The U.S. Federal Reserve is capable of having a major effect on interest rates, by taking measures to adjust the amount of funds which are available in the economy. Its actions are taken with the intended effect of both maintaining good economic conditions and avoiding excessive inflation. Other economic factors can also have an effect on rates as well.

According to federalreserveeducation.org, the Federal Reserve takes steps to change how much credit and money are available in the United States economy, which has an impact on interest rates. It accomplishes this by buying or selling government securities, as well as directly changing its “discount rate” or bank reserve requirements. The web site federalreserve.gov states that the “discount rate” refers to the rate which individual banks must pay the Federal Reserve bank’s regional lending facilities to obtain short-term loans. This can have an indirect effect on other interest rate levels. Reserve requirements, according to wikipedia.org, are Federal Reserve regulations which determine how much money banks must keep (ready to be withdrawn) rather than lending it.

Federalreserveeducation.org also indicates that the Federal Reserve’s goals in adjusting interest rates are to bring about growth in the economy, prevent unemployment, and keep prices from rising or falling. More money in the economy, and lower rates, can cause inflation. Greater inflation and reduced interest combine to discourage money from being saved, with consumers preferring to spend it immediately. On the other hand, a higher interest rate has the effect of discouraging purchases made with credit. Thus the Federal Reserve has to carefully consider the different effects adjusting rates can have on the economy and try to determine the best compromise between high or low rates.

However, the Federal Reserve isn’t the only economic force which can have an effect on interest rates. Like any product or service, if not enough people are willing to pay interest at a particular level, banks will have to lower the rate. For example, if hardly anyone would sign up for credit cards with interest in excess of ten percent or car loans higher than six percent, banks would most likely lower the rates regardless of what the Federal Reserve might do. On the other hand, if banks feel that consumers are willing and able to pay higher rates, they may be increased. A wide range of economic conditions involving wages, prices, competitors, etc. can change how high interest customers find acceptable.

Making an offer to buy a home is an exciting event. Be sure that you are definitely ready and have found the house you really want though, before making the offer because it becomes a legal contract after a few days if the seller accepts your offer. With that in mind here are some steps to take before making the offer.

1. Find out how much you can afford to spend on a home. You can either consult someone such as a mortgage broker or lender or you can use an online calculator like this one.

2. Decide if you want a fixed-rate or adjustable-rate mortgage.

3. Figure out how much money you can afford for a down payment. Usually you will be required to put down between 5% and 20%, depending on the loan.

4. Get your loan! Get pre-qualified so you know how much you can afford.

5. Find a reliable company to do inspections and agree upon which inspections will be done with the current owner.

6. Negotiate a price. The seller will have an asking price and you or your broker will make an offer. The seller will either accept or counter-offer.

Once the seller accepts your offer you that’s it so make sure you double check and understand everything you sign.

While there is sometimes little choice as to whether you should stay in your or not, at other times it is necessary to decide if it is best to leave or stay. Factors which should be considered include the present real estate market, how much of the mortgage has been paid off, and possible improvements which could be made to the home.

The longer you wait to sell a home, the more of the mortgage will have been paid and the less will have to be repaid from the sale price, allowing a more expensive property to be purchased or more money to be left over and used for other purposes.

If there are repairs or significant improvements which would greatly increase the home’s value, it may be preferable to stay until they can be completed and/or money becomes available to finish them. However, there is always the possibility that the real estate market will have worsened by the time such efforts have reached completion.

Some people consider leaving their homes when they retire and have difficulty making mortgage payments with a fixed income. A somewhat preferable alternative to this, especially if real estate prices are low at the time, is a reverse mortgage; these enable retired homeowners to receive payments from the home’s equity until they can no longer live in the home (or death), at which time the mortgage and the reverse payments have to be repaid.

When real estate sales are slow, there’s no major reason not to offer the home for sale at a price which is desirable to you (there is always a chance someone will buy it), but it is best to stay until the market has improved before attempting to offer it at a competitive price.

In some cases it may be worth accepting less than you would like to receive for a home, if there are factors which mitigate the effect of this, such as being able to obtain a higher-paying job elsewhere or cutting expenses substantially (by renting an apartment or moving to a smaller home).

