Mortgages jump almost half a percent

Mortgage rates spiked to their highest levels this week since July 2011, causing frustration among home buyers and refinancers who were caught by surprise.

30 year fixed rate mortgage – 3 month trend

The benchmark 30-year fixed-rate mortgage rose to 4.61 percent, compared with 4.12 percent last week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.29 discount and origination points. One year ago, that rate stood at 3.89 percent. Four weeks ago, it was 3.99 percent. The 30-year fixed hasn't been this high since Bankrate's survey on July 27, 2011, when the mortgage rate averaged 4.74 percent. This is the largest one-week rise since the financial crisis of October 2008.

On top of that, the benchmark rate on the 30-year fixed was 3.6 percent May 8 -- so it has climbed more than a percentage point in seven weeks.

The benchmark 15-year fixed-rate mortgage rose to 3.73 percent this week, compared with 3.3 percent last week. The benchmark 5/1 adjustable-rate mortgage rose to 3.45 percent from 2.99 percent. The benchmark 30-year fixed-rate jumbo mortgage rose to 4.75 percent from 4.29 percent.

Weekly national mortgage survey
Results of Bankrate.com's June 26, 2013, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
	30-year fixed	15-year fixed	5-year ARM
This week's rate:	4.61%	3.73%	3.45%
Change from last week:	+0.49	+0.43	+0.46
Monthly payment:	$846.85	$1,198.28	$736.33
Change from last week:	+$47.66	+$34.86	+$41.57

How did this happen?

Rates started climbing slowly in mid-May on speculation that the Federal Reserve was preparing to trim the $85 billion-per-month bond purchase program that has long kept a lid on rates. When the Federal Open Market Committee wrapped up its meeting last week, many observers expected the Fed to calm the markets. Instead, the Fed did the opposite.

Mortgage rates shot up once Federal Reserve Chairman Ben Bernanke told reporters that the Fed plans to slow the bond purchases this year and end the program in mid-2014, as long as the economy continues to improve. Even analysts who follow rates closely were shocked at how quickly rates have jumped since then. "We saw a full percentage increase in less than a month," says Bob Moulton, president of Americana Mortgage Group in Manhasset, N.Y., adding that half the increase happened since the Fed's press conference. "My customers are dismayed and disappointed." The stock market sank on Bernanke's comments, and a wave of investors immediately pulled money out of the bond market. When there's less demand for mortgage and Treasury bonds, mortgage rates tend to rise.

Should borrowers lock or wait?

The financial markets are extremely volatile right now, says Cameron Findlay, chief economist for Discover Home Loans. Homeowners who missed the opportunity to refinance should wait for the markets to calm if they think refinancing now wouldn't save them much, he says. But he adds that hom ebuyers and those who are still paying 6 percent or higher on their loans shouldn't take the chance. "By historical standards, rates are still extremely low," he says.

Donna Angeloni, vice president of lending for the Philadelphia Federal Credit Union, says the lender has been receiving an increased volume of calls from borrowers who want to lock a rate. She says rates may drop a little in the next few days, but, as usual, there's no guarantee. "I'd wait a few days and then lock if they drop back down," she says. 

"If they hold steady, then I wouldn't wait too long." Another strategy would be to ask if your lender offers a float-down option, Moulton says. With a float-down, the borrower has the right to have the rate reduced if rates fall. Not all lenders offer this option, but it's worth asking the lender, he says.

Some borrowers opting for adjustable-rate loans

Many home buyers who were expecting to pay 3.5 percent in interest on their 30-year mortgages and are now faced with higher rates, have chosen a 10-year ARM loan to keep the monthly payments close to their expectations.

With a 10-year adjustable-rate mortgage, the rate is fixed for the first 10 years and resets after that. The average rate for a 10/1 ARM was 4 percent in Bankrate's weekly survey. "We are giving borrowers the menu and saying, 'These are your options now,'" Moulton says. "Some people are staying with a 30-year because they like the security. But some took a little harder look in terms of how long they are going to stay in the house, and they have chosen to go with the 10-year."

Sourced at bankrate.com

Mozambique cuts benchmark lending rates

The Mozambican Central Bank has cut the benchmark lending rate by 50 basis points to 9 percent, a private bank said in a statement on Friday.
The announcement surprised many who expected the rate to remain the same, according to banking officials quoted in a statement.

“Initially we thought the central bank would at least hold for a while, taking into account the inflation in April. Although the move came as a surprise, it has been growing pressure from the country itself that banks are not providing and supporting an environment for private development,” said Egildo Massuanguanhe, a representative from the Treasury and International Department at Barclays Bank Mozambique.
Barclays Bank Mozambique usually makes amendments to its own lending rates on any central bank changes, but the immediate adjusting of the rates for other commercial banks in the country is not always immediate.

Mozambique’s neigbhour South Africa, on the other hand, has major banks immediately adjust rates after a central bank rate change. “There may be some delay in the system, but on the back of the central bank decision there was the need to still promote an enabling environment and also to support the economy,” added Massuanguanhe. Food prices had climbed after the central and southern regions of Mozambique were hit with severe floods in January and decreased output although gas reserve discoveries are likely to help fill the gap.

