Kiss 4% mortgage rates goodbye

If you've been waiting for rates to hit bottom before locking in, your wait is over.

Mortgage rates begin to rise

After last week's decrease to a record 4.71 percent, interest on 30-year fixed mortgages rose to 4.81 percent this week, Freddie Mac reported.


While the Federal Reserve's effort to purchase $1.25 trillion in mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae has helped keep rates attractive, Freddie Mac chief economist Frank Nothaft says they rose because a favorable unemployment report pushed long-term bond yields up slightly.

With the Fed program projected to end in March, the Mortgage Bankers Association forecast in October that 30-year fixed mortgages will rise to 5.4 percent next year, increase to 6 percent in 2011, and hit 6.3 percent in 2012.

Source: Inman News (12/11/09)

What's your rate?

Our friend David Beck sends the following letter about how better to understand mortgage talk.

My hair was getting way too long. You know that feeling when it just doesn't feel right? I had to get to get my haircut right away!

So there I am under the shears, so to speak, at Sandy's, that delightful Norman Rockwell place where you feel like you've been transported back in time to when your Dad's watchful eye made sure that the young man's hair never touched his ear. The conversation was light and full of the latest news of the day. And wouldn't you know, the topic of mortgage rates comes up. Gee, what a surprise.

The conversation was quickly directed to me. "So," this gentleman says to me, "David, what are your rates? I'm shopping." My immediate response was, "It depends. It depends on many variables." I went on to explain that things have changed dramatically since the 'Great Implosion' and suggested that his best course of action, before he make any real estate purchases or refinancing, was to develop a Mortgage Plan.

As you might expect, that comment fell short of dissuading him. He wanted a rate, pure and simple. "I don't need a plan, I know what I am doing," he said. I countered by saying, "That may be, but let me ask you, what is your FICO score? Are you going to take cash out of your home? What is your loan to value ratio? Will you be paying your own taxes? Are you self employed? Can you document your income? How long do you plan on staying in your home? Are your kids planning on college? Retirement?"

"For the sake of argument," I said, "let's say I quote you a rate of 4.875%. But, if your credit score is less than 740 (which is an absolutely excellent score, by the way) you are going to pay more for your loan. How much more depends on your score. If your credit score is below 640 you may pay up to 3% of the loans value in extra closing costs. How about the loan amount when compared to your homes value? Is it more than 75%? If so you may pay more. How much more? It depends. Would you like to take some cash out of your home when you refinance? Well, that's going to cost you, too. Want to pay your taxes separately from your mortgage so you can save some money? That's going to cost you, as well. I think you can see where I am going with this, right?"

Things are not what they seem to be! Yes, you can walk into any bank, mortgage broker or on-line lender and think you are going to get the quoted rate. Wrong! When you add up lender's fee and all of those additional costs you have one of two options:

1) You can pay all of the "add on" fees up front. Be prepared to bring in tens of thousands of dollars at closing.

2) Should you wish to roll these costs into the loan itself your loan amount will expand by the amount of the additional costs and your actuall interest rate may increase dramatically. How about 6% compared to what you thought you were going to get when you started, which was 4.875%. Now extend the actual cost of those fees over the life of the loan and you're not getting a hair cut you are watching your hair fall out. It is huge!

Money is money of course, and either way you are going to pay. As always, the choice is yours. For most of us, our mortgage is one of our largest financial obligations. You can project yourself into the picture I tried to paint above or you can be proactive and create a mortgage plan with an advisor. Doing so will illustrate how you may be able to correct or avoid some of the 'dings' you may get hit with. In addition, get yourself ready so that when you act you are prepared to act, and in turn save thousands of dollars in the long run. That, my friends, is how you can really save money.

We may all, at one time or another, have wished that life were as simple and straight-forward as is depicted in those beloved Norman Rockwell paintings. Unfortunately, we are in a "brave new world" of financial reality. Now is the time to take control of your financial house, as best you can. 

Should you wait for rates to fall before you buy?

