Monday, February 28, 2011
Rate Update: Week of February 28th
Let's have a great week, Spring is 3 weeks away! We'll start our Monday by recapping last week and forecasting this week for mortgage rates. CLICK HERE for the full story.
Tuesday, February 15, 2011
Changes to FHA and Possibly Fannie and Freddie
FHA is preparing to hike their insurance rates (their form of PMI) in April. Back in October of 2010, FHA raised their monthly mortgage insurance premiums from .55% on a 30 year mortgage to .90%. This cost homeowners an increase of about $40 per month on a $100,000 mortgage. They are at it again...this time bumping rates an additional .25% or about $25 per month on a $100,000 mortgage.
New regulations are also calling for a potential increase to Conventional Loan business (loans backed by Fannie Mae and Freddie Mac). Currently Conventional loans can be provided for as little as 3% down...but more commonly 5% down. The proposal would raise the minimum down payment to 10%.
If you are interested in buying, it makes sense from a monthly payment perspective to buy in the next few months given these new pending increases (not to mention interest rates have gone up a full 1% since last November---3 short months ago).
Click Here for a more in depth article and more detail.
New regulations are also calling for a potential increase to Conventional Loan business (loans backed by Fannie Mae and Freddie Mac). Currently Conventional loans can be provided for as little as 3% down...but more commonly 5% down. The proposal would raise the minimum down payment to 10%.
If you are interested in buying, it makes sense from a monthly payment perspective to buy in the next few months given these new pending increases (not to mention interest rates have gone up a full 1% since last November---3 short months ago).
Click Here for a more in depth article and more detail.
Friday, February 4, 2011
Outlook for 2011:
What you Should expect in 2011. Forecasts for Inflation, the Housing Market and Home Loan Rates:
Part 1
http://bit.ly/fGAQB9
Part 2
http://bit.ly/gsvss1
Ryan
What you Should expect in 2011. Forecasts for Inflation, the Housing Market and Home Loan Rates:
Part 1
http://bit.ly/fGAQB9
Part 2
http://bit.ly/gsvss1
Ryan
Tuesday, November 16, 2010
What The Heck Are Rates Doing????
You won't read about it in the news or see it on TV until next week: Rates shoot up the most in one week since March/April 2010.
Rates are always last week's news. The reason is that Freddie Mac posts the country's weekly average 1-week in arrears. (They also post rates with an average in .7% in points paid to get the rate...meaning when they post about rates, they are telling you the average rate if you want to buy your rate down. I do not advocate buying points in a rate environment that is historically the lowest we've ever seen). Back to my point, media outlets usually make it a 1-day per week story. And, in the past 18 months there has not been really a negative trend for mortgage rates. Thus, it's not a sexy story to say: Rates are still low.
You can't look at rates weekly if you want to be sure you are getting the best that is available. Rates move by the minute...not the hour, not the day and certainly not by the week. Here is a good place to see national averages on a daily basis if you can't follow rates thru the day as I post them on myindymortgage.com: Check out this site at Rates
People think that mortgage rates are tied to the 10-Year Treasury. And, if you use this indicator more times then not you are going to guess right on which way mortgage rates are trending. The fact is, rates are tied to Mortgage Backed Securities. They are a bond, just like treasuries, that promise a yield (a return on your investment---an interest rate). So, if I give the Federal Govt $1000 on a 10 year treasury, I will receive in return all my principle back ($1000) after 10 years plus the yield, or interest rate, on that $1000 annually. The idea behind bonds is to provide a rate of return that keeps up with inflation---it is to ensure your money does not lose value.
The 10 year was yielding just under 2.5% back on Nov 4th. See the chart below. In 7 trading days since, yields have gone up to over 2.9% --- or a 0.4% increase.
The spread between a 10 year treasury and mortgage rates are commonly found to be 1.5% to 2%. It makes sense why: if you invest your cash with the Federal Government, it's less risky as our FED has not defaulted on our debt obligations before. If you invest in the American Public, you are betting that a mortgage payment will be made there needs to be a greater return on our investment as there is history where mortgage payments have not been made (we are in such a period and have been since 2006 where foreclosures are up). Thus, if a 10-year is yielding 2.48 on Nov 4th and rates are 4.25% on a 30 year fixed...it stands to reason if the 10-year goes up .4% that mortgage rates will follow in a similar spread.
