Subscribe to this BlogMortgage rates jump: lock in now, or wait?
Grab one now, or hope for lower rates?
So what’s a floater to do now? Well, if you’ve lost your betting mojo, lock in and be happy. Yes, happy. Let’s remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.
Okay, enough of the long-term perspective. What if you’re still in betting mode and wondering about the next few weeks and months? Well, that’s one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%. Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.
The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there’s a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed’s effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it’s got plenty of gunpowder ready.
That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it’s a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.
As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:
“It’s one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see.”
Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.
The bet’s yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?
– Carla Fried
If your LTV is more than 105% on 1 st loan or first Trust Deed than you should try to do Home Affordable Modification.
To see if you might be eligible for this go to the website http://www.makinghomeaffordable.gov
You can do loan modification by yourself or you can take mortgage broker that has more experience, but they charge a fee, maximum allowable in California is $3,600.00. 75% of this is refundable if you do not get loan modification. This is very complex and requires documentation like loan application and listing all of your personal living expenses, assets and all liabilities. Also hardship letter, authorization to your broker. Lender should help you to lower your monthly payments by the means of extending amortization or lowering your interest rates or forgiving you part of principal or any combination of all above. You can get get very low interest rate for several years.
The best example to get this loan modification wuld be financial hardship like rate is switching to full amortization from interest only.
Other example, decreased income due to other factors: divorce, illness etc.
Try to be honest with lender and do not expect lender that he will forgive you more than house is worth at the present time. Lender will always compare potential sales proceeds from foreclosure to actual loan modification. If you can not afford to pay for you mortgage, the best way is to sell property short. It mens that your mortgage balance is more than selling price and lender has to approve this. This is the best for you because your credit score will not be so bad and lender will forgive you part of the loan.
Good lack.
Elizabeth-Mortgage Broker and Real Estate Broker- California, Encino
This just shows you have to be proactive. You can't sit back and try to be reactive in a fluctuating environment. You need to seize the opportunity when it is there. If you wait you might be too late. Act now.
Forgot to expound on this point – if you have a 2nd – Heloc or whatever – the full credit line is counted against your LTV, not just your balance… so if you borrowed $8K on a $50K line like we did, the whole $50K generally counts against your LTV.
Am signing next Monday, 4.625% fixed 30 year, total fees and closing cost payback in 20 months. My wife and I both have 800+ credit as noted in other comments, but our LTV is about 85%… so you don't have to be perfect. Of course the 85% includes $42K on our credit line we haven't borrowed, so we're a shade over 72% counting net secured debt. Am glad we locked a couple weeks back, will save $300 per month.
Alright , I work in this crazy environment as a loan officer.
1. If you are upside down – you can only do the 105% program if your loan is Fannie mae- then the loan still has to be run through the lender's system. ( you can payoff just a 1st and leave the 2nd open – if the 2nd agrees to subordinating ( allowing the new mortgage to be a 1st mortgage ) You are not required to have mortgage insurance if you do not have it right now ( that is rule of thumb )
Best scenario works with customers who were at 80% loan to value and now find themselves at 85% to 105% –
2. Rates are still better than most years in the past 30 years – Do not wait be happy if you better your situation ( rule of thumb get a 1% reduction if you are just refinancing and not selling your home in next 3 years ) 3. Take the closing costs and divide it by how much you save monthly- that will give you a good idea example:$ 6000 closing / $200 savings – it is taking 30 months to make up those closing costs – general way to look at it!( never count the taxes, insurance, interest per day , HOA – these are pre paids – you will pay those anyway – )
4. Most think that the housing market is about at the low point buy now – I think we are at 3 months to 9 months and we will bounce. The bottom line getting a great rate,a home and potentially 8k back on taxes (for you new homeowners – 1st time- owner occupied in the last 3 years – Check with IRS for qualification.)
You really are in the best position!
Hi, I am living in Canada and actually I have an open variable rate mortgage contract ( The math formula of my variable interest rate is: Prime – 0.75 ) till 2013. As the actual canadian prime is 2.25% my current interest rate is
2.25 – 0.75 = 1.5% I know that the inters will go up, but still if the prime goes up, for example to 5.0 % my interest variable rate will be 5.0 – 0.75 = 4.25% that still is low
Currently Canadian banks are given around 4.0 fixe rate for 5 years contract
I should lock it now? Or wait, and if wait, when should be the moment (prime rate value) when I should lock my interest rate?
I'm taking a big risk and buying a new home (2nd home for child to use during school). I know I should wait to get a better price. I am trading 3% on cash savings for an effective rate of 2% after taxes on lost interest. Expecting rates to increase prices may drop for a while, but the coming inflation, I am hoping prices will recover or better than my loss of interest in four years. It's all my risk, no bank, no government! The high prices are another form of tax that I should not have had to pay if not for the government intervention!