Mozambique has been attracting huge interest as 100 trillion cubic feet of gas was discovered by American gas and oil exploration company Andarko Petroleum Company and Italian oil and gas company Eni in 2010. Exploration for possible oil reserves in the country is also underway.
The country’s primary lending rate dropped in April to 15 percent after having been reduced by 9 basis points. As a result, the average commercial loan rate was then 16 percent although the loan rate is usually higher. Massuanguanhe explained that despite some risks, Mozambique’s economy will maintain bullish in view of its performance and remains strong on the back of international business interests so far. Mining output has grown almost 41 percent in 2012 while future growth is expected to be supported by the private sector and some public investment.

sourced at starafrica.com

China: Cash crunch

On June 20, the benchmark lending rate in Shanghai soared to a record 13.44 percent, causing concerns over the health of the Chinese economy and financial system. The record increase in inter-bank lending rates means China is facing a "cash crunch", with banks and other lenders scrambling for funds but being reluctant to borrow.

With the easing of inter-bank interest rates this week, the cash crunch in the inter-bank market where banks borrow from each other has sent the Chinese stock market tumbling. Experts, however, say the cash crunch is temporary and attribute it to the structural liquidity shortage caused by a mismatch of funds. In fact, China is not short of funds; it's just that the money is not in the right place.

On Monday, responding to the liquidity squeeze, the central bank declared that current bank liquidity conditions were overall at a reasonable level, and that all financial institutions should strengthen liquidity management to promote stability in the monetary environment. Commercial banks were advised to keep sufficient debt coverage ratio to ensure regular payments and settlements.

But on Wednesday, the central bank declared that it had already provided liquidity support to some financial organizations. This move, industry insiders reckon, is aimed at guiding the credit in the market to the real economy in order to reshape the country's economic structure, which will help achieve more sustainable development.

Sourced at usa.chinadaily.com.cn

Zambia Raises Benchmark Lending Rate for Second Month to 9.75%

Zambia’s central bank increased its benchmark interest rate for the second consecutive month as inflation continued to accelerate in June.

The policy rate was raised by 25 basis points to 9.75 percent, the Lusaka-based Bank of Zambia said in an e-mailed statement today.

The bank is targeting inflation of 6 percent by the end of the year, even after the government removed fuel subsidies, Deputy Governor Bwalya Ng’Andu said on June 20. Pressure on inflation, which accelerated to a six-month high of 7.3 percent in June, may build, with the government planning to reduce corn subsidies this year and the energy regulator set to decide on an electricity tariff increase this month.

The Monetary Policy Committee “has weighed the inflation risks and determined that pressures during the policy-relevant period will remain a threat” to the target, it said in the statement.

Zambia’s kwacha declined 0.2 percent to 5,485 per dollar by 12:26 p.m. in Lusaka, extending its drop this year to 5.4 percent, according to data compiled by Bloomberg.

“We expect the Bank of Zambia to increase the base rate within two or three months’ time to curb the upward momentum in inflation,” Irmgard Erasmus, an economist at Paarl-based NKC Independent Economists, said in an e-mailed reply to questions yesterday.

 

Sourced at Businessweek.com

Why mortgage and savings rates are falling when they should be rising

         Savings and mortgage rates have fallen despite a rise in the wholesale cost of borrowing. But some fixed rates could soon rise. The rates at which banks and other financial institutions lend to each other has risen sharply but in a break with historic patterns, there has been no beneficial knock-on effect for savers. Signs of improvement in the economy means "swap” rates, which measure the cost of raising money on the capital markets, have almost doubled since April, rising gradually through May and then soaring in recent days. The swap rates on two-year money have risen from 0.55 per cent in early March to 0.97 per cent today. On five-year money rates have rocketed similarly from 0.99 per cent to 1.8 per cent.

         These institutional rates were historically closely linked to households’ personal finances: as swaps went up or down, the fixed rate deals on offer on mortgage and savings tended to follow.

But since the financial crisis that link has been broken, with commentators blaming the flood of cheap money being made available to lenders through the Government’s Funding for Lending Scheme. The scheme’s intention was to provide banks with cheap finance to stimulate lending to businesses and households - but one cruel consequence has been to depress rates paid to savers. This is because with the Government’s cheap cash at hand, lenders do not need to attract private savers’ deposits.

         So savings rates have continued to drop during a period when comparable swaps have risen. The best available two-year savings rate in March paid 2.45 per cent, according to Savingschampion.co.uk - in June that has fallen to nearer 2.3 per cent. And five-year best-buy rates, which exceeded three per cent in March, are now huddled around 2.75 per cent.

There is no indication that fixed deposit rates will improve, according to Savings champion's Anna Bowes. She said: “The Funding for Lending Scheme is having a stronger effect than swap rates. It is continuing to devastate returns for depositors, and I can’t see that stopping.”