Look at the 4% Fannie Mae Bond (a fancy name for the bond that yields a mortgage rate of about 4.5%). The price of the bond has dropped since Nov 4. And when bond prices drop...rates go up:
We have all heard of paying points. 1 discount point is equivalent to about 100 basis points. We have seen 250 basis points deteriorate in the past 7 days...or about 2 discount points. And in a rate environment where rates are historically low...I don't advocate paying points. Thus, if we lock today we are locking about .375% worse than we were less than 2 weeks ago.
I have heard this several times in the past 2 weeks: I thought the Federal Government was going to do another round of debt purchases (called Quantitative Easing 2) and the result would mean sustained low rates---or even lower rates. Unfortunately...the message we hear in the media lacks validity. The idea behind buying US Treasuries is to increase the supply of money, to increase inflation, improve the stock market and to lower the unemployment rate. When the goal is to make sure that the economy picks up, that inflation is spurred...Bonds are affected negatively. Bond traders are no longer satisifed with yesterday's rate of return, yesterday's yield...and will ask for a higher interest rate to combat the effects of inflation.
Another point is that each day the US FEDs step up and buy 5 Billion in treasuries, they do so in a market where there has been between 25 Billion to 30 Billion for sale. It's supply and demand here guys...if there is too much of a product and not enough buyers for that product, what happens? Yep, prices drop to make the product more attractive (a sale!!!!!). People step in and buy when there is a sale. Well, with bonds as the price drops the yield increases...in short, rates go up.
There is a push by republicans to get Mr. Bernanke to stop these asset purchases and let the market flow freely. For now, commentary from former Chairman Mr. Greenspan and the oversupply of bonds is driving prices down, rates up and you'll see this played out in the media next week while you are eating your turkey.
What we can watch here in the short term is this...prices have dropped on bonds extremely far and extremely fast. Over the past 18 months when we see something like this, there is often a bounce (a run on purchasing bonds). The bounce causes prices of bonds to increase and yields to fall. We'll need a few days of watching this play out to see if we bounce...or if we continue to slide and see rates climb. Rates are still low...just not at all time lows.
To my clients...if you like your rate in the mid to upper 4's...lock it. If the slide continues...we could be talking a 5% rate soon and your rate may look like a steal. If the bounce happens...we could revisit mid to lower 4% rates. I personally will be watching this for you...and will give my daily recommendation on myindymortgage.com (the twitter feed on the right side of the page).
Happy Thanksgiving!
Rates are always last week's news. The reason is that Freddie Mac posts the country's weekly average 1-week in arrears. (They also post rates with an average in .7% in points paid to get the rate...meaning when they post about rates, they are telling you the average rate if you want to buy your rate down. I do not advocate buying points in a rate environment that is historically the lowest we've ever seen). Back to my point, media outlets usually make it a 1-day per week story. And, in the past 18 months there has not been really a negative trend for mortgage rates. Thus, it's not a sexy story to say: Rates are still low.
You can't look at rates weekly if you want to be sure you are getting the best that is available. Rates move by the minute...not the hour, not the day and certainly not by the week. Here is a good place to see national averages on a daily basis if you can't follow rates thru the day as I post them on myindymortgage.com: Check out this site at Rates
People think that mortgage rates are tied to the 10-Year Treasury. And, if you use this indicator more times then not you are going to guess right on which way mortgage rates are trending. The fact is, rates are tied to Mortgage Backed Securities. They are a bond, just like treasuries, that promise a yield (a return on your investment---an interest rate). So, if I give the Federal Govt $1000 on a 10 year treasury, I will receive in return all my principle back ($1000) after 10 years plus the yield, or interest rate, on that $1000 annually. The idea behind bonds is to provide a rate of return that keeps up with inflation---it is to ensure your money does not lose value.
