4.25% 30 Year Fixed Rate
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Program Rate APR
30-Yr fixed 4.750 % 0.7 to 1
15-Yr fixed 3.750 % 0.7 to 1
5/1 ARM 3.125 % 0.7 to 1
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Mortgage Rates – How to Calculate

Mortgage rates have been on a roller coaster ride ever since the financial crisis of 2008. Mortgage interest rates are heavily influenced by the Federal Funds Rate, which the Federal Reserve sets as the target rate for the whole economy. In response to the growing crisis in 2007 and 2008, the Federal Funds Rate was cut from above 5 percent to effectively zero. Mortgage rates did not quite follow suit, but they did fall in 2009 after actually rising a little. They have continued to fall ever since. Today, they are at their lowest levels in decades.

As of August 1, 2011, the interest rate on a 30-year fixed-rate loan was 4.55 percent. The rate for a 15-year fixed-rate loan was 3.72 percent. Such low mortgage rates would have been seen as a buying signal in earlier times, just as the unprecedented low rates in 2003 spurred the greatest housing bubble in U.S. history. Today, no matter how low rates get, borrowers are hardly biting. Real estate sales have collapsed across the country, putting a big dent in the construction industry, the real estate brokerage industry and related fields.

Interest rates directly relate to home prices because the lower the interest rate, the higher the mortgage balance someone can borrow. The lower interest rates get, the more demand for commercial and residential real estate goes up, and the more real estate prices rise. Almost the exact inverse of this is being seen today. Despite record-low current mortgage rates, borrowers are not borrowing and lenders are not lending. Real estate prices are falling precipitously in both commercial and residential sectors.

Current mortgage rates are an important part of the story. Using a mortgage rate calculator in the past enabled a borrower to come up with a reasonable estimate of the total cost to them of purchasing a home. The principal and interest on the loan was amortized to show the prospective homeowner what their monthly payment would be. Today, a mortgage rate calculator still reveals the monthly payment, but what it does not reveal is the pervasiveness of negative equity. This is a situation in which home prices have fallen so much the mortgage balances are worth more than the homes they collateralize.

Despite the negative outlook and conditions, many buyers still exist. The market has collapsed from its unsustainable mid-2000s highs. It still has a long way to go before recovering fully.