Our friend Hannah Swihart, a Lafayette, IN colleague shared these thoughts:

So how do we answer the question... "I heard rates are going down to 4.5%?"

1. Every year there is always a forecast of how rates will be incredibly low. Usually this doesn't occur,  BUT now might be different.

2. Remember housing started the economic cycle and therefore housing WILL have to be the one item that pulls us out.

3. Yes, there is more talk than usual of having the Fed's help create lower mortgage rates.

4. Creating lower mortgage rates is difficult and will take very smart people to figure that out and the cost could be staggering.

In the meantime if you are a buyer hitting the brakes and saying "I'm waiting for my personal bailout with the 4.5% mortgage rates"

This might be a bad idea. Remember to look at all options.

1. IF rates fall to 4.5% - what happens... Demand will go up, FAST!

2. If demand goes up fast - what happens... Supply will go down, FAST!

3. What happens when the demand goes up fast and the supply goes down fast...Prices will rise!

So, what is the smart thing to do?

A.) You could buy a home now (American Real Estate for the first time has a was / now price just like a clearance sale at the mall...used to be $380,000 NOW only $245,000)

B.) Use the low rates we just inherited (mid 5% for many buyers)

This is the guarantee part - buy home now at low price with low rate!

Just remember we never really know when the bottom will hit but what goes down must go up and once it hits bottom it will rise faster than it went down.

Thanks, Hannah!

How are mortgage rates calculated?

Thanks to Jack Guttentag of the Wharton School of Business for this information:

The thing that most borrowers know about their mortgages is the amount of the initial scheduled payment.

This is the amount they are obliged to pay each period under the terms of the mortgage contract. They know that failure to pay that amount is a violation of the contract, leading to late charges, delinquency reports and foreclosure. While borrowers know the amount, they are often hazy about how it is calculated and what it includes. I will illustrate the possibilities related to a $100,000 loan at 6 percent.

In the simplest possible case, the scheduled payment includes only interest until the final payment, when it includes repayment of the balance.

The interest payment each month is 0.06/12, or 0.005, multiplied by $100,000, which equals $500. The final payment, assuming the borrower paid only interest throughout, would be $100,500.

Most mortgages written during the 1920s were of this type, usually with terms of five or 10 years.

Their weakness is that they must be refinanced at term, which during the Depression of the 1930s became difficult because property values and borrower incomes had fallen.

The notion took hold that it was prudent for borrowers to pay down the balance over time by making a mortgage payment larger than the interest. This additional amount is called the principal payment.

The principal payment is always a residual -- the total payment less the interest. If the borrower in the example paid $600, the $500 of interest would be deducted, leaving $100 as the principal payment. If the borrower paid $700, the principal payment would be $200.

Including principal in the scheduled payment requires a rule for determining what that payment is. The most obvious rule is to pay back equal amounts of principal every month. If our sample loan is for 30 years, we divide $100,000 by 360 to get a principal repayment of $277.78 a month.

Loans of this type have existed, most recently in New Zealand, but they have a serious drawback. The scheduled payment that includes a fixed amount of principal every month starts high -- too high for many borrowers -- and ends low because of the decline in interest. In month one, the scheduled payment is $277.78 plus $500, or $777.78. In month 360, it is $277.78 plus $1.39, or $279.17.

So some unknown pundit reasoned as follows: "If payments beginning at $777.78 and declining every month to $279.17 will pay off this loan, there must be some amount in between, which, if made every month without change, would do the same."

The reasoning is correct -- the amount ($599.56 in my example) is called the fully amortizing payment.

The fully amortizing payment is calculated from an equation that my editor says does not belong in a family publication. It is on my Web site (www.mtgprofessor.com) under "Formulas." But you don't need the equation; financial calculators have programmed it so you can derive an answer in seconds, whereas solving the equation takes minutes.

The only way to reduce the initial payment is to reduce the principal payment.

On mortgages with an interest-only option, the scheduled payment is the interest payment for the length of the interest-only period, usually five to 10 years. After that, the scheduled payment becomes the fully amortizing payment.