The outlook is different for mortgage borrowers, however - where there are early signs of fixed rates being tickled upwards in response to the rise in the cost of interbank lending. Mortgage broker London & Country in Bath reports a number of recent fixed rate increases, including a recent rise by Skipton Building Society of its five-year rate from 2.88 per cent to 3.19 per cent. Newcastle Building Society increased one of its five-year fixed rates from 3.59 per cent to 3.99 per cent.

        Other smaller lenders have withdrawn some fixed rates - presumably with the intention of repricing them. London & Country’s David Hollingworth said: “Swap rates have been rising gradually for some time but have recently increased very sharply. Five year swap rates have been particularly affected and are now double the level of early May. This will undoubtedly put upward pressure on lenders’ fixed rates. "Although the improved competition market has seen rounds of rate cuts in recent months that trend looks set to halt and even reverse.” His advice to borrowers who can and want to switch to a fixed rate is to do so quickly.

         Jonathan Harris, director at London-based mortgage broker Anderson Harris, said: “Despite the significant jump in swap rates it is important to remember that lenders are not relying wholly on the money markets for funding. "Many are now accessing Funding for Lending cash and so rising swaps shouldn’t affect this. The economy is still weak and we don’t expect interest rates to rise in the near future - but borrowers looking for a fixed rate might want to consider moving sooner rather than later.”

         Other experts believe that banks will be keen to lend more, which could help keep rates down. Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "Rates are very competitive and while we acknowledge that swap rates have risen, a number of lenders are behind on lending volumes and are keen to lend more in the second half of the year." Mervyn King used his final public speech on Tuesday to warn that over-extended borrowers, mainly those in their thirties and forties, could struggle if interest rates returned quickly to normal levels.

He said some households would find increased mortgage costs “unsustainable” but added: “The idea we are about to return to normal levels of interest rates is premature, precisely because so many households have such a high level of debt.”

Angola’s Central Bank Keeps Benchmark Interest Rate at 10%

The central bank of Angola, Africa’s biggest oil producer after Nigeria, kept its benchmark interest rate unchanged for a fourth month.

The key lending rate was left at 10 percent, the Luanda-based Banco Nacional de Angola said in an e-mailed statement. The bank lowered the rate by a quarter of a percentage point in January, only the second cut since it was introduced in October 2011.

Inflation slowed to 9 percent in April from 9.1 percent in the previous month, the bank said.

The bank said it took into consideration the inflation data, conditions in the economy and fiscal and monetary accounts in order to “contribute to the maintenance of price stability.”

Nigeria's Central Bank cautious over lending rate review

As the inflation rate continues to trend downwards in Nigeria, the Central Bank of Nigeria has remained cautious about lowering the benchmark lending rate as it believes the threat of inflation is still high in the economy, especially with government spending expected to increase in 2014 to 2015 due and upcoming elections

The Monetary Policy Committee of the Central Bank of Nigeria, in its last 10 MPC meetings, has left the benchmark lending rate untouched despite continuous drop in inflation rate. For the second consecutive time, only three members out of the 11 members of the MPC, which is headed by the CBN Governor, Mr. Lamido Sanusi, have voted for a rate cut of 50 basis points.

The committee at its last meeting in May stated that government spending would constitute a major risk to the inflation and exchange rate outlook, thus advising prudence in monetary policy action.

Sanusi, in his personal statement at the meeting, said, “I am of the view that in terms of what we set out to achieve, monetary policy has thus far been extremely successful. Principal risks to inflation on a forward looking basis lie in increased government spending and a weaker currency due to oil revenue shocks. Easing money at this point will add impetus to these inflationary impulses. Indeed, we need to monitor these two risks and be courageous enough to tighten money if they materialise and threaten to undermine stability.”

The National Bureau of Statistics on Sunday released the Consumer Price Index for the month of May, saying the country’s inflation rate now stood at nine per cent.

CPI is a measure of changes in the purchasing power of a currency and the rate of inflation. The consumer price index expresses the current prices of a basket of goods and services in terms of the prices during the same period in a previous year, to show the effect of inflation on purchasing power.

The NBS, in the report signed by the Statistician-General of the Federation, Dr. Yemi Kale, said the nine per cent CPI for the month of May represented a slight decrease over the 9.1 per cent recorded in the preceding month. The NBS report stated that year-on-year, the rates continued to hold below single digits, adding that the core sub-index continued to show a muted rise due to base effects.

It said, “The CPI, which measures inflation, rose to nine per cent year-on-year in May, slightly below the 9.1 per cent rate recorded in April. The increase in food prices captured by the Food Sub-index, while significant, is also lower year-on-year. Through the first five months of 2013, the Food Sub-index has averaged 10.0 per cent, 1.8 per cent lower than rates recorded over the same period last year.”

The average inflation rate for 2013 is forecast to remain at single digit. The World Bank, in its inflation forecast, foresees Nigeria’s inflation rate easing to single digit this year.

