Everyone I Know Is Trying to Refinance

There’s been a lot of talk (and worry) that the higher mortgage rates of late might derail the apparent housing market recovery.

After all, many believe the only reason things were improving was because of the ultra-low rates the Fed facilitated with the likes of QE3.

Without them, some argue, home prices would have to come back to more realistic levels. And optimism would probably also be somewhat deflated.

Unfortunately, such a scenario was not feasible, seeing that foreclosures were getting out of control, and lower prices would have meant so many more would have lost their homes, either involuntarily or by choice.

Higher Rates Are Motivational

Interestingly, I’ve seen a different reaction, albeit an early one. Many individuals I know who own homes are seeking to refinance their mortgages. Why they didn’t do it last year or even last month is beyond me, but we all know people procrastinate.

Many also grew complacent with the low rates, as it got to a point where one just assumed rates would keep on falling. I’m sure most people figured there was more downside in store, and if rates did happen to rise, they probably would do so slowly.

But now that mortgage rates have shot up in no time at all, it seems to have given many people a kick in the rear to finally go about getting that refinance, even if rates are significantly higher than they were just weeks ago.

One friend of mine seemed content locking in a rate of 4.5% on a 30-year fixed, even though he may have been able to snag a rate of around 3.75% last month.

He didn’t even seem that upset about missing the lower rates, and instead looked at the bigger picture. In the grand scheme of things, a 4.5% 30-year fixed mortgage is still a great deal.

Another pal of mine used the recent rise in rates as motivation to finally start calling around and inquiring about a refinance.

For him, there were home equity issues that made it difficult to refinance (he’s not eligible for HARP). So you can’t blame him for waiting for his home to appreciate a bit more, and alleviate some LTV concerns.

He too seemed happy enough to snag a rate at current levels. He’s even looking at a 15-year mortgage instead of his current 30-year as a way to take advantage of a lower rate and pay down his mortgage faster, without too much of a cost burden.

Possible Mortgage Rate Easing Ahead?

All said, it seems everyone is keeping things in perspective, despite the less attractive pricing of late.

And who knows, we may even see rates fall a bit over the next couple weeks, seeing that they increased so much so fast.

The market probably overreacted to the Fed news, so there’s definitely a chance things could improve in the near-term.

Additionally, the Fed owns a ton of the mortgage-backed securities out there, so they can control the price to some degree, even if everyone else wants to bail.

Whatever direction mortgage rates go in the next month or so, loan originators should stand to benefit from all the last-minute refinancers.

Banks and lenders will probably receive a flurry of refinance applications in coming weeks as more borrowers get off the fence and take advantage before it’s seemingly too late.

Unfortunately, borrowers might have to contend with sizable delays, so if you’re refinancing, get your ducks in a row to avoid any potential mishaps.

As far as home purchases go, the rate increase alone shouldn’t deter too many folks. It may disqualify some if their proposed payments rise too much, but I doubt it would completely dictate one’s decision to buy a home.

Remember, rates would have to rise to about 7% for the median priced home to fall out of reach for the average American family, so there’s still plenty of room.

Read more: Do higher mortgage rates lead to lower home prices?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Mortgage Jobs on the Line as Rates Rise

There’s been plenty of debate lately about the potential consequences of rising mortgage rates, with an outright housing recovery derailment topping the list of concerns.

However, most economists have been quick to downplay the risks of rising rates, which have shot up from near-record lows to two-year highs in a matter of months.

In fact, many of these pundits simply expect refinance activity to slow, while the housing market recovery continues on its merry way, in spite of decreased affordability.

Of course, the experts have made some concessions along the way; most recently, Fannie Mae’s Vice President of Applied Economic and Housing Research argued that higher mortgage rates should slow purchase volume and result in a larger adjustable-rate mortgage (ARM) share.

At the same time, Fannie’s researcher didn’t think higher interest rates would lower home prices, but rather only slow the speed of appreciation, which has been on a tear lately.

Then there’s Ara Hovnanian of K. Hovnanian Homes, who argues that higher mortgage rates will just lead to smaller home purchases, and at worst, the purchase of a townhouse if affordability takes a serious dive. Don’t worry, he’s got a smaller home design in the pipeline…

Here Come the Layoffs

All that debate aside, one thing is for certain. There will be fewer mortgage jobs going forward. I anticipated this in my 10 predictions for mortgage and housing in 2013.

It wasn’t hard – I knew mortgage origination forecasts were being slashed going into the year, with refinance volume expected to fall from $1.2 trillion last year to $785 billion in 2013, per the MBA.

Meanwhile, purchase-money mortgage volume was only slated to rise from $503 billion to $585 billion, probably not enough to add many new positions, or offset the fallout in the refinance department.

With volume predicted to be well off recent levels, it didn’t take a genius.

And seeing that rates have increased a lot more than projected, those numbers may turn out to be even worse. For the record, I was wrong about mortgage rates. I expected sideways movement for much of the year. I concede.

Anyway, the mortgage layoffs have already begun, with Wells Fargo announcing late last week that it was cutting 350 employees nationwide as a result of higher home loan rates.

Wells Fargo spokesperson Angie Kaipust said increased demand during the low interest rate environment enjoyed over the past few years meant it could “staff up,” but now that rates are a bit more realistic, headcount must align.

