Loans

The Federal Reserve probably plays the most visible role in influencing rates, as it orchestrates money supply. Contrary to popular belief though, when the Fed trims rates, the effects don't necessarily trickle down to every credit and loan product.

Between September 2007 and April 2008, the Fed cut the federal funds rate 3.25 percentage points, from 5.25 percent to 2 percent. Yet over that time frame, the average 30-year fixed-rate mortgage actually rose, according to Bankrate data.

Rates on other loan products did fall, including those for home equity lines of credit, or HELOCs, auto loans and variable rate credit cards. Their rates are pegged to the prime rate, which moves in tandem with the federal funds rate.

Knowing what influences interest rates may help you negotiate a better deal the next time you need to borrow money.

1. The skinny on mortgage rates

What impacts rates: Fixed-rate mortgages are influenced by the current economy and investor expectations.

"Fixed-rate mortgages are pegged to long-term interest rates, like the 10-year Treasury note and are not connected to short-term interest rates controlled by the Fed," says Greg McBride, Bankrate's senior financial analyst.

Short-term rates do affect adjustable-rate mortgages, or ARMs, because the indexes to which they are pegged are shorter term in nature, says McBride.

"Adjustable rate mortgages are often pegged to the one-year Treasury or a short-term LIBOR index, either of which is more closely correlated with the short-term interest rates under the Fed's control," he says.

Risk-averse lenders reeling from record losses from the subprime mess are impacting mortgage rates, too. Lenders are requiring tougher underwriting standards on new mortgages.

Investors who buy mortgage-backed securities are demanding higher yields to compensate them for taking higher risks.

These factors have prevented mortgage rates from falling lower than they are today.

It's tough to lend money for homes while housing values remain uncertain, says Bob Walters, chief economist at Livonia, Mich.-based Quicken Loans.

"If you're lending against something that you think continues to lose value, how do you make your (lending) rule when you make a loan in May and by July you're upside down on that loan?" he says.

Highs and lows: Over the past five years, 30-year fixed-rate mortgages have ranged from a low of 5.28 percent in June 2003 to a high of 6.93 percent in June 2006. In recent weeks, rates have been approaching those 2006 levels.

Fifteen-year fixed-rate mortgages over the past five years ranged from a low of 4.71 percent in June 2003 to a high of 6.57 percent in June 2006.

And 5/1 ARMS, for which Bankrate has data for two years, ranged from a low of 4.99 percent in February 2005 to a high of 6.67 percent in June 2007.

For information on the latest mortgage rates, see Bankrate's mortgage survey.

How to get the best rate: Until the mortgage crises fully ebbs, lenders will likely continue to tighten their mortgage lending standards.

You'll need proof of stable income, preferably a tenure of two or more years at the same employer, a FICO score of at least 720 score and a verifiable down payment -- plus cash reserves, says Ritch Workman, president of the Florida Association of Mortgage Brokers.

"That's our poster-child borrower," he says. "They're the ones being offered the best rates."

With zero-down-payment loans going the way of the horse and buggy, expect to cough up more money at closing to qualify for the best rates -- especially if you're near the conforming loan limit for your area. (Conforming loan limits vary according to area, but are predominately $417,000. A conforming mortgage is one that is eligible for purchase or securitization by government-sponsored enterprises such as Fannie Mae and Freddie Mac.)

"It pays to strategize to either make a larger down payment or borrow less money so you can get that mortgage under that conforming loan limit and at a lower rate," McBride says.

Another rate-reducing strategy is to pay discount points or an origination fee upfront. Both fees are expressed as a percentage of the loan amount, and both will decrease the interest rate of a mortgage, but will increase the amount of cash you need at closing.

On a $200,000 loan, a 1 percent origination fee (also called loan-processing fee) will mean $2,000 out-of-pocket at closing.

Origination fees may or may not be negotiable. Some lenders won't write a loan without an origination fee, says Workman.

How much do discount points lower your mortgage rate? It depends on what's going on in the mortgage market, but one point usually lowers the interest rate by one-eighth to three-eighths of a percentage point. General rule of thumb: One discount point equals a quarter-point rate reduction.

2. The skinny on home equity

What impacts rates: Home equity loans are pegged to long-term interest rates like the 10-year Treasury notes, while home equity lines of credit, or HELOCs, have variable interest rates pegged to the prime rate. The prime rate moves in lock step with Fed interest rate changes.