The rate is important however make sure you ask how much is the cost to secure the rate. Rates don't move, 5% is always 5%. The questions is how much does it cost! If your mortgage banker cannot answer this with confidence seek out a new lender.
I locked at 4.46 about 2 months ago. Had to get two appraisals, so my rate lock expired. Well – I went round and round with the lender, and they finally paid the additional 3/8ths point to extend my rate lock. I'm happy (this is a refi). Stick to your guns, and keep em honest. Best of luck!
John
Wow………it's like my nana always said…nothing good ever comes from a 'floater', it's best to just flush it away and let it go…..
First rule as a Mortgage Broker/Banker is to always disclose information and options upfront along with pointing out the consequences of not locking. You can never be a hero but you can easily become a goat if you don't follow this practice. Nobody outsmarts the market movement since the attachment to the bond market makes interest rates volatile even in the most stable of environments.
There are different situations in different parts of the country with regard to speed of a refinance. If you are in California it could take longer since there are far more originations going on there than other places. Also, real estate market conditions play a role. The loan to value (LTV) is a factor of pricing most loans and as volume has increased the appraisal reviews take longer and they tend to be conservative as well. It makes a difference if you have 50% equity vs. 20% or less. Having an appraisal value be cut by the reviewer is happening a great deal in alot of places.
Another factor is the timing for the close of escrow. The end of the month is always the toughest.
Rate lock periods are a huge factor. Do not expect to close your refinance in 30 days. 45 days is about right and that is from the time you have your applciation completed and documentation submitted to the lender as well. It can happen quicker but Wells Fargo for example as of the last week in May was 19 days in underwriting and 3-5 days for approval of conditions. Those turn times are from the date the loan has been fully processed and submitted not from the date you fill out the application.
*Keep in mind that the spreads on the rate pricing is priced so that it is more difficlut to lock for expected rates prior to submitting the loan. Rate pricing for 25 days has been far better than 40 days by a larger spread than usual etc. That has varied from day to day however.
The stability of the rates hasn't been terrific. Since rate 1st dropped at the end of March the rates have bounced up and down due to bond market fluctuations, etc.
As of May 1st there are new appraisal restricitons which are a huge over reach IMO. They prohibit the lender/broker from choosing the appraiser. This can be very costly to the client in the end. Often times to get the best rate a broker will need to keep options open as to whome to submit to. Some underwrite more quickly, and others may have better rates. Some loans need to change programs based upon developing info.
There are new loan programs that allow the same rates with higher loan to values (less equity than 80% ltv or 20% equity) There are restrictions on many of these. These new loan progams may require taxes and insurance to be impounded but they do allow up to 105% loan to value for a rate and term refinance at great rates.
As far as the rate you get, it is hard to pick the bottom. There is never a way of knowing if you might be able to do better until the time has passed. The bond market is improving the last 2 days of the month so they may be moving back down but lets see.
To address a couple of issues I have read. You do not need a credit score of 800 and 50% LTV. I locked at 4.75 for 60 days on 5/9 with Wells on a refi of 75k. My credit score is 745 and LTV is 80%.
Also, I am not buying the fact that lenders are causing the increases by dragging their feet due to volume. I went on vacation for two weeks and sent in my papers(emails actually) for documentation on Tuesday and Wednesday, called today to see if all was well and the lender rep said it was in already in underwriting. Not to mention she has personally answered the phone EVERY time I have called!
If you are having problems you might want to change brokers/lenders.
I do hope the rates decline again however, since hopefully the extra funds folks have(165/mo in my case) would hopefully be used to juice the consumer economy.
Call it luck or 20 years of experience. Tuesday morning my client wanted to put her refi on hold. I managed to show her that an .125 to a .25 in interest rate increase could make a big difference in the origination points she has to pay. To make a long story short we managed to lock a 30 year fixed rate at 4.875%.
Hoping to get documents next week.
The Lenders are really really picky!!!! We originators have
to make sure all the "I"s are dotted and our "t"s cross otherwise they manage to add a new condition right after you've cleared
another.!!!!!!
I locked yesterday at 4.625% with MI Financial, on a new build that would have been tens of thousands of dollars more expensive 5 years ago. To boot, the loan is assumable. While the lender may not qualify a buyer at this rate in 10 years if I sell, it's still a nice selling tool. The bottom line is that I am happy.
Earlier this week, California announced a second straight month of rising prices for home sales. In my state of Wisconsin, the developer started booming.
Today's announcement that first time home buyers can use the $8000 tax credit toward their down payment, means housing prices will be going up even more.