The 10 year was yielding just under 2.5% back on Nov 4th. See the chart below. In 7 trading days since, yields have gone up to over 2.9% --- or a 0.4% increase.
The spread between a 10 year treasury and mortgage rates are commonly found to be 1.5% to 2%. It makes sense why: if you invest your cash with the Federal Government, it's less risky as our FED has not defaulted on our debt obligations before. If you invest in the American Public, you are betting that a mortgage payment will be made there needs to be a greater return on our investment as there is history where mortgage payments have not been made (we are in such a period and have been since 2006 where foreclosures are up). Thus, if a 10-year is yielding 2.48 on Nov 4th and rates are 4.25% on a 30 year fixed...it stands to reason if the 10-year goes up .4% that mortgage rates will follow in a similar spread.
Look at the 4% Fannie Mae Bond (a fancy name for the bond that yields a mortgage rate of about 4.5%). The price of the bond has dropped since Nov 4. And when bond prices drop...rates go up:
We have all heard of paying points. 1 discount point is equivalent to about 100 basis points. We have seen 250 basis points deteriorate in the past 7 days...or about 2 discount points. And in a rate environment where rates are historically low...I don't advocate paying points. Thus, if we lock today we are locking about .375% worse than we were less than 2 weeks ago.
I have heard this several times in the past 2 weeks: I thought the Federal Government was going to do another round of debt purchases (called Quantitative Easing 2) and the result would mean sustained low rates---or even lower rates. Unfortunately...the message we hear in the media lacks validity. The idea behind buying US Treasuries is to increase the supply of money, to increase inflation, improve the stock market and to lower the unemployment rate. When the goal is to make sure that the economy picks up, that inflation is spurred...Bonds are affected negatively. Bond traders are no longer satisifed with yesterday's rate of return, yesterday's yield...and will ask for a higher interest rate to combat the effects of inflation.
Another point is that each day the US FEDs step up and buy 5 Billion in treasuries, they do so in a market where there has been between 25 Billion to 30 Billion for sale. It's supply and demand here guys...if there is too much of a product and not enough buyers for that product, what happens? Yep, prices drop to make the product more attractive (a sale!!!!!). People step in and buy when there is a sale. Well, with bonds as the price drops the yield increases...in short, rates go up.
There is a push by republicans to get Mr. Bernanke to stop these asset purchases and let the market flow freely. For now, commentary from former Chairman Mr. Greenspan and the oversupply of bonds is driving prices down, rates up and you'll see this played out in the media next week while you are eating your turkey.
What we can watch here in the short term is this...prices have dropped on bonds extremely far and extremely fast. Over the past 18 months when we see something like this, there is often a bounce (a run on purchasing bonds). The bounce causes prices of bonds to increase and yields to fall. We'll need a few days of watching this play out to see if we bounce...or if we continue to slide and see rates climb. Rates are still low...just not at all time lows.
To my clients...if you like your rate in the mid to upper 4's...lock it. If the slide continues...we could be talking a 5% rate soon and your rate may look like a steal. If the bounce happens...we could revisit mid to lower 4% rates. I personally will be watching this for you...and will give my daily recommendation on myindymortgage.com (the twitter feed on the right side of the page).
Happy Thanksgiving!
Thursday, November 11, 2010
In Remembrance of our Veterans
I want to take a moment to thank the men and women of this country that protect us, provide our safety and freedom, and to those who gave their lives so that I may live my own.
Friday, September 17, 2010
Mid September Review
As summer winds down in the next few days, let's look forward to what the fall and winter seasons may bring in terms of lending rates and refinances:
We were it all time lows this month. What does that mean? For buyers with 740+ credit scores it means interest rates crept down to 4.25% with no points for a day or two. It came and went fast. For the most part...4.375% was the standard 30-year conventional fixed rate with no points. Don't get caught up with the Bankrate.com sites or Freddie Mac's published rate. Yes, you may in fact see a 4 or 4.125% rate out there. Read the fine print. These advertisements always come with .7% to 1% in discount points...and the media never explains these rates involve you, the consumer, paying to have that rate. That means on a 100k loan...it costs you $700 to $1000 to buy the interest rate they publish...and that is on top of normal closing costs.
