Refinancing in a Declining Rate Environment

Mortgage and Lending with Mortgage Banker

low mortgage ratesI am interested to hear what others in the mortgage industry are hearing from their clients about falling interest rates after they are already locked in.  First of all I don't think it is wise to pay closing costs when refinancing so most my current refinances are no closing cost deals.   I try to stress to my clients that when we lock a rate for them as a warehouse lender we are literally setting aside funds for them at a contracted rate.  If rates go up they of course can rest assured that we will honor the original rate lock but on the flip side I stress the importance of them honoring the rate lock if by chance rates come down.  Now,  that being said we do have the ability to renegotiate the rate if pricing improves significantly but typically not down to the lowest market rate.  For example if a borrower locks in at 6.00% and rates fall to 5.625% I could most likely get them 5.75%. 

The thing that really gets me is the speculation that rates will continue to fall.  Most clients appreciate and acknowledge that rates are excellent right now and if they can save money by refinancing AND pay no closing costs, why hold off for what could be/might be/and very well won't be?  In other words take the sure thing.   And quite frankly I can barely keep up with these types of clients so if someone wants to wait then so be it.  The best example I can give of the price you pay by waiting is all the clients who said to me in January when rates fell for only a matter of hours, "I think we are going to wait for rates to drop even further."  These are people who could have saved $200 with no closing costs.  By "waiting" they have hypothetically lost $2400 in the last 12 months.

And now we need to give explanations to everyone who says they really need to refinance but they are going to hold off for that 4.5% rate they have been reading about and seeing in the news.

As cited by every journalist in every publication,  the 4.5% story is 100% speculation.  Naturally, that doesn't stop the press from covering it.  When hope for homeowners gets spread in this manner, it's important to remember some facts:

  1. The Treasury doesn't set mortgage rates -- Wall Street traders do.  Historically, rates are based on the Supply and Demand for mortgage-backed bonds.
  2. Treasury intervention doesn't guarantee low rates.  That mortgage rates are up by a half-percent since last week proves it.

Zero details about the plan have been confirmed, quoting CNBC.  Everything you've heard about 4.5 percent rates is a guess at this point. 

Please share what you have been hearing and how you have dealt with it.  I would be very interested to hear what other experts are going through.

Justin Perry