On option ARMs, borrowers have the rare privilege of selecting their own scheduled payment during the first five or 10 years.

They can select the fully amortizing payment over either 15 or 30 years, the interest-only payment, or a "minimum" payment that is less than the interest.

Most borrowers select the last, and sometimes find themselves in trouble when their scheduled payment increases in future years.

If the borrower has agreed to escrow property taxes and homeowners insurance, most lenders treat the monthly escrow payments as if they are also part of the scheduled payment; if the escrow payment is short, the payment is considered delinquent.

A borrower can start down a slippery path to foreclosure by failing to pay required escrows.

The writer is professor emeritus of finance at the Wharton School of the University of Pennsylvania: jguttentag@mtgprofessor.com.

Mortgage rates should plummet!

In response to my question about his opinion on what will happen to mortgage rates in the near term, our friend Joe Prevost sent the following response. It's good news for borrowers!

At Pioneer Financial, LLC we spend 100% of our time focused on the mortgage market. We strongly believe that mortgage interest rates will drop to the lowest levels we have seen since 2004.

This extreme interest rate reduction will be a direct result of the aggressive intervention by the Federal Reserve and the U.S. Treasury Department regarding the recent international credit crisis.

Market indicators point to a specific window of opportunity that will keep the rates the lowest for the first 6 months. Loans are underwritten a bit more stringently now but there are still good loans available for those that qualify.

Case Study #1. John V. Cash out refinance under 80% loan to value, conforming loan amount (under $417,000) primary residence, Full income documentation 5.5 % 30 year fixed no prepayment penalty, zero discount points. Funded early Oct 2008.

Case Study #2. Bill T. Cash out refinance under 80% loan to value, primary residence, Jumbo loan amount (over $417,000 ) Full income documentation 5.75% 7/1 arm, loan will adjust 7 years from now in 2015, no prepayment penalty, zero discount points. Funded mid Oct 2008.

Mortgage rates are volatile and it is most important to accomplish the hard work now so we are ready to lock your loan when the lowest rates hit the marketplace.

How can you get ready to lock in the savings?

Gather your W-2's for the last two years, your most recent pay-stubs and statements on your savings, investments or 401k and your most recent mortgage statement.

Call or email me for a preliminary consultation so we can discuss your unique situation and the solutions I provide with our suite of over 20 lenders.

Joe Prevost Personal-Confidential-Conscientious

Mortgage Broker
License # 510-MB-28301
360-697-5444
pioneermtg@comcast.net

Thanks, Joe!

What to know about mortgages today

With so much changing in the real estate and financial markets in recent weeks, many potential buyers are looking for answers. If you're currently shopping around for a mortgage, here is some information to consider.

Rates Remain Low

The federal government's recent backing of mortgage giants Fannie Mae and Freddie Mac has helped re-assure financial markets about the stability of the mortgage industry, and as a result already-favorable rates have dropped even further.

Interest rates on traditional 30 year fixed rate mortgages dropped by between .3 and .5 percent in the days following the news of the government bailout. Some analysts believe that rates will continue to drop, particularly if the government reduces or eliminates some of the fees that Fannie Mae and Freddie Mac currently charge lenders.

Today's Loans Require Extensive Documentation

Interest rates remain very favorable for buyers, but obtaining a home loan is not as easy as it has been in recent years - even for buyers with good credit. Some lenders had previously been amenable to approving buyers for a loan based on either basic income documentation, or in rare cases, no documentation at all. Today, lenders are carefully scrutinizing the income and credit situations of all loan applicants.

For the best chance at getting the loan you want, make sure to provide complete financial documentation, including:


* Completed federal tax returns for the previous three years.
* One to two month's worth of pay stubs
* All W-2 forms for each person who will be named on the loan
* Contact information of your supervisor or human resources manager, to confirm employment
* Two to three statements for every bank account, 401(k), IRA, or other retirement account that you have.
* Addresses and account numbers for any open forms of credit in your name.

