Mortgage Market Reports - Interest Rates climb higher !!!!! - January 21, 2009
WARNING, this is not a negative post, it's a reality check !!!!
Fence sitters, your fence post might have broken from under you. If you were waiting for rates to drop to 4.0% or 4.5% because you read it in the paper or heard about it in the news, don't look back wishing. It's still a great time to purchase or to refinance. Just get it out of your mind, what you could have had. Don't worry, not many did, because it wasn't around for more than a week or so.
Reality.... even the best of the best can't predict what rates will be or when. Most of what you read online are written by individuals that belong to market watch services who use to have great track records. But even their predictions now are crumbling.
Let's take a quick look at a few key issues....
- rates are still low. Sure, you can get 4.5%, but you would need to pay dearly for that. It would cost you about 4 points total for this, based on a $200,000 mortgage amount with little to no fees.
- rates from 5.0% to 5.5% is the reality of things. 5.0% costing you about 2.25 pts and 5.5% costing about a point. I bring this up for several reasons.
- Keep mind, rates were in the low to mid 6's a few months ago. But there are many reasons to why our economy can't sustain low rates, even for a short time. Please read this market report : rates going lower, or not??
- One main issue: if someone offers you 4.875% and makes it sound cheap, you probably won't end up with this rate. If you do, they will add more points and or fees at closing. This is called a bait and switch. Rates are bought in different pools of money called coupons. Example : for an extra point, you could go from 4.875% to 4.5%. The 4.875% coupon is more expensive than the 4.5% coupon. Hence the reason why the 5.0% coupon is going to be much cheaper for you than 4.875%. Going from 4.875% to 5.00% would save you just about a whole point. On a $200,000 mortgage, that is $2,000. And for what, just about $7.00 in savings per month? That would take you over 20 years to recoup that money, just for 1/8 of a percent.
Disclosure : Just because someone promised it on paper or in a good faith estimate, doesn't mean that it has to happen. There are many excuses one could use if they don't care about their reputation.
Interest rates in the near future : some speculate that they will come back down some. Okay, how much and when? In my professional opinion, I don't see it. And even if it did, it will be around for a day or two and that's it. As I have mentioned in the past, too many unknowns all at once. My prediction? Rates to be in the mid 6's by spring, low 7's by end of the summer, and possibly low 8's by the end of the year. Overall, we can't sustain low rates. We need to worry about inflation and delation with all of this also.
The reality.... the Gut check : Mentally, 4.875% sounds a lot better than 5.00%, even though it's only 1/8 of a percent less. An average loan officer is not going to explain this to you, or show you examples, or break it down for you in basic numbers. They sell !!!! You want a true mortgage professional that will not only explain the ins and outs to you, that they will educate you on the process, but shoot straight from the hip.
I know of a few very good loan officers that lost clients this week to those that promised rates in the 4's this week. And their costs were cheaper than those rates in the low 5's. People, we all get the rates from the same place, no matter how you look at it. It doesn't matter if I am a broker, a banker, a retail branch, that I get my rates from a wholesale lender, etc, etc. Other loan officers that aren't built on educating the consumer, will use all of this mumbo jumbo mentioned to make it sound that they are the cheapest or the best. It all comes down to profit margin. But what should set apart the good from the bad or average are those that will give great service, explain everything to you, won't keep changing good faith estimates on you, and be honest. I speak about this from 16 years of experience in the mortgage industry. Just be careful out there, but not to careful or over shop. And if shopping for a mortgage, do it all in one day, because rates change daily. Good luck !!!
UPDATE : for a great explanation on how lenders buy and sell rates, please read this by Ken Cook : What is "PAR" rate and how can I meet or beat it?
The First Time Homebuyer Series :
- First Time Homebuyer Tips : Summary - Red Flags to be aware of -- Part 5 of 5
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2008-2009 Tax Credit for First Time Homebuyers : 2008 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2009 by Jeff Belonger
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