Overall, deciding whether or not, and how long, to stay in your home depends upon a variety of financial factors, as well as personal preferences regarding how you want to live. The costs of relocating to a new home (moving furniture, setting up new utility accounts, lost productivity, temporary storage, etc) should be kept in mind as well.

Homeowner’s insurance provides compensation if an insured home is damaged or destroyed in particular circumstances, depending upon what is covered by the individual policy. This may include damage caused by important risks such as fire, thunderstorms, vandalism, or other harmful events. Some homeowner’s insurance policies also include compensation for possessions inside the home, extra expenses while living elsewhere after the home is severely damaged, and/or medical expenses for people who become injured on the property where the home is located.

Homeowner’s insurance is especially important if the home is being paid for through a mortgage; according to wikipedia.org, U.S. banks usually require mortgage borrowers to have this type of coverage. This is because the bank would have no way to recover the money it loaned to the homeowner to buy the home, if it is uninsured and becomes severely damaged. Wikipedia also indicates that banks sometimes exempt homeowners from this if the land the home is located on is of greater value than the loan amount.

There are a variety of homeowner’s insurance types available, according to the Mississippi Department of Ins. issued “Homeowners Insurance Consumer’s Guide.” These types include coverage for renters, townhouses, and condominiums, among others. Policies apply to a single important risk (”named peril”) or multiple (”open perils” or “all risk”). Damage caused by flooding, and some other types of natural disasters, is usually not compensated for by homeowner’s insurance. As with medical insurance, less expensive homeowner’s policies often have higher deductibles; the policy will only compensate for costs which exceed the amount of the deductible. It is important to make sure that the policy covers risks most likely to affect the home in question.

Such risks are more widespread than some might believe. According to U.S. Fire Administration statistics, there were approximately 412,000 residential structure fires during the year 2006; these caused nearly seven billion dollars in damage. The Department of Justice website indicates that approximately 2.15 million burglaries (which does not include theft from automobiles) took place in 2005. Still, a less expensive high-deductible homeowner’s insurance policy may be preferable for a brick house with few valuable possessions in it.

In most situations, homeowner’s insurance is very important to have, both for ensuring the financial security of the home’s residents and meeting the mortgage requirements of banks. Only if the home (not including the land) and its contents are of rather limited value or especially unsusceptible to damage might it be appropriate not to hold such insurance.

Saving on your mortgage can help be done in both interest payments and years if you follow these few tips.

Start before you have a mortgage. If a mortgage company has a small overhead, they are less likely to charge you continuously high service fees. Find out what type of fees you’ll be paying before signing your loan. Also, get the best mortgage company possible with your credit score to save on interest costs over the years.

If you already have a mortgage, refinancing may be a good option if you are able to get a lower interest rate than your current one. To determine your savings simply divide the cost of refinancing your existing mortgage by the amount you will save on your mortgage payment each month. This will give you the saving that you can get by refinancing your mortgage.

If you have a lot of money in savings and your interest rate there is lower than your mortgage interest rate, paying a lump sum or overpayment on your mortgage can be beneficial. Be sure to check if your mortgage has a penalty for early pay off though.

Pay a little more than your minimum payments. Even $50 a week can make a difference in the long run. Or rather than paying your mortgage monthly, pay half of it twice a month, like most pay schedules. This will work out to one extra month’s payment each year, drastically reducing what you pay in interest over the lifetime of your loan.

These small changes can help to reduce the amount of interest and time you spend with a mortgage. Following them if you can may possibly provide relief in times of mortgage crisis, like the current market.

While fewer people have been taking out regular mortgages in recent months, it has been reported in the media that reverse mortgage lending is increasingly common. A reverse mortgage is a type of loan, usually held by people who are retired seniors, which transforms some of the home’s equity into revenue for the homeowner. The opposite of typical mortgages most people are familiar with, a reverse mortgage provides one or more payments to the homeowner. A reverse mortgage doesn’t need to be repaid until the owner either dies or stops living there. This enables retired homeowners to afford paying their expenses without leaving their homes. Read on for more facts regarding the characteristics of a reverse mortgage…

According to the Federal Trade Commission, there are three different types of reverse mortgages available; single-purpose, federally-insured, and proprietary. The single-purpose type can only be used to pay for a particular expense, and are only available to people with relatively low income. The federally-insured and proprietary mortgages don’t require many qualifications (except for being at least 62 years old), but need a larger repayment. The federally insured (a.k.a. HECM) reverse mortgages allow the homeowner to reside in a medical facility for as long as twelve months before it has to be repaid. The Department of Housing and Urban Development web site states that the amount of money provided by this type of mortgage is affected by the home’s value, the owner’s age, and interest rates.