Analysts at First Security Discount House, in a report on the year 2013, forecast that average inflation rate would be 8.5 per cent. However, the monetary authority said it would not loosen its monetary policy stance.

The Lagos Chamber of Commerce and Industry recently described as ill-advised and insensitive, the retention of the MPR at 12 per cent by the MPC.

The statement by LCCI read, “The continuation of a tight monetary regime will have the following outcomes – persistence of high interest rate, deepening of the unemployment crisis, financial intermediation role of the banks will continue to be undermined, recovery of the real economy will remain sluggish, capacity of enterprises to create jobs will continue to be inhibited, stock market recovery will continue to be slow and the capacity of banks to support the economy will remain severely constrained.”

Some analysts are of the view that the CBN’s lending rate of 12 per cent to commercial banks instigated the current borrowing cost of 20 to 28 per cent to the real sector.

According to them, the MPR is the rate at which banks borrow from the CBN to cover their immediate cash shortfalls from time to time; thus, the higher the cost of such borrowing, the higher also will be the rate at which banks advance credit to the real sector.

They added that such high cost of borrowing increased production cost and made indigenous products uncompetitive against imported substitutes, which were generally aggressively supported with conversely lower single digit interest rates in export economies.

Speaking at a media parley recently on the negative impact of the development on micro-businesses, the President, Association of Micro-Entrepreneurs of Nigeria, Mr. Saviour Iche, said the CBN’s benchmark lending rate had been “highly unfavourable and destructive to indigenous businesses as some deposit money banks charged as high as 19 to 25 per cent interest rates on loans given to MSMEs.”

He added that the tough access to credit facilities did not create room for MSME to grow in Nigeria and this was seriously affecting Nigerian industrial development negatively.

The Manufacturers’ Association of Nigeria had also decried the high cost of doing business in the country. At its recent 45th Annual General Meeting, the Chairman, MAN, Ikeja Branch, Mr. Isaac Agoye, called on the government to reduce inflation and interest rates by formulating good monetary policies.

Also, analysts believe that it is high time the CBN started loosening its tight monetary policy.

The Chief Executive Officer, Fatrax Securities Limited, Dr Wale Ositelu, said the CBN should consider reducing interest rates to stimulate medium-to-long-term economic growth.

“One will expect the CBN to reduce its benchmark lending rate at the next MPC meeting. If the CBN maintains the current monetary stance, the possible impacts of these measures in the money market and on the fixed income securities will be negative,” he said.

Speaking in the same vein, the Managing Director, Sotice Investment Company Limited, Mr. Adedayo Toluwase, said the reduction in money supply through an increase in the banks’ Cash Reserve Ratio without an attendant reduction in the benchmark interest rate had an adverse effect on economic activities.

He said, “The reality of the current economic and business conditions is a cause for concern, there is  escalating unemployment crisis; profit margins are declining; consumer demand is weak; prohibitive interest rates; decelerating economic growth and high mortality rate of small businesses. Hence, the CBN should make a quick reversal of its monetary policies.”

Notwithstanding the forecast, the CBN has said it will not bow to pressure to reduce the benchmark lending rate at the expense of economic stability.

In fact, Sanusi, at the fourth annual investors’ forum organised by Renaissance Capital, said the bank was not in a hurry to loosen its stance on monetary policy, citing the need to ensure economic stability.

He explained that the banking sector watchdog did not want to send a signal that the restrictive monetary policy regime was over by lowering interest rate.

Information on Benchmark Lending

If you business currently needs working capital, it will be important to gather all the information you can on benchmark lending. One of the most important things you do when going about getting one of these loans is to find the right financial institution/lender to give you the loan. Keep in mind that there are going to be certain factors which will ultimately affect how much you pay in interest, such as economic market conditions as well as the overall state of your finances. As long as you are willing to do the research though, you should be able to find the right lender.

As far as benchmark lending is concerned, you will need to go online and do some research into which lenders will be able to provide you with the amount you need as well as a relatively low interest rate. There are different benchmarks which are used when giving money to individuals and businesses as well as banks. It is important to make certain that you learn all you can about benchmark lending along with how to get the very best loan as a whole.

No matter how much money you need or what type of business venture you need it for, it will be absolutely imperative to make sure that you select a lender you will be able to trust. These days lots of companies are looking to get loans for working capital in order to get their company on its feet. If this is the case with you, it will be crucial to go online and see which lenders will be able to help you out with getting what you need as soon as possible. Even those who are in a seemingly hopeless financial situation should still be able to get the kind of loan they need.

Loan Options

Those who are interested in getting a loan will want to learn exactly how benchmark lending works. Those who need capital funding for a business or real estate investments will need to make sure that they take the time to go online and look at some of the different lenders which are available. If you need a loan for your business as soon as possible, there are a few things you will have to keep in mind, including who you select to give you one. With all of the options you are going to have, it will be crucial to make certain that you select the best lender.

