Plymouth, MN

Mortgage markets worsened last week on a mixed bag of economic data. Inflation data came in soft, but so did the start of the holiday shopping season.

For the first time in a month, mortgage rates worsened last week, adding roughly 0.125 percent on conforming fixed-rate products, and a little bit more on ARMs.

Despite rates worsening, there was still some good news for home buyers and would-be refinancers. Mortgage rate volatility was markedly lower than in recent weeks. You could shop for mortgage rate last week and actually take your time about it.

This is in stark contrast to the last month or so over which mortgage rates changed every few hours, on average.

This week, though, because a heavy data calendar is combining with a holiday-shortened trading week, rates aren't likely to stay as tame.

• Monday: Existing Home Sales.
• Tuesday: Consumer Confidence, Home Price Index, Fed Minutes.
• Wednesday: New Home Sales, Personal Income and Outlays.

Each of these data points are market-movers by themselves. In tandem, however, they could really shake things up. Then, at the tail end of the week, markets will react to Black Friday.

If stores look full Friday and initial receipts appear high, stock markets should rise at the expense of bonds, leading mortgage rates higher.

Additionally, expect that mortgage rate changes will be amplified because of low trading volume. This could work in your favor, or out of your favor -- depending on the market direction.

With mortgage rates at such low levels and unlikely to fall much further, locking a rate is advisable. If you choose to float, though, keep your loan officer on speed dial because when rates do rise, they're going to rise quickly.

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For today's home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.

The 15-year/30-year interest rate spread is near its 5-year high.

Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments.  This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.

As compared to 30-year terms, 15-year products repay 3 times as much principal each month.

Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting.  The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.

Another negative is that the sheer size of the payment.  If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do. 

In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term.   If you can manage it, though, the rewards are tangible.

At today's rates, a 15-year fixed and 30-year fixed costs $230 extra per $100,000 borrowed.

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A "Housing Start" is a home on which construction has started and, for the 4th straight month, national single-family housing starts held steady last month. 

When the demand for homes grows faster than the number of homes for sale, prices increase. 

As recent home sales data confirms, buyers currently outpace sellers and one consequence of this is an increase in multiple-offer situations this year. 

It's no wonder home prices are up across so many neighborhoods.

October's Housing Starts report is yet another piece of housing data foreshadowing rising home prices into 2010.

Building Permits were also down in October, a potential demand-to-supply imbalance magnifier. Without permits, there's no future construction. This drains supply. Meanwhile, tax breaks and low rates tend to stimulate demand and, right now, we've got both. 

Therefore, so long as demand remains semi-constant into the New Year, expect home prices to rise. 

In many markets, they already are.

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A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on "typical" housing costs nationwide.

Loans in excess of this amount are typically called "jumbo".

While home prices increased from 1980 to 2006, so did conforming loan limits. Since then, however, as home prices have dipped, the conforming loan limit has held.

Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit.

The 2010 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

But conforming loan limits don't apply to all U.S. geographies equally. As a result of various economic stimuli since 2008, the government now considers certain regions around the country "high-cost" areas. In these areas, conforming loan limits can range to $729,750.

There are less than 200 such areas nationwide. The complete list is published on the Fannie Mae website.

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APR is an acronym for Annual Percentage Rate. It's a government-mandated calculation meant to simplify the comparison of mortgage options.

A loan's APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan's interest rate. It's not. APR represents the total cost of borrowing over the life of a loan. "Interest rate" is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an "apples-to-apples" comparison between loan products.

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees. In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations. By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, "life of the loan" is assumed to be full-term. When a 30-year mortgage pays off in 7 years or fewer -- as most of them do -- APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages -- it's not the only metric. The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

website: http://www.homeloansmidwest.com/

youtube channel: http://www.youtube.com/midwesthomeloans

blog: http://www.homeloansmidwestblog.com/