Down Payments Grow

On the flipside of lower loan rates, some banks are raising the minimum down payment required in order to secure a loan. The existence of the once-popular "no money down" mortgages has already all but disappeared this year. Today, even homeowners able to put down 10 percent of the home's purchase price may find difficulty securing a loan product.

The reason: banks concerned over soften markets are attempting to limit their exposure. As a result, many are already adopting guidelines that Fannie Mae has indicated it would apply in 2009. Chief among those guidelines is the requirement that homeowners put down 15 percent of the home's purchase price.

30-year fixed rate mortgage plunges

30-Year Fixed Rate Mortgage Rates Fall for Fifth Straight Week

September 19, 2008 -- Realty Times Feature Article

McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.78 percent with an average 0.6 point for the week ending September 18, 2008, down from last week when it averaged 5.93 percent. Last year at this time, the 30-year FRM averaged 6.34 percent. The last time the 30-year FRM was lower was the week ending February 14, 2008, when it averaged 5.72 percent.

The 15-year FRM this week averaged 5.35 percent with an average 0.6 point, down from last week when it averaged 5.54 percent. A year ago at this time, the 15-year FRM averaged 5.98 percent. The last time the 15-year FRM was lower was the week ending March 27, 2008, when it averaged 5.34 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.67 percent this week, with an average 0.7 point, down from last week when it averaged 5.87 percent. A year ago, the 5-year ARM averaged 6.21 percent.

One-year Treasury-indexed ARMs averaged 5.03 percent this week with an average 0.5 point, down from last week when it averaged 5.21 percent. At this time last year, the 1-year ARM averaged 5.65 percent.

"Interest rates for 30-year fixed-rate mortgages fell for the 5th consecutive week, amounting to a total decline of about 0.75 percentage points," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a result, mortgage applications surged nearly 58 percent since August 15th, largely led by a 122 percent gain in applications for refinancing, according to the Mortgage Bankers Association (MBA)."

"The MBA also reports that fixed-rate mortgages are currently the predominant choice among homebuyers and families looking to refinance. Over the first two weeks of September, 95 percent of new applications were for fixed-rate mortgages. Since the end of 2007, the number of ARM applications fell by almost 50 percent."

Will you profit from FanFredFailure?

Mortgages are in the news again...but this time, the news is good! Especially for people looking to buy or refinance a home as interest rates have dropped to the lowest levels seen since April.

You've probably heard that Fannie Mae and Freddie Mac were taken over or "bailed out" by the Federal Government over the weekend. The announcement came as the government felt that both of these institutions were potentially unable to meet their obligations. These agencies must pay off maturing Bonds every month, and they do so by selling new Bonds. But during the last twelve months, investor appetite to purchase new mortgage-backed security Bonds has deteriorated. As such, it has become more difficult for Fannie and Freddie to replenish capital to fund more loans. If both Fannie and Freddie became insolvent, the housing market as well as the mortgage market would come under further pressure.

With the Treasury stepping in to provide a "backstop" for the mortgage giants, investors now have confidence to purchase Mortgage Bonds. And the greater interest has helped to stabilize the mortgage bond markets and lower interest rates.

Call your mortgage broker today so you can discuss what the news means to you and how you can benefit.

Thanks to our friend Kim Aldrich of Cobalt Mortgage in Port Townsend.

Mortgages: what's up, what's down

RISMEDIA, March 13, 2008-The Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey for the week ending March 7, 2008. The Market Composite Index, a measure of mortgage loan application volume, was 671.7, a decrease of 1.9% on a seasonally adjusted basis from 684.9 one week earlier. On an unadjusted basis, the Index decreased 1.4% compared with the previous week and was down 3.4% compared with the same week one year earlier.

The Refinance Index decreased 4.7% to 2448.2 from 2569.0 the previous week and the seasonally adjusted Purchase Index increased 1.6% to 368.8 from 363.1 one week earlier. The Conventional Purchase Index decreased 0.4% while the Government Purchase Index (largely FHA) increased 10.0%. On an unadjusted basis, the Purchase Index increased 2.3% to 410.8 from 401.6 the previous week. The seasonally adjusted Conventional Index decreased 3.3% to 898.0 from 929.0 the previous week, and the seasonally adjusted Government Index increased 6.0% to 294.5 from 277.8 the previous week.

