bad news, but losing your job / having a baby / getting married could have a much larger impact on your lifestyle – and your finances. Plus, that $15,000 wouldn’t really be ‘lost’ unless you were forced to sell before the housing market picks up again.

Renting vs. buying

You might be worried about losing money by buying property in a slump. It’s a valid concern, but these two questions could help you make your mind up:

1. How much am I paying in rent per month?

2. How much are house prices in my area going down per month?

There’s no guarantee that prices won’t start dropping faster, but if you keep on renting, you know you’ll be losing money. Property slumps don’t last forever, so house prices will go up again – it’s just a question of when. On the other hand, a mortgage is a big commitment, so if your own future’s looking uncertain it might make more sense to rent for a while longer.

Interest rates

If you do decide to buy, understanding interest rates is absolutely crucial, as your mortgage’s interest rate determines how much your monthly payments will cost you.

Never underestimate the difference 1% can make. Remember that 6% is actually 20% higher than 5% – not 1%. Given the size of most mortgages, and the sheer number of years you’ll be paying interest, that extra 20% can make a huge difference.

Say you take out a $200,000, 20-year mortgage*. The interest on:

1. a 5% mortgage deal might be around $117,000

2. a 6% mortgage deal might be around $144,000

In other words, that 1% makes a difference of around $27,000 – over $100 per month.

* You probably won’t take out a single 20-year mortgage. Most homeowners sign up to a succession of shorter deals (often two or five years), which lets them reassess the situation when economic conditions change. But sometimes, when interest rates are really low, it can make sense to sign up to a 20-year fixed-rate mortgage – guaranteeing yourself 20 years of (relatively) low payments!

Guest post by Melanie Taylor of Loan specialists Think Money

Financial infidelity: The marriage breaker

I hope you enjoyed the last not-so-serious Onion video. Alright, sit up and get ready for something important.
Financial infidelity: The marriage breaker. Secretly overspending from the family coffers can be a deadly to your marriage.

Is the US Federal Reserve a government or commercial entity ?

Is the US Federal Reserve owned by private bank ? This video claims it’s a commercial entity designed to turn the public into indebted serfs.

You might also enjoy our article on “6 Ways to destroy our need for Bank loans.”

Another reason to engage in People to People lending and borrowing

6 Ways to destroy our need for Bank loans

Did you know that our Banks create money from nothing. Banks can lend more than they actually manage.

In the next 20 years, our relationship with banks will change. We have options our grandparents would have only heard of in comic books. Here are some ways we can reduce our dependence on banks.

1. Create a Open Source borrowing and lending website softwre.
COST: $200 – $2000

2. Create a Facebook application to facilitate lending and borrowing
COST:$200 – $2000

3. Gmail, Yahoo Mail and Hotmail offer borrowing and lending among users.
COST: Wishful thinking

4. Create open source borrowing and lending plugins for forum software like VB and PHPBB. COST: $200 – $2000

5. Telecoms giants build borrowing and lending into their mobile services.
COST: Wishful thinking.

6. Depending on where you live, start borrowing exclusively from credit unions or online services like Lending Club, Circle Lending, Zopa or Prosper.
COST: Little to nothing

Save Money On Your Grocery Bill This Week

Groceries are a predictable event. You can prepare for it, unlike life’s unexpected events where you need online personal loans.
And it’s not as hard as you might think. If you can spare a few extra minutes of preparing at home, you can even spend less time at the grocery store. We’ve all had days where we wander up and down the aisles wondering what to make and picking up whatever looks good. Follow these tips to save money the very next time you go grocery shopping:

1. Make a meal list

If you know exactly what you’re going to make for the next week, you can do shopping for only those meals (and snacks). Make a meal list, deciding what your family will have for breakfasts, lunches and dinners. When you buy only for what you need you don’t spend more than you have to and you don’t buy too little and have to go back again.

2. Use what you already have

If you have a family, you are probably well stocked when it comes to food. But except for emergency food (which you won’t use until an emergency occurs anyway), you really don’t need loads of food stocked up for regular use. Many people stock up on foods and seem to never use them. They get pushed to the back of the shelves and hidden behind the new, good stuff you want to use. So this week, pull all of those items into the forefront. Canned foods, cereals, freezer foods etc. Examine it all and work them all into your meal list. If you are really over-stocked, this could go on for a number of weeks, meaning you save money!

3. Buy less junk

If you buy a lot of chips, cookies and the like for snacks, buy less. You’ll not only save money, but calories too. Start only buying one of these kinds of snacks for the week and more fruit. If you and your family really enjoy the sugary snacks, make them yourself. Making things from scratch is often cheaper in the long run. You can buy large bags of flour and sugar for not much money at all in fact and buy the rest of the ingredients as you need them.

4. Apply quantities to your list

Writing a meal and grocery list is part one, but part two is also important. Beside each item on your grocery list, write how much of that item you need. How many times have you picked something up, wondered how many you needed and now you have them still sitting in your pantry? Exactly. This goes for everything, canned foods, meat, fruits and vegetables etc. If something is on sale that you know for absolute sure you are going to use again soon, pick up an extra one or two, not six. The item will be on sale again sometime, there is no need to be overzealous.

5. Buy Store Brands

Store brands are usually cheaper