The AARP web site indicates that the funds made available by a reverse mortgage can be provided in a few different ways, including either a single large payment, monthly payments, or a credit account which allows money to be withdrawn when desired. In addition to the mortgage having to be repaid if the owner dies, there are multiple situations in which the owner might stop living in the house, also requiring it to be repaid; he or she might move into a retirement home, start living with a family member, or resell the house. If the homeowner dies or moves to a retirement home, his or her family can repay the reverse mortgage by selling the house, or by using other income for repayment if they desire to keep the home.

Overall, a reverse mortgage is somewhat like slowly selling the house over a long period of time while still living in it. This causes it to be more difficult for the homeowner’s family to keep the house, but also makes it possible to continue living there during retirement, with otherwise insufficient income.

With the decreasing number of home sales and the ongoing subprime mortgage foreclosure crisis, some corporations in the mortgage industry have enacted major layoffs of their employees in recent weeks and months. Bankruptcies and layoffs in related industry sectors have also occurred because of this situation.

Multiple layoffs have been announced by this industry just in the past week (as of 09/13/07); the Sydney Morning Herald reported on the 10th that the mortgage lender Countrywide Financial would eliminate twelve-thousand jobs in the coming months. The Reuters news agency reported that Lehman Brothers Holdings and National City Corp plan to carry out layoffs of over twenty-one hundred employees, and the Kansas City Star published a news story indicating that H&R Block announced its intention to cut nearly six-hundred additional jobs at its subsidiary, Option One Mortgage Corporation.

Many mortgage industry layoffs occurred in August as well. Reuters reported on August 17th that NovaStar Financial, which issues subprime mortgage loans, cut its work force by thirty-seven percent (approximately 500 workers), and indicated that 35,752 jobs were cut in the financial sector during August (more than had been lost in a single month for at least fourteen years). The Arizona Republic newspaper published a news report in late August stating that 1st National Bank Holding Company (based in Arizona) had announced layoffs of 541 employees. Other sources reported layoffs at additional companies in the mortgage industry, including GreenPoint Mortgage, IndyMac Bancorp, and Accredited Home Lenders.

Fewer new mortgages are being initiated for various reasons, contributing to these layoffs; home sales are decreasing, lenders are applying greater scrutiny to mortgage applicants, and the availability of subprime rate loans is being cut back. Fewer employees are now needed to process the new mortgages. Some mortgage industry companies have even filed for bankruptcy. According to the Baltimore Sun newspaper, about sixteen lenders have gone bankrupt from December, 2006 through September, 2007. The economic situation has also brought about layoffs in the construction industry and other real estate related sectors.

Mortgage industry layoffs are likely to continue as long as the housing market remains weak. It remains to be seen whether or not it will be possible for the quantity of mortgages to increase again, despite stricter credit history requirements being applied to potential borrowers. With the many foreclosures occurring due to questionable subprime rate loans, the amount of mortgages being issued (and thus the number of people employed) by this industry may have been unrealistic and unsustainable.

Although there are many financial reasons to own a home, there are also plenty of social benefits to homeownership as well. Owning a home is a big part of the “American dream” and often gives the owner a high self-esteem, or a sense of “having made it.” Certainly a person’s peers think higher of a homeowner than simply a renter in their neighborhood.

This may have to do with a perceived notion that an owner will care more about the property upkeep and look than a renter will, having more respect for neighbors and creating a higher value neighborhood in general.

Additionally, owning a home is said to give people a better feeling of control over their lives. The reasoning behind this is thought to be that homeowners have more control over who can enter their house, how they can decorate or change their living environs and what circumstances can cause a family to move. Unfortunately, renters can be forced to move often, which restrains relationships with neighbors, causes stress for children and redirects needed income among other undesirable effects.

