Welcome to this week’s Illinois Mortgage Rates and News week in review, my take on the week’s financial news and how it affected Illinois mortgage rates.

This has been a brutal week in the mortgage bond market. Mortgage rates spiked to their highest point of the year this week before turning around and heading lower on Thursday. But by Friday afternoon the bad old market had returned and we were once again heading in the wrong direction. Brutal. The market trend is a surprise to most consumers. The Fed has aggressively lowered short term interest rates over the last few months, and the general perception is that interest rates are low and heading lower. Short term rates are, but not mortgage rates. The spread between the lowest mortgage interest rate we saw after the Fed made their surprise rate cut last month, and the highest rate we saw this week, is a full point – that is a 1% difference in rate. To give you an example of how this affects home buyers who need financing, on a $200,000 loan this works out to a difference in payments of $127 per month. Brutal.

The mortgage rate volatility raises two questions.

1. Why have rates moved up so much?

2. What direction are mortgage rates heading in now, here in Illinois and throughout the country?

As to the first question, part of it is just market psychology. All markets follow trends. They tend to move in one direction – up, down or sideways – until something happens to make the market shift in another direction. As I have noted before, mortgage bonds love bad economic news, but hate inflation. A few weeks back market psychology reversed from a focus on the soft economy to a focus on the fear of inflation once we get through the soft patch in our economy. The fact that this may be months down the line, and the economy may get worse isn’t a factor now. This is part of the reason that mortgage rates have moved up so sharply. But this is only part of the story. Another part is more complicated. Mortgage servicers, (these are the banks you pay your mortgage to) make their money by collecting and processing your mortgage payments. Any time rates move down the value of their loan servicing portfolio decreases because people will take advantage of the low rates and refinance their mortgages. To protect themselves from the run off in their loan portfolio from too many mortgage refinances, they hedged their positions in the mortgage backed securities markets. This caused rates to move up some, but it got exaggerated as hedge funds jumped on the trade in order to make a quick profit.

This brings us to the second question, where are mortgage rates headed now? The big move higher in interest rates seems close to running its course. The hedging from the big banks doesn’t make sense anymore now that mortgage rates are so much higher, so there is good reason to expect that mortgage rates will settle down some from this factor alone. As far as market psychology goes, mortgage bond traders are notoriously fickle. Right now they are focused on inflation, but that could change quickly. Most economists think that the credit crunch is alive and well, and the economy is a long way from getting out of the woods and escaping a recession. So all it will take is one bad economic report and we could see rates tumbling lower. My crystal ball is still cloudy, but I expect that rates will start to drop again over the coming weeks.

The January Core CPI (Consumer Price Index) rose at a 2.5% annual rate, showing that inflation is alive and well. The news was mixed In the housing sector. January Housing Starts were up slightly, but building permits were at the lowest level since November 1991. This is an indicator of future building and the low number reflects a lack of confidence in the market for new homes.

Fixed rate mortgages rates are again slightly higher this week than they were last week. If you have a contract to buy a home, you may want to consider a long-term ARM. The rates are lower while still giving you the stability of knowing your payment is locked in for a long time (5, 7 or even 10 years). The important thing is to match your mortgage to your financial needs and your life style. A 30 year fixed rate is a great way to go for some people, but you shouldn’t rule out other options. Adjustable rate mortgages can save you money up front, and if rates do drop again, we offer no cost refinancing, so you can lock into a fixed rate later if it makes sense.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.125%     6.264% APR

15 year fixed rate    5.625%     5. 748% APR

5-1 A.R.M.               5.125%     5.279% APR       

7-1 A.R.M.               5.25%      5.363% APR

10-1 A.R.M.             5.625%     5.748% APR

For Jumbo loans over $417,000

30 year fixed rate*  6.875%     6.937% APR

(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines.)

7-1 A.R.M.              5.75%       5.823% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate  5.875%      6.046% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program and the State of Illinois Bond program which offer no down payment and below market pricing.

Next week the economic calendar is packed with reports – something important is coming out nearly every day - and there are going to be plenty of events that can move the market. Fed Chief Bernanke will be testifying before Congress on Wednesday and Thursday. So again, volatility should be high. If you have any questions, or if I can help in any way, let me know.

llinois Mortgage Rates and News.

Find the Maximum FHA Loan Amount in Your Area Here illinois FHA loans

Contact Your illinois mortgage company Today

We Offer illinois home mortgage Loans with best mortgage rates

Get Best Advice from illinois mortgage broker

Tags: current interest rates for the week, Illinois mortgage rates, mortgage backed securities, mortgage rate trends

Get Best Advice from illinois mortgage broker

Contact Your illinois mortgage company Today

Find the Maximum FHA Loan Amount in Your Area Here illinois FHA loans

Are you Looking for first time home buyers loan ? Find Free Tips and Advice here

How to update yourself with Current chicago mortgage rates ? The Answer is here.

Looking for mortgage chicago il

Chicago FHA loans

We Offers illinois home mortgage Loans with best mortgage rates