Since you will obviously want to avoid a high interest rate, it will be important to make sure that you look into which lenders in your area will be able to help you out. After you take some time to browse the web and look at potential lenders, you will be able to find one that can help you out with whatever financial problems you are currently experiencing. As long as you are willing to take the time to do this, you will end up getting the loan you need with minimal interest.

The interest rate which is associated with benchmark lending will depend on many different factors, including the financial institution which issues the loan, the finances of the person applying for the loan, and overall market/economic conditions. There are certain ways to ensure that you can get the money you need when you need it though, such as by speaking with numerous lenders before choosing one in particular. Whether you are a real estate investor or a business-owner looking for some work capital, it will be necessary to do the research which is required to find a lender that can help you out.

Getting Loan for Work Capital

If your business needs some start up work capital, it will be imperative to see what benchmark lending can do for you. It will be extremely important for you to do everything in your power to make certain that you get what you need when it comes to work capital so you will be able to get your business on track as soon as possible. Because there are going to be lots of different lenders out there for you to choose from, you will want to think about going online to look at your options more carefully.

Those who are trying to start their own business but need some help financially will definitely want to take their time to look into the different lenders that exist. You will need to see who is out there before you can make a final decision of any kind. Keep in mind that some lenders charge more with regards to interest than others, so you will therefore need to be aware of which lenders can offer you the lowest rates possible.

While it is true that your interest rate will affected by a number of things, your lender will ultimately determine how much to charge. You will find that the state of your finances along with market conditions will also have an impact on what interest rates are like for benchmark lending. One of the most important things to remember for anyone that is going through the process of getting a new loan will be to use the internet to their advantage. As long as you are willing and able to browse the web and do research, you will be able to find the right lender for you. You should also remember to see how much each lender charges in interest before selecting one to borrow from.

Benchmark Lender

With all of the business-owners looking for working capital and real estate investors searching for a way to solve their cash flow problems, commercial lenders have become increasingly common. For this reason alone you should not have any problems whatsoever with finding an individual or financial institution that can help you out of your current bind. Those who need money for a business venture as soon as possible will want to get started by going online to see what their options are like.

In order to find the very best in benchmark lending, you will need to look far and wide. When it comes to getting this type of loan, you will absolutely need to make sure that you do everything within your power to get the best deal on the money you have to worry with a minimal interest rate. Although it is true that there are multiple factors which will determine what your interest rate is like, a big part of it is the actual lender you choose. This is precisely why you should spend an adequate amount of time online looking at your options.

The best thing you can do when you are trying to find the best commercial lender out there is to compile a list of them and make phone calls so you can find out everything you need to before committing to anything in particular. Once you are ready to go through with the loan, you will want to read through everything you are required to sign very carefully. Too few people are truly aware of the terms of their loan and end up getting into trouble as a result. You will also want to make sure that your lender is not going to charge you exorbitant fees and penalties which can quickly accumulate over a very short period of time.

About Benchmark Lending

With the right benchmark lending company, you will be able to gain access to a number of money markets, including large banks, small banks, credit unions, individual investors, and even specialty lenders. Whether you are a real estate investor looking to solve your cash flow problems or a business owner looking for work capital, it will be incredibly important to make certain that you do everything you can to get the money you need. Since there are going to be so many options when it comes to these lenders, you will need to narrow down the list until you come up with one in particular.

The key to finding the right benchmark lender for your financial problems is to browse the web and do as much research as you can before making a final decision of any kind. By really taking the time to think about where you should go for this type of loan and doing the necessary research online, you will be able to come up with the best solution to your money problems. No matter how much you need or what you need it for, you will be able to find the right commercial lender for you.

These days lots of businesses are looking for lenders that can help them out with getting work capital so they can get their operation up and running as soon as possible. You will definitely want to explore your options before making a final decision, just so you will be able to get precisely what you need. The more time you spend looking around for lenders, the better your chances are going to be of getting exactly what you need. You should also keep in mind that the interest rate you are charged on your loan will vary depending on the lender you end up going with.

Benchmark Lending Rate Versus the Prime Interest Rate

In essence, the benchmark lending rate can be described as the interest rate that the bank has to pay when the institution borrows money from another bank or large corporation. The benchmark rate is to be distinguished from the prime rate of the banks, as the latter expresses the minimum and individual interest rate settled by the bank and on top of which the institution places additional charges based on the level of risk of the borrower. The benchmark rate is typically used by banks to determine the realistic prime lending rate (PLR) that they should charge and it helps calculate other rates of interest.

In order to understand the meaning of the benchmark lending rate, let's imagine a bank in the U.S. The PLR and American bank sets is usually in accordance with the federal funds rate, established by the Federal Reserve. The Federal Reserve is an institution with the power to influence the money supply via open market transactions. Consequentially, the banks that calculate their PLR using the federal funds rate will have to charge major borrowers an interest rate that was calculated in accordance to the Federal Reserve's set rate. In a nutshell, the importance of the prime rate is that it is the decisive factor regarding the interest rates borrowers can receive money.

