Mortgage Rate News

In the current credit market crunch climate that seems to be taking down the mortgage industry more than any other sector, many lenders are working to attract applicants with incentives like green mortgages and no-fee mortgages. Bank of America is one of those. But does the Bank of America No Fee Mortgage PLUS really save money in the long run? Or is it just a short-run savings?

Short-term savings with the Bank of America no-fee mortgage

The short-term savings are obvious. No closing costs. This can save a great deal, when you think that most of the time closing costs run between $2,000 and $4,000. Additionally, the Bank of America No Fee Mortgage PLUS does not require you to carry private mortgage insurance, which can be a hefty fee over the life of your mortgage loan.

Private mortgage insurance is designed to protect the lender in the event that you default on your loan. Most of the time, the lender adds the cost into the mortgage payment each month if you don’t make a 20% down payment. The Bank of America no-fee mortgage eliminates this, and allows you to avoid the private mortgage insurance, even without a 20% down payment.

What are the long-term savings of the Bank of America no-fee mortgage?

But, of course, costs to most lenders are usually made up in some way. In the instance of the Bank of America no-fee mortgage, the difference is made up by charging a higher interest rate. This higher rate, over time, offsets the short-term savings you manage to get from the set-up costs.

Bottom line: This is a great deal if you are planning to sell your home in five to seven years. You will save money overall. But once you get to the point where you are holding on to the home long-term (say 10 to 15 years) you will find that the interest charges more than make up for your initial savings.

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One of the most disappointing pieces of news to hit at the end of last week was that mortgage rates are going up. There has been some doubt as to whether the economy will really be helped by last week’s Fed rate cut, and in the housing market fears continue. This is driving mortgage rates back up to levels seen before Fed rate cut speculation got underway.

The main problem is that instead of helping the respectable home mortgage loans, like the fixed rate traditional mortgages, the Fed rate cut is perpetuating the problem with non-traditional mortgages. The rate on a negative amortization ARM (complete with prepayment penalty) is down, but the types of mortgages that will help the economy in the long run are the ones suffering. And the Fed rate cut may not be over, reports Forbes:

‘The market is speculating that US rates will likely move downwards,’ said Mark Wan, vice president for treasury at DBS Bank in Hong Kong.

But would another Fed rate cut really help mortgage rates? They follow closely behind T-note rates, and unfortunately, right now, the economic climate is leading T-note rates higher. So while a Fed rate cut may help, it will take a while for the effects to be felt on the housing market.

One of the biggest hurdles to getting a home mortgage after bankruptcy is your credit score. A bankruptcy can significantly damage your credit score, since it implies that you are irresponsible with credit. And it shows that some of your debts may not have been paid. This means that it is important that you try and rebuild your credit as soon as you can after bankruptcy. And even though that bankruptcy can stay on your credit report for up to 10 years, you can build a good enough credit score for a home mortgage within a couple of years if you follow good credit practices.

A secured credit card can help you build your credit score

One way to help improve your credit score after bankruptcy is to use a secured credit card. These are cards that only allow you to have a limit equal to what is in your bank account. Often, you will find that a secured credit card will only come with a balance of $200 to $600. This may not seem like a lot, and it isn’t, but it is a good first step, and way to begin improving your credit score.

Here are some tips offered by MSN Money Central about selecting a secured credit card:

• No application fee and reasonable annual fee. Some secured cards tack huge upfront and annual charges onto their accounts; you don’t need to pay these to build your credit.
• Reports to the major credit bureaus. You’re not doing your credit score any good unless your payment history is being reported to the three major bureaus: Equifax, Experian and TransUnion. Call and ask if the card issuer regularly reports to all three before you apply.
• Converts to an unsecured card after 12-18 months of on-time payments. Good behavior should get you upgraded to a regular credit card within a year or two.

Remember that you are trying to improve your credit score. You should avoid maxing out your secured credit card, and you should try to pay the balance off each month. This will allow you to prove that you have turned a corner. And it will show that you are using credit responsibly, helping push your credit score higher, despite your bankruptcy.

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