Welcome to Illinois Mortgage Rates and News week in review for the week ending July 18th, my take on the week's financial news and how it affected Illinois mortgage rates.

This was a brutal week for mortgage bonds, and mortgage rates. After a false start where rates recovered on Monday, the rest of the week mortgage bonds got demolished and fixed mortgage interest rates rose about 3/8s of a point to the highest they have been all year. Mortgage bonds got hammered even as some of the factors that had been responsible for the recent rise in rates seem to be turning. Oil prices fell sharply this week down to $128 per barrel, the dollar strengthened, the Government announced a plan (sort of) to maintain Fannie Mae and Freddie Mac and insure that they stay solvent. These were all factors that in normal times would have propped up mortgage bonds and lowered mortgage interest rates. The CPI (Consumer Price Index) came in high at a monthly increase of 1.1%, which flashed the red light danger sign of rampant inflation. And several of the Fed governors as well as Chairman Bernanke made statements that inflation was their biggest concern. But much of this was looking in the rear view mirror. The economy is soft, credit is still tight and consumers have no purchasing power. The softness in our economy has spread over seas and China and India, the fast growing economies that have fueled the growing demand for commodities world wide, are now slowing down. Many experts think that this will bring down the inflation level in the coming months. So why did rates get so bad so quickly this week?

There is a psychological term called selective perception which states that how someone expects something to turn out will change the way that they perceive what actually does happen to them. This concept was proved by experiments showing how college students would get drunk when they were given what they were told were potent drinks, even though there was no alcohol in them. It is also why liberals and conservatives react so differently to the same information. I think we are seeing a great example of this in the stock and mortgage bond markets now. Money flows back and forth between stocks and bonds based on investor's view of the economy. When the economy is growing and the view is optimistic the stock market usually benefits. When the economy is tanking and there is fear in the air money rushes into bonds, which means lower interest rates. This week was a great week for the stock market. The Dow Jones average gained 3.6% after a rally that was the biggest in five years. PP Morgan Chase and Wells Fargo came in with earnings better than expected and the market is now thinking that the worst is over for the big banks.

This may be wishful thinking. Coming a week after Indy Mac failed, and days after the potential bail out of Fannie and Freddie was announced, the market may be getting ahead of itself. Merrill Lynch announced another $9.7 billion in credit write downs which says that the credit crunch is still not over. With home prices down and less access to the home equity, we are seeing a reverse of the wealth effect. People feel poorer and they are less likely to spend money if they don't have to. The stimulus checks have mostly been spent, and this kept the economy out of an official recession, but the pop is now gone. The stock market had a great week, but my guess is that fear will set in again over the next few weeks, and the pattern will reverse itself with money flowing out of stocks and into bonds. I expect that rates will come back down again in the coming weeks.

If you have a contract on a property or if you are in the market for mortgage financing, you may want to look at the adjustable rate mortgages. ARMs are available with fixed terms of 5, 7 and even 10 years before they become adjustable, and the initial interest rate is much lower than the fixed rates. Some of the banks go in and out of the market with their ARMs, but it is worth comparing the programs, especially if you don't plan to be in the home for a long, long time. If rates come down you can refinance into a fixed rate for little or no upfront cost.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I'll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.625%   6.724% APR

15 year fixed rate    6.00%     6.143% APR

5-1 A.R.M.               5.75%     5.867% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   7.00%    7.147% APR - Requires 20% down payment

7-1 A.R.M.*              6.00%    6.173% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee - 60 day lock

30 year fixed rate    6.50%      7.278% APR

With no origination fee -        60 day lock

30 year fixed rate    6.75%     7.296%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help. The market has been unbelievably volatile and I expect that this volatility will continue.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com