So, how are the benchmark rates actually used in the lending process? For starters, any changes in the federal funds rate will directly affect the abilities of the banks to make cash transfers, as they need to watch out on ensuring they have the right amounts in their reserves. Therefore, when the federal funds rate increases, then all interest rates on loans provided to consumers and the return rate on the bank's deposit certificates, such as money market accounts, certificates of deposit and savings accounts will stagnate or decrease slightly.

In general, there are two methods used to calculate the prime lending rates. The first method, which is rather rarely used, implies that the prime rates and the benchmark lending rates are established by the authorities that manage the rates. The second one is commonly used in most countries of the world and it is based on the market forces. In short, the market forces imply the growth or contraction of the economy, trade balances, money supplies of the national banks, macroeconomic factors and so on.

It is important to note that there is some controversy regarding the way the Federal Reserve sets its prime rate and hence, influences the PLR of the other banks in the U.S. Basically, the federal funds rate is an exception and rarely set of rules used by the Federal Reserve to intentionally affect the economy.

By manipulating the cash flow, usually by increasing the supply in the open trade markets, they are assuming some huge risks, according to some economists. This main disadvantage of the expansionary monetary policy is that it is prone to add deficits and increase the inflation in the economy. According to the critics of the policy, the economy will stabilize and the benchmarks will emerge naturally, despite the financial crises U.S. and other countries are facing today.

Interested to know more about benchmark lending in general and the benchmark lending rate as well? There are certain websites that carry a wealth of information on this niche and you can easily access them with a simple online search!

Financing Basics For First-Time Homebuyers

Many people who are considering buying their first home can be overwhelmed by the myriad of financing options available. Fortunately, by taking the time to research the basics of property financing, homeowners can save a significant amount of time and money. Having some knowledge of the specific market where the property is located and whether it provides incentives to lenders may mean added financial perks for buyers. Buyers should also take a look at their own finances to ensure they are getting the mortgage that best suits their needs. 

Loan Types

There are several mortgage loan types; these are differentiated by loan structure and the agencies that secure them.

1. Conventional Loans 
   Conventional loans are fixed-rate mortgages that are not insured or guaranteed by the federal government. Although they are the most difficult to qualify for due to their requirements for criteria such as down payment, credit score and income, certain costs, such as private mortgage insurance, can be lower than with other guaranteed mortgages. 
   
   
   Conventional loans are defined as either conforming loans or non-conforming loans. Conforming loans comply with the guidelines set forth by Fannie Mae or Freddie Mac. These stockholder-owned companies create guidelines, such as loan limits - $417,000 for single-family homes, for example - because they package these loans and sell securities on them in the secondary market. 
   A loan made above this amount is known as a jumbo loan and usually carries a slightly higher interest rate because of the lower demand for loan pools with these loans in them. Non-conforming loans, usually provided by portfolio lenders, have guidelines that are set by the particular lending institution underwriting the loan. 
2. FHA Loans 
   The Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development, provides various mortgage loan programs. An FHA loan has lower down payment requirements and is easier to qualify for than a conventional loan. FHA loans are excellent for first-time home buyers because in addition to lower upfront loan costs and looser credit requirements, they allow down payments of as low as 3%. FHA loans cannot exceed the statutory limit.
3. VA Loans 
   The U.S. Department of Veterans Affairs (VA) guarantees VA loans. The VA does not make loans itself, but guarantees mortgages made by qualified lenders. These guarantees allow veterans and service people to obtain home loans with favorable terms, usually without a down payment, and in most cases they are easier to qualify for than conventional loans. Lenders generally limit the maximum VA loan ($417,000 in 2008, $625,000 in Hawaii, Alaska, Guam and the U.S. Virgin Islands). Before applying for a loan, request eligibility from the VA. If you are accepted, the VA will issue a certificate of eligibility to be used in applying for a VA loan.
   In addition to these common loan types and programs, there are programs sponsored by state and local governments and agencies, often with the goal of increasing investment or home ownership in certain areas. 

Equity and Income Requirements

The pricing of home mortgage loans is determined by the lender in two ways, each of which determines the creditworthiness of the borrower. In addition to checking the borrower's FICO score from the three major credit bureaus, lenders will require information to determine two standard statistics, which are used to set the rate charged on the loan. These two statistics are the loan to value ratio (LTV) and the debt-service coverage ratio (DSCR).

LTV is determined by the amount of actual or implied equity that is available in the collateral being borrowed against. For home purchases, LTV is determined by dividing the amount being borrowed by the purchase price of the home. The higher the LTV, the more expensive the loan will be because the lender believes there is a higher risk of default. The idea here is that the more money the borrower is putting at risk (in the form of a down payment), the less likely he or she is to default on the loan.

LTV also can contribute to loan costs by determining whether a borrower will be required to purchase private mortgage insurance (PMI). PMI insulates the lender from default by transferring a portion of the loan risk to a mortgage insurer. Most lenders will require PMI for any loan with an LTV greater than 80%, meaning any loan where the borrower will have less than 20% equity in the home. The cost of mortgage insurance and the way it is collected are usually determined by the amount being insured and the mortgage program being used to obtain the loan. 

