According to Kathleen M. Howley from Bloomberg this is “the biggest jump in the London interbank lending rate in seven years could wreak further havoc on the U.S. housing market and there’s nothing the Federal Reserve can do about it.”

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California. Today’s rate more than doubled after Lehman Brothers Holdings Inc. collapsed and American International Group Inc. struggled to stave off bankruptcy. If it remains elevated, it will boost the one-month to one-year Libor indexes that average the daily rate, said Keith Gumbinger, vice president of HSH Associates Inc., a Pompton Plains, New Jersey- based mortgage research firm.

“If this is more than a flare, if the rate remains high, there is no doubt it will have an effect on resetting mortgage contracts in the U.S.,” Gumbinger said in an interview. “Even a small bump in the one-month rate will be additional stress on the marketplace.”

Rates on those home loans are beyond the reach of Federal Reserve Chairman Ben S. Bernanke and others on the Federal Open Market Committee, which is meeting today. The so-called Libor- indexed loans, including the subprime mortgages that helped spark the global credit crunch, have interest rates that are set by London bankers who report to the British Bankers’ Association.

ARM Adjustments

The overnight Libor ARM rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers’ Association. Many Libor-linked U.S. mortgages don’t limit the size of a loan’s first adjustment, with caps of 2 percent on subsequent changes. That means a monthly mortgage bill could double or even triple when it first resets.

“If the Libor market seizes up and stays that way, it’s going to complicate everything,” said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. “What you are seeing is the unwinding of the financial system as we know it.”

Banks tightened lending as AIG was downgraded by Moody’s Investors Service and Standard & Poor’s, adding to evidence that the fallout from the collapse of the U.S. mortgage market is spreading. The surge in funding costs came less than a day after Lehman’s bankruptcy, the biggest in history, and Merrill Lynch & Co.’s sale to Bank of America Corp.

Fed Meeting

The FOMC began its meeting this morning and is scheduled to announce its decision at about 2:15 p.m. in Washington. Policy makers have cut rates seven times from September 2007 to April 2008. They suspended the easing as oil prices surged, increasing expectations inflation would accelerate.

Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed’s target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001.

Premiums on investment-grade U.S. corporate bonds climbed. The extra yield investors demand to buy such bonds instead of Treasuries with a comparable maturity soared to 3.80 percentage points, the highest since Merrill Lynch began keeping the data in 1996, from 3.44 percentage points on Sept. 12.

Refinancing Charlotte

A Charlotte Mortgage requires a Refinance Benefits Statement. This statement is required by North Carolina to show that there is a benefit in refinancing your current mortgage. Here are the top reasons why most people refinance : a lower interest rate, ARM to Fixed rate mortgage, shorter loan term, debt consolidation, removing PMI, and maybe to receive extra cash. 

No Difference in Mortgage Rate - Most borrowers would consider 0.5% drop in rate as a good thing, but this may not meet the required benefits when refinancing a NC mortgage.  Closing costs can typically range from 3-4% of which you will need a larger drop in rate to recoup the fees paid.  A borrower can calculate this by dividing the amount of costs/fees with the difference in the new payment.

Bad Credit – It’s very important to know your credit score, and what appears on your credit file.  The reports are free, but you will need to pay for the credit score. Repairing your credit now will save you a lot of money, and you will be able to avoid a declined application.

Choosing the best option - It’s imperative to research all options to make sure you make the best possible choice.  Picking an ARM can be an issue in the future if the rates rise.  Picking a Fixed rate mortgage will give you a higher rate than an ARM, but will provide the safety of not having to worry about your rates going up in the future.  If you’re planning to move within a few years, then the ARM maybe your best option.

Viewing your current Mortgage - Believe it or not, your current mortgage may be the best option that is available to you. It is important to identify the reasons why you’re planning to refinance, and looking for the short/long term benefits.  If paying PMI will take 10years, then you may want to consider refinancing your current mortgage. If you only have a couple years left, then waiting for the PMI to drop may be your best option.  A lot of borrowers are refinancing because of the high subprime PMI payments.  FHA mortgage insurance payments can be a lot lower, and is a benefit to refinancing.

Foreclosure – There aren’t many mortgage options for those that are about to go into foreclosure. The best option is to call your current lender to see if they will perform a loan modification to lower your rate, and possibly lowering your principal balance. They can also give you a fixed rate mortgage if you’re in an adjustable rate mortgage. 

Shopping for lenders - Using your current mortgage lender to refinance your mortgage maybe costly with rate and fees. Mortgage lenders are known to give the best offers to new borrowers.  Using a mortgage broker can also be beneficial as they will have access to hundreds of lenders, and can provide the best rates and options.  

Mortgage Comparison - It is imperative to pick a broker has access to different mortgage programs.  Not all Charlotte mortgage lenders are FHA or VA approved.  FHA Mortgage applications have been rising for Charlotte Refinances, and it’s imperative that a lender has worked with FHA before. USDA mortgages is another great option that not all brokers offer.

Go over the Disclosures - Not all borrowers go over disclosures, and this maybe a costly mistake at closing.  It’s important that all rates, fees, costs, and terms are discussed before the closing date.  A honest broker will be willing to over all documents, and help you make the right decision.  Many times a borrower maybe lured in with a low rate, but later finding out that they dont qualify for that rate.  Make sure to read all disclosures, and to always ask questions!  

PPP Prepayment Penalties – A lot of borrowers have a PPP on their current mortgage. This will make it harder for you to refinance out of the ARM into a fixed rate mortgage. Although it’s not impossible to refinance a loan with PPP, it can be at a higher cost to payoff the penalty. Make sure to ask mortgage lender if they plan on giving you a PPP on your new mortgage loan.

It’s very important to go over all disclosures, and to ask all questions.  Make sure to express what you’re looking for in the refinance, and if it will be beneficial to your current situation. Refinancing may not always be your best option.

North Carolina requires NC Mortgage Lenders to complete a Refinance Benefits Statement for a Charlotte Refinance. Refinancing Charlotte mortgage loans is our speciality, and we’ll be glad to help you with all your questions & needs.  Please visit our North Carolina Mortgage Rates page for our daily rates!

Charlotte is one of the fastest growing cities in North Carolina.  We’re experiencing great home appreciation due to residents relocating from all over the United States, and buying up the homes for sale in Charlotte.

Charlotte Mortgage applications are coming in everyday for all types of home financing.  Recent Charlotte Home Mortgage inquiries include FHA loans, VA loans, Super Jumbo loans, and your regular Conventional mortgages.

If you’re looking for a Charlotte Home Purchase loan or Charlotte Refinance, we can assist your needs with a variety of mortgage products. Please visit our mortgage rate page as we update our Charlotte Mortgage Rates daily!