We were fortunate to lock in a refi at 5% on a 30-year. The banker told us they expect rates to be over 6% this fall.
I would much rather pay a higher interest rate on a reasonably priced house than buy a house now at an inflated price because interest rates are at historic lows. Why? Even though your monthly payment is the same, when you go to sell your house the new buyer won't get that great interest rate you got and won't want to pay the inflated price you paid back in 2009 since his interest rate is >8%.
Rates have gone up because of a new spin on the economy that would have us believe that this current “recession” will require a recovery period no greater than the last few we've been through. That's like comparing the recovery time of a patient who just underwent a knee replacement to one who just had both legs amputated and a heart transplant. Just because we can sing “Pennies From Heaven” doesn't mean that will make them start falling. If refinancing and home buying can't lead us out of this mess, this will be a long stay in the hospital. For this to happen 4.5% mortgage rates are not a luxury; they are mandatory. There are probably thousands of loans right now in the pipeline that have just been frozen with the rate increases this week. Where do we think the recent spending was coming from? Now because the market is listening to its own hype, it's choking its own lifeline. Rates will go down because they must, even with delays created by the current spat of nonsense. Don't listen to “how good a 5.5% rate is after all.” That was only true a few years ago when nearly everyone refinanced and got one. It simply won't do the trick today.
You are correct about the 60% LTV for sure,still the problem is banks i.e. Citimortgage have their little minions aka contracted appraisers low balling the McMansions in CA and we cannot refi at those sub 5% loans. Allie Velchi Please email me. I have a good story for and our CNN audience. Mario Quintero mario.quintero@dsusd.us
In response to the first comment…. I have a credit score of just over 700 and did not have 60% loan to value and I got locked in at 4.5% with no points on a 30yr Fix rate mortgage. Granted the sale fell through and I'm back to looking. So you dont have to have 800 plus. you have to have a good loan officer and good credit with nothing derogatory, and not be maxed out on your credit.
I am stuck…in Calfornia, aproaching the end of my fixed rate at 5% moving and to a floating rate. I am making my payments, good credit, but I cannot refi due to poor loan to value. I had 40% equity three years ago, but now less than 5%. Lenders are demanding over 30% equity on Jumbo's before they will refi, that's assuming I can find a Jumbo mortgage. Says a lot about whether the vendors feel they are seeing the bottom of this market !
As someone who is renting and has a good cash stockpile for a big downpayment, I say let the market decide at "normal" interest rates house prices should be. Everyone is fixated on interest rates and not the true underlying price of a house.
For any investor to make money on a debt instrument the rate has to cover both inflation and the preceived risk of the borrower defaulting. With the amount of money the FED is printing rising inflation is a real fear and we have not seen a stabilization in default rate of current mortage borrowers. So why would any investor, even a bank, accept sub 5% return on a housing backed security? I think the bond market is calling the Fed's bluff on continued quantitative easing, and we'll continue to see rising rates until the broader economy improves and housing declines bottom.
Let's see now, what is a better deal for me, locking at a half point higher on a house that cost me less, or paying more for the house and less for the interest? Therein lies the issue.
Who cares about what rate's are when the principle is vastly inflated still because of government intervention? 5.5% on a 400k house might sound good, but id rather wait and get a 6-7-8-9% rate on a 200k home in a year or three and just refinance that in a decade or so when rates drop again. You can always refinance an interest rate, but not a principle.
I believe we can blame the media. People were brainwashed into believing they could get 4.5% on a 30 year fixed rate mortgage. However, these people fail to know that it's only possible if they have 800+ credit and 60% loan to value. So they sat on the fence waiting to get those low rates. Some individuals are lucky they could even get a refinance done, but then wanted to get sub 5's. I hate how people like Lending Tree trick people into believing they can get these low rates, with the customers unaware that they are paying for those rates.
If I was a floater I would hope for a fed flush by repurchasing treasuries with money they print, although they might as well just save on printing costs and use toilet paper.
I just locked in last Tuesday at 4.875%. Closing in July, and very glad the timing worked out so well. The way I see it, in 2 years, people will be happy to have a loan at 7-8%.
I'm a Realtor in Maryland due to increase in mortgage rates, my clients are taking back the offer today.I think its affecting the first time home buyers.For this the govt should do something to keep treasury yield low.
I'm about 5 years into a 15 year mortgage and would like to refinance to a lower rate but the closing costs are too high.
If they could reduce or suspend the taxes for refinancing, it would be so much easier to do. Not sure why the local government should get a cut with each refinance, but it seems pretty unfair and bad for the economy. I could understand a set recording fee if there are legitimate legal and recording costs, but that should be a flat fee that's not a percentage of the value of the loan.
