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Fed Funds Rate – What is it?

John Thomas July 26, 2007 Tags: ,
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Fed Funds Rate

Fed Funds Rate – What is it?

Fed Funds Rate is the interest rate that Banks and other depository institutions charge each other when they lend money among each other.  The money is usually lent on an overnight basis. Federal law requires banks to keep a certain percentage of their customer’s money on “reserve” or right at hand, where the banks earn no interest on it. Consequently, banks try to stay as close to the reserve limit as possible without going under it, lending money back and forth to each other in order to maintain the proper reserve level. Similar to the Federal Discount Rate, the Federal Funds Rate is used to control the supply of available money and hence, inflation and other interest rates. Raising this rate makes it more expensive to borrow and lowers the supply of available money, which increases short-term interest rates and helps keep inflation in check. Lowering the rate has the opposite effect, bringing short-term interest rates down.

Fed Funds Rate Summary:

Knowing the facts about the Fed Funds Rate and Discount Rate are important to being fiscally literate.  These indexes are not available for lending on consumer loans such as ARM Loans but will influence what the Prime Rate will be.

If you would like to apply for a Delaware Home Loan, you can APPLY ONLINE HERE, you can call John R. Thomas at 302-703-0727.

John R. Thomas – NMLS# 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office Keep Reading...

FHA Loans – Mortgage Insurance

John Thomas July 26, 2007 Tags: ,

FHA Loans – FHA Mortgage Insurance

FHA does not fund home loans directly; rather, it provides a guarantee to the mortgage lender against default. There are two separate fees that HUD collects to provide a level of guarantee coverage to the lender:

  1. Up-front mortgage insurance premiums (UFMIP).
  2. Monthly renewal mortgage insurance (Monthly MI).

The up-front mortgage insurance premium, if required, will be 1.75% of the base loan amount. This can be added directly on top of the base loan amount to determine the total loan amount, regardless of initial loan amount or appraised value. MI can always be added to the maximum base mortgage amount.

Monthly mortgage insurance premiums for home loans closed after January 1, 2001, are refundable through the 5th year of the loan based on certain percentage increments. For example, if a borrower sells or refinances after having the property or the loan for 36 months, the borrower is entitled to a partial refund of the original FHA up-front mortgage insurance premiums.
The annual renewal premium, also referred to as the mutual mortgage insurance premium in the HUD mortgage insurance premium policy, is 0.85% per year divided by 12. This is included in the borrower’s monthly payment. Keep Reading...

Monthly Housing Report for June 2007 Released

John Thomas July 25, 2007 Tags:

Monthly Housing Report for June 2007

Existing Home Sales for June 2007 were reported at 5.75 Million units, which was less than the 5.90 Million expected.  But there was some good news within the report – the median home sales price increased by 0.3% to $230,100 representing the first year over year price increase in 11 months.  Additionally, the monthly sales inventory dropped to a level of 8.8 months from the prior month’s reading of 8.9 months. The monthly sales inventory is a measure of how many houses are for sale currently measured in how many months it would take to sell all of the houses currently for sale.  All in all the report suggests the housing market is stabilizing and isn’t as dismal as the media portrays. Keep Reading...

Federal Discount Rate – What is it?

John Thomas July 23, 2007 Tags: ,
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Federal Discount Rate – What is it?

Federal Discount Rate is the interest rate charged by a Federal Reserve Bank to its eligible member banks and financial institutions when they need to borrow funds directly from the Federal Reserve.  Banks whose reserves fall below the reserve requirement set by the Federal Reserve’s Board of Governors use that money to correct their shortage.  The board of directors of each Reserve Bank sets the Discount Rate every 14 days.  Borrowing from the Federal Reserve is generally considered a last resort option for banks, which usually borrow from each other. Keep Reading...

Prime Rate – What is it?

John Thomas July 21, 2007 Tags: , , , , ,

Prime Rate – What is It?

Prime Rate or Prime Lending Rate is the overnight lending rate that banks charge other banks to lend money.  It is based on the Federal Funds Rate.  Prime is typically about 3% above the Fed Funds Rate.  So if Bank A borrowers money from the Federal Reserve at 1% it will then lend to Bank B at 4%.  The 4% rate charged to bank B is the Prime Rate.

Wall Street Journal (WSJ) Prime Rate is a consensus measure of the Prime Lending Rate, and is published in the Wall Street Journal. The Wall Street Journal surveys the large banks and then publishes their consensus “Prime”, or the rate offered to clients who are considered eligible for “prime” financing terms. The Prime Lending Rate will move up or down in lock step with changes made by the Federal Reserve Board to their Fed Funds Rate.  The Prime Rate is an important index used by banks to set rates on many consumer loan products, such as credit cards, auto loans, and certain Adjustable Rate Mortgages. When the Prime is rising, variable interest rate loans and credit card rates will soon follow. Keep Reading...

Delaware Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

John Thomas July 21, 2007 Tags:

Delaware Home Buyers Face Decisions that Affect their Long Term Financial Picture

Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.

First and foremost, you must have a certified mortgage planner in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here. Curious prospective Delaware home buyers sometimes turn to Internet-based services just to see what current mortgage interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames. Keep Reading...

COSI Index & CODI Index – What are they?

John Thomas July 19, 2007 Tags: ,

COSI Index & CODI Index – What are They?

COSI Index
Cost of Savings Index (COSI)

A bank receives money from consumers in the form of deposits and then lends money as home mortgages or other loans. The interest rates in effect on these deposits are the basis for the COSI index. It is not based on actual interest paid, but rather the weighted annualized average of all interest rates in effect on deposit accounts on the last day of each month.

CODI Index

Certificates of Deposit Index (CODI)

Similar to the Cost of Savings Index above, this index is based on an average of the 12 most recent monthly yields on 3-month certificates of deposit (CDs). Keep Reading...

1 Year T-Bill – What is it?

John Thomas July 17, 2007 Tags: ,

1 Year T -Bill what is it?

One-Year/12-Month Constant Maturity Treasury (CMT)

This is an index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a one-year maturity. The US Treasury determines the yields on these securities by using the “daily yield curve”. The daily yield curve is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market. This index tends to be volatile and responds quickly to changes in economic conditions. Keep Reading...