For the most part, mortgage insurance premiums are collected monthly with tax and property insurance escrows, and are supposed to be eliminated automatically after the loan has been paid down to a point where LTV is equal to or less than 78%. It may also be possible to cancel PMI once the home has appreciated enough in value to give the owner 20% equity and a set period of time has passed, such as two years. Some lenders, such as the FHA, will assess the mortgage insurance as a lump sum and capitalize it into the loan amount. 

There are ways to avoid paying for PMI. One is not to borrow more than 80% of the property value when purchasing a home; the other is to use home equity financing or a second mortgage to obtain the funds needed above 80% LTV. There are many programs that allow for this, but the most common is called an 80-10-10 mortgage. The 80 stands for the LTV of the first mortgage, the first 10 stands for the LTV of the second mortgage, and the third 10 represents the equity the borrower has in the home. Although the rate on the second mortgage will be higher than the rate on the first, on a blended basis it should not be much higher than the rate of a 90% LTV loan and for most people it will be cheaper than paying for PMI. 

This is an exceptional alternative for borrowers who wish to pay off their homes early because they can accelerate the payment of the second mortgage and eliminate that portion of the debt quickly. As a rule of thumb, PMI should be avoided if at all possible because it is a cost that has no benefit to the borrower. 

The debt service coverage ratio (DSCR) determines a borrower's ability to pay the cost of the mortgage. By dividing a borrower's monthly net income available to pay mortgage costs by the mortgage costs, lenders can assess the probability that a borrower will default on the mortgage note. Most lenders will require DSCRs of greater than one. The greater the ratio, the greater the probability that a borrower will be able to cover borrowing costs and the less risk the lender takes on. The greater the DSCR, the more likely a lender will negotiate the loan rate because even at a lower rate, the lender receives a better risk-adjusted return. For this reason, borrowers should try to find any type of qualifying income they can when negotiating with a mortgage lender. Sometimes an extra part-time job or other income-generating business can make the difference between qualifying or not qualifying for a loan or receiving the best possible rate. 

Fixed vs. Floating Rate Mortgages

Another thing to consider when shopping for a mortgage is whether to obtain a fixed-rate or floating-rate mortgage. A fixed-rate mortgage is one where the rate does not change for the entire period of the loan. The obvious benefit of getting a fixed-rate loan is that the borrower knows what the monthly loan costs will be for the entire loan period. However, a floating-rate mortgage, such as an interest-only mortgage or an adjustable-rate mortgage (ARM), is designed to assist first-time home buyers or people who expect their incomes to rise substantially over the loan period. 

Floating-rate loans usually allow borrowers to obtain lower introductory rates during the initial few years of the loan, allowing them to qualify for a larger loan than if they had tried to get a more expensive fixed-rate loan. Although the benefit can be great, these loans entail a substantial risk for those borrowers whose income does not grow in step with the change in interest rate. The other downside is that in most cases, the rate change is not known at the outset of the loan because it is usually pegged to some market rate that is determined in the future. 

The most common types of ARMs are a one, five or seven-year ARM. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. Once an ARM resets, it adjusts to the market rate, usually by adding some predetermined spread (percentage) to the prevailing Treasury rate. Although most ARMs by contract can only increase by so much, when an ARM adjusts, it can end up being more expensive than the prevailing fixed rate mortgage loan to compensate the lender for having offered a lower rate during the introductory period. 

Interest-only loans are a type of ARM in which the borrower is responsible for only paying mortgage interest and not principal during the introductory period until the loan reverts to a fixed, principal-paying loan. Such loans can be very advantageous for first-time borrowers because only paying interest significantly decreases the monthly cost of borrowing and will allow one to qualify for a much larger loan. However, because the borrower pays no principal during the initial period, the balance due on the loan does not change until the borrower begins to repay the principal. 

Borrowers must weigh the benefit of obtaining a larger loan with the risk. Interest rates typically float during the interest-only period and will often adjust in reaction to changes in market interest rates. Borrowers also have to contend with the risk that their disposable income won't rise along with the possible increase in borrowing costs. (Interest-only loans can be beneficial, but for many borrowers they represent a trap.

Conclusion

If you're looking to find a home mortgage for the first time, there are a few things that can be done to reduce the difficulty of sorting through all the financing options. The best approach is to put some time into deciding how much home you can actually afford and then finance accordingly. Homeowners who can afford to put a substantial amount down or who have enough income to create a high coverage rate will have the most negotiating power with lenders and the most financing options. Those who push for the largest loan will undoubtedly receive a higher risk-adjusted rate and then may have to deal with adjustable-rate mortgages and private mortgage insurance. A good mortgage broker or mortgage banker should be able to help steer you through all the different programs and options, but nothing will serve you better than knowing what you want and what you can ultimately live with. 