The four week moving average for the seasonally adjusted Market Index is down 12.1% to 711.1 from 809.1. The four week moving average is down 2.4% to 361.9 from 370.7 for the Purchase Index, while this average is down 18.2% to 2752.5 from 3365.8 for the Refinance Index.

The refinance share of mortgage activity decreased to 50.6% of total applications from 52.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 15.5 from 17.3% of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.37% from 5.98%, with points decreasing to 1.05 from 1.15 (including the origination fee) for 80% loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.72% from 5.26%, with points decreasing to 1.06 from 1.08 (including the origination fee) for 80% LTV loans.

The average contract interest rate for one-year ARMs increased to 6.72% from 5.83%, with points increasing to 1.27 from 0.85 (including the origination fee) for 80% LTV loans.

Mortgage rates near six-month low

McLean, VA - Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.26 percent with an average 0.4 point for the week ending November 1, 2007, down from last week when it averaged 6.33 percent. Last year at this time, the 30-year FRM averaged 6.31 percent. The 30-year FRM has not been this low since the week ending May 17, 2007, when it averaged 6.21 percent.

The 15-year FRM this week averaged 5.91 percent with an average 0.4 point, down from last week when it averaged 5.99 percent. A year ago, the 15-year FRM averaged 6.02 percent. The 15-year FRM has not been this low since the week ending May 10, 2007, when it averaged 5.87 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.98 percent this week, with an average 0.4 point, down from last week when it averaged 6.03 percent. A year ago, the 5-year ARM averaged 6.05 percent. The 5-year ARM has not been this low since the week ending May 17, 2007, when it averaged 5.92 percent.

One-year Treasury-indexed ARMs averaged 5.57 percent this week with an average 0.6 point, down from last week when it averaged 5.66 percent. At this time last year, the 1-year ARM averaged 5.53 percent. The 1-year ARM has not been this low since the week ending May 31, 2007, when it averaged 5.57 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

Read full report from Fannie Mac

Mortgage rates fall sharply

RISMEDIA, Oct. 26, 2007-Mortgage rates dropped notably this week, with the average conforming 30-year fixed mortgage rate now 6.31%. According to Bankrate.com’s weekly national survey of large lenders, the average 30-year fixed mortgage has an average of 0.34 discount and origination points.



The average 15-year fixed rate mortgage, popular for refinancing, plunged from 6.17% to 6.00%. The average jumbo 30-year fixed rate retreated to 7.04%. Adjustable mortgage rates declined as well, with the average one-year ARM down to 6.09%, and the average 5/1 ARM falling to 6.12%.

More jitters about the housing market and its effect on the economy drove mortgage rates lower. Bank earnings brought a renewed focus to mortgage delinquencies and concerns about the credit markets helped drive investors into the safe haven of long-term government bonds. Fixed mortgage rates are closely related to the yields on Treasury securities. The average 30-year fixed mortgage rate dropped from 6.49% to 6.31% in the past week. Also, the spread between jumbo and conforming mortgage rates continues to improve, now at its narrowest since early August. The average jumbo 30-year fixed mortgage rate is 7.04%, and that is the lowest since July 25.

Fixed mortgage rates remain the most attractive option for borrowers. Just three months ago, the average 30-year fixed mortgage rate was 6.75%, meaning that a $200,000 loan would have carried a monthly payment of $1,297.20. Now that the average conforming 30-year fixed rate is 6.31%, the same $200,000 loan carries a monthly payment of $1,239.25.

SURVEY RESULTS

30-year fixed: 6.31% — down from 6.49% last week (avg. points: 0.34)
15-year fixed: 6.00% — down from 6.17% last week (avg. points: 0.35)
5/1 ARM: 6.12% — down from 6.26% last week (avg. points: 0.31)

Bankrate’s national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

For more information, visit http://www.bankrate.com/mortgagerates.