With home equity loans, borrowers get money upfront in a lump sum at a fixed interest rate and make the same payment each month for the loan term.

HELOCs are lines of credit that allow the borrower to draw money periodically when needed. The interest rate can vary, depending on the prime rate, and the borrower may have the option to make interest-only payments over specific periods of time.

Interest rates for HELOCs are favorable now because Fed actions over the past year have driven down the prime rate.

However, lenders looking to avoid exposure from falling home prices and foreclosures have taken to freezing or reducing HELOCs in some areas and making home equity loans harder to get.

Highs and lows: Home equity loan rates over the past five years ranged from 6.62 percent to 8.19 percent for $30,000 loans. Over the past year, the rate has averaged about 8 percent.

HELOC rates over the past five years have ranged from a low of 4 percent in August 2003 to a high of 8.25 percent in September 2007. Over the past year, they have averaged in the neighborhood of 6.8 percent.

Bankrate's Interest Rate Roundup gives you the latest information on home equity loan and HELOC rates.

How to get the best rate: Know your credit profile and take action while interest rates are low.

Consumers with FICO scores of 720 or higher, low debt-to-income and low loan-to-value ratios, and high cash reserves are getting the best rates on HELOCs right now, according to Ritch Workman, president of the Florida Association of Mortgage Brokers.

Lawyers

Lawyers ill equipped to advise on intersection of social media and copyright laws

I ran across the same shocking legal commentary as American journalist, Jeff Jarvis, this morning. Legal commentary from a judge and a lawyer who look ill equipped to counsel anyone on the future of copyright laws.

I agree with Jarvis when he posts 'First, kill the lawyers - before they kill the news.'

Following the frighteningly dangerous thinking of Judge Richard Posner - proposing rewriting copyright law to outlaw linking to and summarizing (aka talking about) news stories - now we have two more lemming lawyers following him off the cliff in a column written by the Cleveland Plain Dealer's Connie Schultz.

First note well that Schultz is married to U.S. Senator Sherrod Brown as she calls on her newspapers and employer (my former employer, Advance Publications) and fellow columnists to influence Congress to remake copyright. She should be registered as a lobbyist. No joke.

Schultz says that David Marburger, an alleged First Amendment attorney for her paper, and his economics-professor brother, Daniel, have concocted their own dangerous thinking, proposing the copyright law be changed to insist that a newspaper's story should appear only on its own web site for the first 24 hours before it can be aggregated or retold.

Incredible. So if the Plain Dealer reported exclusively that, say, the governor had just returned from a tryst with a Argentine lady, no one else could so much as talk about that for 24 hours. A First Amendment lawyer said this.

Jarvis goes on to explain how nutty thinking like Marburger's is. The death of Michael Jacksoon spread like wild fire across social media (mostly Twitter) with people linking to TMZ' report. Marburger would give TMZ an exclusive on the report for 24 hours. But TMZ is not a newspaper so they don't get the Marburger/Plain Dealer protection?

I'm not a copyright law expert representing newspapers. I don't know how copyright law issues will play out. I don't know how social media and the Internet will continue to change everything.

But actively taking part in social interaction on the net for the last 14 years (first as a practicing lawyer), blogging for the last six, and Twittering for the last couple, I wonder if I have a far better view of what's going on than some lawyers who profess to be experts on the subject.

I'm not certain anything has changed in the way news spreads. It just spreads faster. Newspapers, Radio, and TV historically broke the news. We spread the word. We told people to turn on the radio, watch TV right now, and get a copy of the newspaper. Newspapers didn't complain then when we sent them traffic and new subscribers.

Because news spreads faster we're supposed to give newspapers a monopoly on the news? That's crazy.

Jarvis makes a compelling point which lawyers advising newspapers ought to think about when counseling newspaper clients.

Schultz and the Marburgers complain about what they call the 'free-riding' of aggregators, et al. But they simply don't understand the economics of the internet. It's the newspapers that are free-riding, getting the benefit of links.

The framers of our Constitution, including the First Amendment, intended it to endure and cope with the effects of the anticipated changes of our nation.

Things have changed - changed quickly. But let's be careful when thinking of following lawyers and Judges who may not understand the nature of the change.