The Best Home Financing Options for People with Bad Credit

It is common knowledge that people with poor credit ratings find it hard, if not impossible, to get approval for home financing or loans. Even if you have just filed bankruptcy, you still have many chances of being approved for home financing. You might have relied on banks and traditional methods of home financing that lay strict rules when it comes to credit evaluation and loan approval. There are many home financing options for people with bad credit that you can consider if your credit score is not favorable. With good research and patience, you can find lenders who offer financing programs that are suitable for people with poor credit ratings. You can succeed in finding a bank that can offer you a financing, but you will need to pay a down payment that can be between 25 to 50 per cent of the total cost. This can be very challenging especially if you are going through difficult financial moments. You can choose an alternative financing program from the options discussed below.

You can use bankruptcy to your advantage when looking for home loans. The good thing about filing for bankruptcy is that you have the possibility of making a new start. Lenders will hardly associate you with debt especially if you improve your credit score by consistently and regularly paying your bills. After bankruptcy, if you succeed in getting a job that gives you regular income and that allows you to save at least 10 per cent of the down payment, then you can easily get home financing from a traditional loan program. You can get a loan from some lenders 6 months after bankruptcy. You can also use a seller financing for a new home. With the seller financing, you will have the advantage of no credit checks, fast deal closing, low interest rates and flexible payments.

You can also get a co-signer loan if you have poor credit ratings. In this type of loan, the interest rate and the loan approval are determined by the credit score of the co-signer who should either be a close relative or a partner. Self-employed persons and professionals who are just starting their career with low income can also consider the interest-only loan programs. Interest-only loans allow you to pay only the interest on the loan until you have a regular income to start settling the principal. You can also consider the Federal Housing Administration loan programs. These are government sponsored programs that offer loans to home buyers with very low interest. They do not take credit ratings into account as long as you have a regular income that can ensure consistent payment.

Denmark’s Krone Defense Drives Benchmark Lending Rate Lower

Denmark’s central bank lowered its benchmark lending rate following a cut from the European Central Bank as policy makers in Copenhagen defend the krone’s peg to the euro.

Nationalbanken lowered the lending rate to 0.2 percent from 0.3 percent, it said in a statement today. The deposit rate was held at minus 0.1 percent. The decision followed a 0.25 percentage point cut earlier today by the ECB, bringing the euro area’s main rate to 0.5 percent. Denmark’s central bank doesn’t hold scheduled meetings and only changes interest rates to maintain the exchange rate.

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Danish policy makers have resorted to unprecedented easing to prevent the krone strengthening beyond the limits of its peg. Photographer: Chris Ratcliffe/Bloomberg

“The low monetary policy rates leave a limited leeway for a reduction of Denmark’s Nationalbank’s lending rate,” the central bank said in a statement. “In the current situation where the monetary policy counterparties have a large need to place funds at Danmark’s Nationalbank, the monetary deposit rates determine the money market rates and the exchange rate.”

Danish policy makers have resorted to unprecedented easing to prevent the krone strengthening beyond the limits of its peg. The nation’s status as a haven from Europe’s crisis -- thanks to a debt load that’s less than half the euro-zone average -- has fueled a capital influx into Denmark’s AAA markets and stretched the central bank’s tool box to its limits.

Krone Moves

The krone traded at 7.4550 per euro as of 4:32 p.m. in Copenhagen. That compares with yesterday’s close of 7.4561. It traded as strong as 7.4553 against the euro yesterday, versus the central bank’s targeted rate of 7.46038. The Danish currency was as strong as 7.4306 per euro in May last year and as weak as 7.4633 in January. Foreign currency reserves reached a high of 514.4 billion kroner ($91 billion) in August and have since declined to 491.7 billion kroner in April, the bank said today.

“There was leeway to lower the lending rate all the way to 0.05 percent,” Niels Roenholt, an economist at Jyske Bank A/S (JYSK) in Silkeborg, Denmark, said by e-mail. “The central bank prioritized to keep some space to that threshold and will still have space to move lower if needed.”

Asked by phone why the Danish central bank didn’t match the size of the ECB’s cut, Director Karsten Biltoft said “there’s a limit to how low the lending rate can go in the current situation.” He declined to comment further.

Banking Crisis

While fiscal restraint has kept public debt levels in check, Denmark has suffered more through the global financial crisis than neighboring Norway and Sweden. A more-than 20 percent slump in property prices since 2007 triggered a regional banking crisis that’s wiped out more than 12 banks since 2008.

Denmark’s $300 billion economy probably contracted last quarter, after shrinking 0.7 percent in the three months through December, according to Danske Bank A/S (DANSKE) and Svenska Handelsbanken AB. That would mark the nation’s third recession in less than four years.

Though the central bank’s policy mandate doesn’t give it scope to steer economic growth, the nation’s haven status has resulted in record low borrowing costs, helping households make debt payments. That’s held a cushion under Denmark’s economy as the government argues it doesn’t have room to stimulate demand further.

“With the uncertainties that persist in Europe it would be unwise to spend more as things can still change for the worse,” Economy Minister Margrethe Vestager said this week.

                                                                                                       Culled from bloomberg.com