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What the heck is going on with mortgage rates?

This all began back on September 8th when mortgage rates reached the lowest point since before the summer. As I had been telling my clients all summer long; "after watching rates for the last five years this trend has been the norm. Rates go high in and through the summer and then drop and go lower into the end of the year". We have seen some nice low rates at year's end for a couple years running. Although right now rates are sitting at points where they were this summer. Meaning you can see rates in the mid 6% range for FHA, and if you are putting money down and using conventional financing, rates close to 7% (with 5% down).

The reason the conventional rates have gone higher is that Fannie Mae has layered in rate adjustments when you are putting less money down. Add that to the increased cost for conventional mortgage insurance and here is what you see. If you were buying a home with conventional financing versus FHA and a 30 year fixed rate here is an example of a current payment:

Purchase Price $245,000, Conventional loan @ 7.375%, 30 years, 5% down, 696 credit score, Principal & Interest = $1,587 mortgage insurance = $263 , so before taxes or insurance you pay $1,850 per month. Now if you used FHA you would have this payment (with only 3% down and @ 6.5%) : principal & interest: $1,505, mortgage insurance $109 , so before taxes and insurance you would pay $1,614 per month or FHA would be $236 cheaper. 

So, right now you can see the impact the national foreclosure crisis is having on conventional mortgage insurance companies and their ability to make mortgage insurance affordable.

What will happen going forward to the end of the year for rates ?

Well if you prescribe to the historical side of things, you would say that rates will come back down this fall and hit below 6% this winter. If you think that due to the current economic crisis that things will be based off of emotion, then we could see rates stay where they are and buck the trend that has happened for three years running. One thing is for sure only time will tell.

Happy Halloween~

Ray~ rwilliams@summit-mortgage.com

This morning in an unprecedented global rate cut, the U.S joined the European Central Bank, Canada, UK, Switzerland, and Sweeden in cutting rates. Here we cut our rates .5% (fed funds rate), and .5% for the discount rate. This has been done to give additional help to a time now being compared to that of as far back as the great deprssion (in the financial markets).

This means that if you have a home equity line of credit, you wil se your rate lower by .5%, and also credit card lending and auto lending will drop as well. I know when my girlfriend bought her car in the spring rates were as low as 5.74%, which will go down from there.

Mortgage rates historically go up when this happens, especially when it is an emergency cut. However, with a stronger dollar, and lower oil prices, this was seen as the perfect opportunity to cut these key rates.

With these key factors mortgage bonds (which tie directly to mortgage rates) should see gains (lowered mortgage rates over time), and stocks should improve as well. The stock market has already jumped like a chicken with its head cut off this morning. Starting as low as down 300 points, to up 175 points.

For now this move will help to potentially stabilize the market which includes mortgage bonds. This could help mortgage rates over time. And seeing that they are already sitting at historic lows, this is a good time to refinance if your adjustable rate is coming due soon.

Ray

303.779.0591 ext 101