With the Federal Reserve and various government organizations sending artificial support into the mortgage market, interest rates have reached record lows. Interest rates have hovered between 4 and 5% and now one bank is offering an adjustable rate mortgage with an APR of just 3.98%.
ING Direct recently placed the 3.99% rate (3.98% APR) on their 5/1 adjustable rate mortgage option. Consumers can get this loan for up to $750,000, which should be a very decent increase for individual’s loans of more than $417,000, referred to as “jumbo loans”, which do not qualify for some types of financing. Another important factor on the terms of this loan is that consumers must have a 25% or higher down-payment (or equity stake) to qualify for this loan.
ING Direct can offer this deal because it’s online-only and does not have any branches to support. The new 5/1 ARM offering from ING Direct is a particular deal because the closing costs being charged by ING Direct are much lower than what traditional banks charge. This deal is particularly remarkable because it’s the first real effort by a major bank to offer a refinance at reasonable interest rates for those with jumbo loans.
So how can ING Direct offer interest rates so low? Part of the reason is ING’s innovative business model, but the real reason why interest rates are at near record lows is because of the artificial support that the federal government is providing the mortgage market. The mortgage market is now almost entirely owned with the federal government’s takeover of Fannie Mae and Freddie Mac earlier this year. The Federal Reserve is also purchasing troubled mortgage backed securities and providing other stimulus in order to artificially depress rates.
The federal government’s and Federal Reserve’s stimulus to the mortgage market won’t last forever though. Some predict that the Federal Reserve could end its support of the mortgage market by next February, which will lead to a significant jump in interest rates.