I never publish such rates. It's not my way of doing business...offering a lower rate to attract clients and then saying, "...but at the cost of $$$$$$$$ to get that rate?" Seems like it's a bit of a bait and switch.
Anyway...back to rates. 15-year mortgages have crept down into the 3.75% to 3.875% range. Incredible!
When looking for a mortgage rate, and specifically a refinance opportunity, do not just ask "What is your rate?" (See above paragraph) Chances are, you'll miss out on the real bargains. Think about this...you are a client with a 100k mortgage and and 6% 30 year fixed interest rate. Now, we want to look at the difference between a 4.375% interest rate and 4.75% for a refinance opportunity...the difference in payment is about $21 per month. On the 4.375 rate, you would save about $100 per month. On the 4.75% rate you would save about $79 per month. For my clients, we can almost always do a refinance with no closing costs at 4.75% in this scenario (and not roll them into the mortgage). If a typical refi costs $2000 to $2500 when you factor in closing costs, appraisal, and title fees...would you rather pay a mortgage that saves you $79 per month and costs you nothing. Or would you rather have a savings of $100 per month at a cost of $2000?
Simple math tells us the answer as Option B is the winner right up until the break even point below:
Option A
In 10 years on the 4.375% rate, we save $100 per month or $1200 per year. This is a savings of $12,000. It cost us $2000. Net savings $10,000.
Option B
In 10 years on the 4.75% rate, we save $79 per month or $948 per year. This is a savings of $9480.
In short...unless you are going to be in the home for 10 years...why pay the up front cost? Because if you do, you better be in the home for 10 years or you paid for a refi that you did not obtain the full benefits of the program. Don't get caught up in the rate. Yes, it is important. Get caught up in the payment...the savings....the cost. THAT is where good financial decisions are made.
Outlook
Rates are going to go up...it could be tomorrow, it could be 6 months from now. Don't get caught up in thinking they could go lower from these historic levels. If they go down .125%...who cares? It's $8 per month on a 100k loan. What if they go up .5% tomorrow? That is $40 per month. There is more downside to waiting to lower your rate/payment than upside of rates going lower. And if you close on your home now...and rates do in fact go lower...just refi at my no cost option. You have nothing to lose!
Good luck...happy house hunting...and call me about that refi opportunity.
Ryan
We were it all time lows this month. What does that mean? For buyers with 740+ credit scores it means interest rates crept down to 4.25% with no points for a day or two. It came and went fast. For the most part...4.375% was the standard 30-year conventional fixed rate with no points. Don't get caught up with the Bankrate.com sites or Freddie Mac's published rate. Yes, you may in fact see a 4 or 4.125% rate out there. Read the fine print. These advertisements always come with .7% to 1% in discount points...and the media never explains these rates involve you, the consumer, paying to have that rate. That means on a 100k loan...it costs you $700 to $1000 to buy the interest rate they publish...and that is on top of normal closing costs.
I never publish such rates. It's not my way of doing business...offering a lower rate to attract clients and then saying, "...but at the cost of $$$$$$$$ to get that rate?" Seems like it's a bit of a bait and switch.
Anyway...back to rates. 15-year mortgages have crept down into the 3.75% to 3.875% range. Incredible!
When looking for a mortgage rate, and specifically a refinance opportunity, do not just ask "What is your rate?" (See above paragraph) Chances are, you'll miss out on the real bargains. Think about this...you are a client with a 100k mortgage and and 6% 30 year fixed interest rate. Now, we want to look at the difference between a 4.375% interest rate and 4.75% for a refinance opportunity...the difference in payment is about $21 per month. On the 4.375 rate, you would save about $100 per month. On the 4.75% rate you would save about $79 per month. For my clients, we can almost always do a refinance with no closing costs at 4.75% in this scenario (and not roll them into the mortgage). If a typical refi costs $2000 to $2500 when you factor in closing costs, appraisal, and title fees...would you rather pay a mortgage that saves you $79 per month and costs you nothing. Or would you rather have a savings of $100 per month at a cost of $2000?
