Reuters
Home loan demand drops to 4-month lowWednesday June 27, 11:03 am ET By Julie Haviv
NEW YORK (Reuters) - Mortgage applications fell for a second straight week as interest rates remained near recent highs, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both refinancing and purchasing loans, for the week ended June 22 fell 3.9 percent to 618.6 -- its lowest in four months. Applications, however, were 16.8 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 0.7 percent. James O'Sullivan, economist at UBS Securities in Stamford, Connecticut, still follows the indexes closely although he has noticed some dichotomies with other aspects of the housing market. "Clearly there has been a complete breakdown of the relationship between the purchase index and home sales in recent months, with home sales clearly falling in 2007 even as the purchase index shows it rising," he said. "The main story is the tightening of lending standards, so more applicants are being rejected and they're probably reapplying again," he said. "There was also a rush by some people to get their application in before rates headed higher and that has faded again." Many analysts view the housing market as a key factor in Federal Reserve interest rate policy. "Certainly housing has slowed enough to stop the Federal Reserve from tightening, but not enough to get them to ease," he said.
Rapidly rising defaults in the subprime mortgage market, which caters to borrowers with poor credit histories, has spurred a widespread tightening of underwriting standards by lenders.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.60 percent, unchanged from the previous week, but hovering around their highest since mid-2006. A year earlier the rates stood at 6.86 percent. The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, fell 4.9 percent to 428.9. The index was above its year-ago level of 389.0, a rise of 10.3 percent. The group's seasonally adjusted index of refinancing applications fell 2.5 percent to 1,731.6, its lowest this year. The index was up 27.7 percent from a year ago when the index stood at 1,356.0. The refinance share of applications increased to 38.7 percent from 38.0 percent the previous week. Fixed 15-year mortgage rates averaged 6.24 percent, down from 6.28 percent. ADJUSTABLE RATES DROP While rates on 30-year fixed-rate mortgages have been on an upward trend, rates on other types of loans plunged last week. Rates on one-year adjustable-rate mortgages (ARMs) decreased to 5.51 percent from 5.70 percent. The ARM share of activity increased to 20.4 percent from 20.3 percent the previous week. Recent data from home sales, released by other institutions, suggest a delayed recovery for the hard-hit sector. The MBA's survey covers about 50 percent of U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

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Interest-Only and Deferred-Interest Loans - Can You Afford Them? Jun 08, 2007, 1:01 pm PDT
News provided by Quicken Loans
Interest-only and deferred-interest mortgages are gaining increasing popularity, as homeowners like the idea of having the freedom to decide how much to pay against their mortgage each month. Interest-only loans offer you the option to pay only the monthly interest, or you can pay the monthly interest and as much of the principal as you'd like. Deferred-interest mortgages give you even more choices. In addition to the payment options of an interest-only mortgage, a deferred-interest loan also allows you to pay just a portion of the interest payment each month (the unpaid interest would then be added to your principal loan balance).
By opting for an interest-only payment or a deferred-interest payment, your monthly mortgage payment is less -- often times, significantly less -- than it would be if you made a "conventional" interest plus principal payment. You gain the freedom to do with your available cash as you choose.
To help you decide how much home you can afford, it's smart to think in terms of an interest plus principal payment each month. If you can only afford the minimum payment on your mortgage, you may be overextending yourself. Having a choice to pay only the minimum is quite different than only being able to afford the minimum.
Is an interest-only or deferred-payment mortgage right for you? If any of the following situations apply to you, these loans may be just what you've been waiting for:
If you need cash flow and have a low interest rate, paying interest only is the same as borrowing money at a great rate.
If you're paid on commission or depend on tips, and your income fluctuates month-to-month, interest-only or deferred-interest payments are great. When commissions are down, make the minimum payment. When you have an excellent month, pay the full payment or more.
If you invest the money you don't put toward your mortgage in something with a higher rate of return. For example, if you pay 6.5 percent on your mortgage but find an opportunity to make an investment that returns 9 percent, you will make 2.5 percent on your money that you wouldn't make if you had paid your full principal plus interest.
You have higher interest debt to pay off. Again, if you have credit card debt at 15 percent, it makes dollars and sense to pay that before mortgage interest debt at 6.5 percent.
If you expect to be in your home for less than 10 years.
If you live in an area with appreciating home values. Regardless of what you've heard, most of the country is still appreciating in value. In those areas, even if you pay mostly just interest on your home, you're likely gaining equity in your home. In some cases, you can gain equity even with deferred-interest minimum payments.
Interest-only and deferred-interest loans can be great tools for money management. But, be careful not to stretch your budget too thin so that you have to rely on paying only the minimum payment each month. This can cause headaches down the road and isn't recommended. If you can afford the full payment but choose to have the payment flexibility that these types of loans offer, they just might be a fit for your financial goals.
As always, make sure your mortgage professional goes over all the numbers and fully explains the payment scenarios. Don't assume anything. Get real numbers and you'll make the best decision.
This article is reprinted by permission from Quicken Loans © 2007 Quicken Loans Inc. All rights reserved.