Hot on the heels of the Fed’s inter-session rate cut of 75 basis points last week, they cut the rates again today, as they perceive we are most likely on the brink of a recession as they look to stem the tide in the face of a weak economy.

The real beneficiaries from these cuts are mortgage holders whose loans are directly tied to the Prime Rate, as they will see a benefit immediately. HELOCs (Home Equity Lines of Credit), as well of variable rate charge cards will see an interest rate reduction with their next statements.

The interesting thing is that even though long-term rates are at the lowest point in years (2005), it is extremely possible that these rates could actually rise if you look at historical performance and recent trends. The key is that if you are waiting for rates to fall further don’t! Go get your application in now with your bank or mortgage broker to lock in the low rate available.  

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It is with a heavy heart that I get ready to attend Cinco de Mayo for the final time at one of my favorite Naples’ establishments, Meson Ole in its present location, the Oaks Plaza in Naples.

Understand it’s not that Meson Ole is going out of business or anything like that, far from it, but rather the wonderful Spanish style neighborhood plaza where they have called home for many years is to be razed to make way for a new 16,000 square foot Walgreens which in my opinion is needed like a hole in the head.

Meson Ole will in fact be moving the following day to their new home, the former Ditkas, of Mike Ditka fame. Somehow it just won’t be the same as the small, intimate restaurant at the Oaks, where for years Pat and I have enjoyed walking over and sitting at the small bar, sipping (or in some cases wolfing down) margaritas and eating a meal. Now Meson Ole will have a much larger facility, with a huge bar.

It’s all in the name of progress, or so they say, which I will forever fail to understand. But Walgreens and the Naples City Council, in their inimitable wisdom, hammered out a deal that I’m sure was like St. Patrick’s Day, a lot of green.

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With the mortgage rates again coming down, now might be an excellent time to review your current mortgage to see where you stand and whether it currently fits your needs. This past week, there was a dramatic drop in the rates, following a nearly two month rise. The 30–year benchmark dropped 11 basis points, (a basis point is one-hundredth of 1 percentage point), standing at 6.31%. It seems that the FED has shifted their attitude a bit at the end of January, when they left the short-term rates unchanged, feeling sustained inflation pressure.

Bankers will tell you that you should assess you mortgage and ciscumstances annually, and now would be a good time, especially if you have an adjustable-rate mortgage. In 2007, many of the 3/1 and 5/1 ARMs will be re-setting. Some will adjust as much as 5 percent, which will make a huge impact on a monthly payment. If someone is paying an interest-only payment, that can mean that, with the adjustment, their payment will double.

Today, many people are seeking to do cash-out refis, where the homeowner will take out a new mortgage for more than the original amount financed and will take cash out to pay for other things, like credit card debt, etc. Interestingly, many of these borrowers are paying a higher interest rate than their original amount. Cash-out refis certainly seem to be the king, at the moment.

If you are staying with your current mortgage, it is always a good idea to make at least one extra payment a year. People don’t realize that if they made just one extra payment per year, they would pay off their 30–year fixed rate mortgage in less than 25 years. Another tip is that if you have an ARM, stay away from the temptation of making the minimun payment, because most likely you are adding to the original amount owed. 

Make sure that if you are in the market for a new mortgage, you shop around. Start with the internet, then talk to your local bankers to see if they have the same rates. Many times it can be better to deal locally if you can. In that way, should you have a problem, you can hop in your car and get it resolved.

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People who have been cash-strapped and yet are eager to purchase a home, often have turned to loans referred to as ‘piggyback loans’. With the rise in the short-term interest rates, it doesn’t make sense and those loans are certainly much less appealing. Many borrowers are turning back to the private mortgage arena as an alternative. With the new federal legislation allowing insurance premiums to become tax deducible, this gives borrowers even more incentive. That legislation is in addition to the deductions that homeowners can already take regarding mortgage interest they pay..

Interest rates will determine whether a piggyback loan or mortgage insurance will make the most sense. With low rates, the piggyback loan makes more sense, while, on the other hand, higher rates will favor mortgage insurance. When the borrower takes out a piggyback loan, it creates two payments, instead of one with mortgage insurance. With the piggyback loan, the borrower will take out a mortgage for 80% of a home’s valuation and finance the balance with a secondary home equity of line of credit.