As the Managing Director of the only discount lender in the tri-state area (NY,NJ,CT) Crossroad Finance, we've still been able to get borrowers 4.625-4.875% on a 30 year fixed w/o broker fees by making sure we have a complete file(including appraisal) in-house before locking for 30 days and have not lost a rate yet. Because the banks are now ordering appraisals, it is more important than ever to have a complete file, and be on good terms with your lenders, and keep your clients fully informed. Long-term locks are most requested in a rising market with a far off purchase date. It all comes down to experience, an educated borrower(our responsibility to educate), and staying on top of all rates as well as the news. The rates are headed back down today, and the trend will be for govt. action to quell any rise in rate to keep housing market staggering forward. I think rates will come back to previous levels and remain flat until the fall at least, but more likely to allow rates to drift north after housing market firms up, spending rises, and values increase.
My fiancee and I are closing on our house in July. We are just outside the 30 day closing window and locked in at 5.5% for a 30-year fixed FHA. Had we been within 30 days, we could have locked in at 5 3/8ths. Two days ago, we could have locked in at 5.25%.
We are kicking ourselves for not locking in at that 5% we could have a couple weeks ago…but 5.5% is still pretty good in the grand scheme of things.
In my opinion, it's easier for rates to get worse than better. The way everything is going lately, I would suggest you lock in now if you are closing within 60 days. We gambled a little with time, and lost about $70/month in the process…
What has not be addressed in any of the articles or commentary on the rise in mortgage rates are the capacity issues in the mortgage market. With many compnaies, a refiance borrower could not lock in until thier loan was approved, or were forced to lock into higher rates for 90 days, because the industry is so over capacity it can be very challenging to close a loan in 60 days. Many floaters are not doing so out of greed but out of need to manage our bulging pipelines. There are millions of borrowers in process to refinance on President Obama's call for everyone to do so to save money and help the economy. I beleive that we need to find a way to deliver a sub 5% rate to those borrowers as promised.
Add to the process the HVCC regulations that that creates another level of frustration and adds two weeks to the mortgage approval process.
We will not see the economy improve, even with mid 5% rates which are relitavely low, because that is not low enought for the consumer who is not sure if housing prices are at the bottom, that is an easier pill to swallow when rates are at record lows…
I locked LAST week 
There will be plenty of wiggling over the next weeks/months, but the overall trend is clearly pointed in one direction: up.
For the past few months, I have been reading that the Fed is using the MBS and Treasury purchases to help revive the economy with an effort to push rates down. Now the Fed is saying they are not supporting targeted rates. Did I mis-read, was I mis-informed, or is the Fed doing a about face? I have always known that this government spending was inflationary, but it served my purposes as a loan officer in the short term to help stabilize the housing market and create a refinance boom. I was not expecting rate increases for at least 4-6 months, but I guess you can't time the market. My point is why did the market allow itself to be dragged in in the first place, if they understood the inherent inflationary and supply issues that would be taking place with the gov't spending and debt issuance? So is this a respite for profit taking and will we see rates back in the 4's as was widely anticpated and discussed on this board? Or, as I expect but hope otherwise, are we on pace for the refinance boom to end, the purchase market to slow as rates rise, thus further depressing home prices to create more affordability and rates to move over 6%? It has been a tough week for me too.
I am scared. I have a house that wont be finished until the first week September. I cant lock until July. Hopefully the feds work to push mortgages back down… but not too fast, since I cant lock until july 
I am a Mortgage Broker in Fort Lauderdale, FL and I want to thank you for clearly explaining to your readers one of the key reasons rates have jumped in the last 7 business days is the action on the 10yr. So many people just simply do not understand that relationship.
I hope that the Fed does step in and buy back a significant amount of 10yr notes – I can tell you that the rates we have been able to secure for clients in the last week have risen more than the 25bps(1/4 point) that you referenced in your article, in fact we have seen closer to a 1/2 point and with some lenders 5/8 point increase in rates from many of our wholesale lenders. The banks are very quick to re-price our rates when the yield is going up but they often take their sweet time re-pricing to the down side when the yield improves
I hope Dr. Bernanke is listening and the Fed does step in – the housing market in South Florida has definately been picking up steam with well qualified owner occupied purchases but this recent increase in rates has definately caused many people to pause and doubt if now if the right time to step in
Thankfully I was able to lock in my purchase two weeks ago. I close on my purchase in 9 days!
I think others should lock in now because it's still a great rate.
unfortunately when I called to lock last week, the loan officer convinced me not to. My rate was 5.37 (with a .25 discount). so what happens? steadily gone up since then to today's rate of 5.9. wtf. everything would have been perfectly fine as I figured closing costs and monthly payments on 5.5 anyway. now I'm looking at 100's of dollars in differance.