Besides the personal benefits, home owning also contributes to society as a whole. Stable housing ahs been shown to have a direct correlation to reduced crime, better-behaved and better-educated children, higher volunteer rates, lowered welfare dependency and higher educational attainments.

All of these reasons add up to why you should look into buying a house if you don’t already own one.

Thirty and fifteen year mortgages both offer some benefits and drawbacks for potential home owners. Both types of mortgages are preferable in different situations as well. Read on to learn about the pros and cons of each type…

Fifteen year mortgages generally have a somewhat lower interest rate, make it possible to finish making payments 15 years earlier, and reduce the total amount of money which has to be repaid (regardless of the interest rate). For example, according to the payment calculator on bankrate.com, the monthly payment for a 15-year mortgage of $150,000 at six percent interest would be about $1,266. At the same rate for 30 years, the payments would be just under $900 per month. However, by the end of the 30 years, the home owner would have repaid a total of $323,640, whereas the total would only be $227,880 for a fifteen year mortgage. With a lower 15-yr. interest rate, the savings would be even greater. When monthly payments no longer have to be made after fifteen years, a large amount of extra income will become available, and it will be much more possible to retire from your employment at that time.

On the other hand, thirty year mortgages have some advantages as well. Being able to afford the monthly payments on these mortgages is more realistic, especially if the mortgage is for $50,000 dollars or more. While the difference between the monthly payment for 15 and 30 year mortgages is only about $61 for a $25,000 mortgage at six percent, it greatly increases to a $244 difference when a $100,000 mortgage is considered. Thirty yr. mortgages may also be preferable if you plan to resell the property and want to have a greater amount of income available for making repairs or improvements. Additionally, it should be taken into consideration that either 15 or 30 years is a very long period of time, and you may want to spend more money on other purposes rather than devoting a large portion of your income to the larger payments on a 15 yr. mortgage.

Overall, fifteen year mortgages are the best choice financially, if your income is high enough and you are likely to be able to sustain that level of income. A longer mortgage period is preferable if you cannot afford the higher 15-year payments and/or expect to resell the home relatively soon.

A subprime rate is a type of high interest mortgage or other loan rate which has been offered to many people with no down payment and/or poor credit histories, such as past bankruptcies or numerous late payments. The logic behind subprime rates is that the higher interest rate is worth the risk (to the lender) posed by borrowers with problematic credit records.

In theory, this makes it possible for borrowers to gain loans who wouldn’t otherwise qualify for them, and enables lenders to receive interest from a greater number of customers. However, many homes purchased using mortgages with a subprime rate have been foreclosed upon during 2007, causing much difficulty for borrowers and lenders alike. Low home sales and reducing prices have contributed to this, with borrowers unable to resell their homes. Many now feel that offering this type of rate on real estate loans is theoretically flawed, at least in part.

A subprime rate mortgage is not so easily obtained at present (Sept. 2007) as in the past, with some lenders which offered them having filed for bankruptcy and others applying greater scrutiny to potential borrowers’ credit records. Vehicles purchased at subprime rates are also being repossessed in increasing numbers; according to a news story published in the Columbus Dispatch on September 2nd, late payments on car loans are at a ten year high, and repossessions involving subprime loans were up fifteen percent in 2006.

Subprime rates don’t only apply to loans for large purchases like houses or cars; some credit cards also have a subprime rate and are issued to consumers with poor credit records. According to wikipedia.org, numerous such credit cards became available in 2007, some with rates as high as twenty-four percent. The credit card industry’s enthusiasm for offering these rates appears to be undiminished by problems involving car and home loans of this type; according to iht.com (International Herald Tribune, Sept. 5th), subprime card offers increased by over forty percent in the first six months of 2007. Even with lower-rate cards, small print on most applications reveals that the interest rate will be dramatically raised after 1-2 late payments.

Due to the severe financial problems which have been brought about by loans with a subprime rate, they are likely to have a diminished role in future real estate lending, at least in the United States. However, lending of this type for smaller purchases (especially through credit cards) will probably remain largely unchanged.