There are factors to consider when borrowers cannot come up with the traditional 20% downpayment and the options should be vigorously compared. Again, piggyback loans are the most attractive when interest rates are low. Also mortgage insurance premiums can now be deducted on the 2007 tax return, if a contract is taken out in 2007. You can eliminate mortgage insurance if your mortgage balance falls below 80% of the total home value. To weigh your options and calculate the differences, go to www.mtgprofessor.com, where you will find calculators that will be of help.

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There are some very interesting statistics out there with regard to Adjustable Rate Mortgages (ARMs) and what will be happening in the coming year. With the rocketing real estate market during the last 5 years, more people sought and purchased property with ARMs than ever before. Statistically, today nearly 35% of those mortgages are interest-only, as compared with 2% as far back as 2001.

In 2007 some 9,000,000 ARMs are scheduled to re-adjust and will create an opportunity for savvy buyers to jump back into the market taking advantage of those unfortunate people who simply will not be able to pay the new adjusted schedule or whose properties are now worth less than what is owed. In either case, coupled with the decline in property values, the rise in foreclosures is going to be dramatic.

2007 should see some investors back in the marketplace using strategies to take advantage of these foreclosures. Although it is not the easiest task in the world, if you are smart and understand from a business standpoint exactly where it makes sense, purchasing foreclosed properties can be very lucrative.

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With the high reached back on June 28th, (the benchmark at 6.93%,) mortgage rates have continually drifted lower since then and have hit the yearly low of 6.08%. The rate has fallen for the past six weeks and has been causing a firestorm in re-financing. This week, the rate fell by 9 basis points, ( a basis point is 1/100 of one percentage point.) The 30 year rate is now at its lowest point since 5 October, 2005. At that time, it was 6.07%.

The cooling off of the housing market, coupled with the belief that gas prices will increase have fuelled speculation that have pushed trades down. With the slowing of the economy and inflation being kept in check, hopefully that would be enough to cause the Fed to spark rate cuts.

The homeowners who have been on adjustable rate mortgages, have been the quickest to jump on the re-financing bandwagon, and more are expected as the fear increases that mortgage rates might start increasing because of the Bond Market news, (which often mimics mortgage rate trends,) that the 10–year treasury note has ended its downward trend.

Because of the slowing economy, it has brought more home buyers into the marketplace, as well as pushed the longer term rates to their lowest point in a year. 

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Your credit history involves a variety of things and is basically a total history of your financial life. It includes, but is not limited to, where you live and how long you’ve lived there; whether you rent or own; any account you have opened, including credit and debit cards; all the information associated with those accounts, such as your payment history, how you’ve paid those bills and what company you’ve paid them to. All this information is involved in determing your credit worthyness and your or Fair Issac, FICO or Beacon score.

Your credit score is one of the most important things in your life and should be carefully attended to, because in actuality, you will live and die by that score in the credit world. The three reporting agencies, Trans Union, Experian and EquiFax mathmatically calculate your score according to all of the information above and more. They put all of this information together, crunch numbers according to the formula and bingo, your score is generated. That number ranges from 300 to 850, with the average credit score being 680 or higher. A truly great credit score would be 750 or higher.

When shopping for a mortgage, the first thing that your mortgage broker or lender will do is pull your credit score. Where that number falls, will determine how much money that lender will be willing to give to you, what type of loan you’ll receive, as well as points charged, fees paid and naturally the interest rate. Your score will make a huge difference with regard to those things and can make those item vary greatly.

To get and maintain the best score possible, it is essential that you monitor that score and keep up to date with everything. Payments on loans, credit cards, etc. need to be on time. It is also important to monitor the amount of credit that you take out from different sources, because it all relates to your income-to-debt ratio, something that all loan institutions look carefully at. If you don’t know your credit score, go get one at: www.annualcreditreport.com. This will give you access to your score through the three reporting agencies, so that you can take the appropriate action if your score is low or needs repair. Realistically, you should monitor your score at least twice a year. 

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