Simple math tells us the answer as Option B is the winner right up until the break even point below:
Option A
In 10 years on the 4.375% rate, we save $100 per month or $1200 per year. This is a savings of $12,000. It cost us $2000. Net savings $10,000.
Option B
In 10 years on the 4.75% rate, we save $79 per month or $948 per year. This is a savings of $9480.
In short...unless you are going to be in the home for 10 years...why pay the up front cost? Because if you do, you better be in the home for 10 years or you paid for a refi that you did not obtain the full benefits of the program. Don't get caught up in the rate. Yes, it is important. Get caught up in the payment...the savings....the cost. THAT is where good financial decisions are made.
Outlook
Rates are going to go up...it could be tomorrow, it could be 6 months from now. Don't get caught up in thinking they could go lower from these historic levels. If they go down .125%...who cares? It's $8 per month on a 100k loan. What if they go up .5% tomorrow? That is $40 per month. There is more downside to waiting to lower your rate/payment than upside of rates going lower. And if you close on your home now...and rates do in fact go lower...just refi at my no cost option. You have nothing to lose!
Good luck...happy house hunting...and call me about that refi opportunity.
Ryan
Saturday, August 7, 2010
Why it's Time to Buy
It's Summer...and it's HOT. Who can remember a stretch like this? Last summer felt cold...but not this year. Maybe the temps will warm up the Economy...and the housing market. I was podering the heat and our industry and was thinking...it is a good time to buy or refinance. And here is why:
1) Rates are absolutely at the all time lows. Those nwho have waited this out are going to benefit. The news is bringing up the fact that the FED cannot keep short term rates low (these are not mortgage rates). But the truth is...when the FED says they are going to start bumping rates...then the Bond traders of the world are going to start moving their money away from Bonds and into more risk based assets. This will cause our mortgage rates to increase. So, if you are on the fence to buy...want to refi...it's now. A 100k home today at 4.375% will costs you $60 more per month if rates go up 1%. Rates were just there a few months ago. They will go back and surpass this level.
2) If you buy existing...it's summer. The best time to move is in the summer. Who wants to move with the weather poor. If you are buying new...you can build out in time to close before the end of the year. Many builders will incentivize you to do this!
3) We've noticed a stabilization to pricing here in Indy. I am not seeing the major drops to pricing to get a sale done. Sellers are starting to hold firm. Builders are trying to hold their margins more than just making a sale. The good deals are now...they won't last.
4) Permits in Indy have hit their low point and are going up. More buyers are looking at new construction. As sales increase...it becomes more of a sellers market. That means prices go up.
Get out there...find that first home, or upgrade to your next. Or, lower that payment on your current home---or even lower the term from 30 to 15 years. I bet you in 6 months you wish you had.
Ryan
1) Rates are absolutely at the all time lows. Those nwho have waited this out are going to benefit. The news is bringing up the fact that the FED cannot keep short term rates low (these are not mortgage rates). But the truth is...when the FED says they are going to start bumping rates...then the Bond traders of the world are going to start moving their money away from Bonds and into more risk based assets. This will cause our mortgage rates to increase. So, if you are on the fence to buy...want to refi...it's now. A 100k home today at 4.375% will costs you $60 more per month if rates go up 1%. Rates were just there a few months ago. They will go back and surpass this level.
2) If you buy existing...it's summer. The best time to move is in the summer. Who wants to move with the weather poor. If you are buying new...you can build out in time to close before the end of the year. Many builders will incentivize you to do this!
3) We've noticed a stabilization to pricing here in Indy. I am not seeing the major drops to pricing to get a sale done. Sellers are starting to hold firm. Builders are trying to hold their margins more than just making a sale. The good deals are now...they won't last.
4) Permits in Indy have hit their low point and are going up. More buyers are looking at new construction. As sales increase...it becomes more of a sellers market. That means prices go up.
Get out there...find that first home, or upgrade to your next. Or, lower that payment on your current home---or even lower the term from 30 to 15 years. I bet you in 6 months you wish you had.
Ryan
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