The San Francisco-based bank plans to cut jobs in a number of cities, including Des Moines and Minneapolis.

Then there’s Citi, which reportedly opened a sales facility in Danville, Illinois after demand for mortgage refinances surged. Sadly, the unit is being shuttered, and roughly 120 employees will be laid off.

These are but two examples. Many smaller shops are probably slashing their workforces as well, though such news won’t make the headlines.

2014 Mortgage Origination Forecasts Point to Even Fewer Jobs

The outlook isn’t exactly bright for 2014 either, according to the latest housing forecast from Fannie Mae, so expect more heads to roll as volume continues to dwindle.

Yesterday, the GSE noted that residential lenders are expected to originate just $1.07 trillion in loan volume in 2014, down from $1.65 trillion this year, and about half the $2.03 trillion seen in 2012.

The refinance share, which was 73% in 2012, is expected to fall to 62% this year, and to just 31% in 2014. Only the advent of HARP 3 could make a meaningful impact at this point, and it doesn’t seem likely now.

Fannie expects purchase activity to rise from $619 billion this year to $741 billion in 2014, while refinance activity is forecast to plummet from just over $1 trillion to $331 billion.

Clearly few loan officers will be needed to handle that sharp drop in demand.

Update: It’s starting to feel like 2007 all over again – I’m receiving tips again about branch closures and layoffs. The latest being, “Residential Finance of Columbus Ohio hacked 19 branches yesterday and a regional manager.”

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

The LendingTree Mortgage Negotiator Makes Home Loan Shopping Anonymous

Last updated on January 13th, 2020

Everyone’s heard of the Priceline Negotiator, but what about LendingTree Mortgage Negotiator?

I hadn’t heard about it until last week, when a commercial popped up on my television pitching the new system. I love scrutinizing mortgage companies and their products because they’re often full of hot air.

When it comes down to it, mortgages just aren’t that exciting, and there aren’t many ways to differentiate them, other than via clever marketing tactics.

Still, it sounded interesting, so I decided to take a closer look. From what I remember, LendingTree basically asked for a borrower’s vital information, and then sent it off to a handful of lenders who proceeded to bombard the customer.

The idea was that they would fight for your business, though my guess is consumers didn’t want four banks calling them, let alone one. This was the classic model. Perhaps it’s still in use today, I’m not sure.

Anyway, this is probably why Zillow created its Mortgage Marketplace, which relies on borrower anonymity first and foremost.

How the LendingTree Mortgage Negotiator Works

current offer
  • First you enter in basic home loan details
  • Including loan amount, loan type, interest rate
  • And what the origination charges are
  • The form tells you where to look on your GFE to ensure you enter accurate information

It looks like LendingTree may have learned something from Zillow’s successful pricing model, seeing that their new tool allows borrowers to shop anonymously while using a Good Faith Estimate for accuracy.

To start, you indicate whether the transaction is a purchase or a refinance, and enter in your property and loan information. Pretty standard stuff for a mortgage lead…

However, what makes the form a little bit more robust is that it asks for your origination charges, and even tells you where to find them using your GFE.

In other words, you should have shopped elsewhere before using the Mortgage Negotiator, seeing that you’ll be using the tool to see how your offer(s) stacks up against LendingTree’s mortgage partners.

Once you fill in the loan type, loan amount, interest rate, and origination charges, your data will be analyzed and you’ll be presented with the “best offers” from the company’s lenders.

You’ll also be shown how your offer compares to the one associated with your GFE, with the interest rate, origination charges, and monthly payment all shown on a sliding scale.

As you can see from the screenshots below, when I entered a rate of 4.75% for a 30-year fixed and origination charges of $3,000, I was told both were higher than average, compared to what their lenders were offering.

Find Out If Your Mortgage Offer Is Good, Bad, or Ugly

how it compares

See how your interest rate compares to lenders in their network.

higher than average

Quickly determine if your origination charges and monthly payment are too high or just right.

To the right of these comparison boxes, I was shown a list of lenders with corresponding rates and fees.

Of course, these were listed as the “best offers,” and who knows if you actually qualify for the best offer. If your credit score isn’t top notch and your LTV is higher than 80%, the best offers may not be applicable.

So you’ll still have to negotiate with their lenders, assuming you bother contacting them after seeing their rates and fees.

Still, it might be a big improvement from the old system, which probably resulted in a lot of less-than-happy consumers.

I like this trend toward transparency and homeowner education. It’s nice to see companies explain to customers how to read their disclosures so they can accurately compare offers among different lenders.

By the way, their research indicates that only 51% of consumers comparison shop for mortgages, which appears to be up from 40% back in 2010.

Update: LendingTree reached out to me and resolved my credit score concern – borrowers with GFEs most likely had their credit pulled elsewhere, so information is probably entered accurately. The same goes for the LTV ratio being inputted correctly.  And the results that appear are in “real time.”

Read more: How many mortgage quotes should you get?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Higher Mortgage Rates May Exacerbate Already White-Hot Housing Market

Posted on March 25th, 2021

You’ve seen the headlines – mortgage rates have jumped from recent all-time lows. And they’re seemingly on an upward spiral that can’t be stopped.

Except, they’ve actually seen some improvement over the past few days, thanks in part to the recent stock market rout, coupled with an easing in the 10-year bond yield.

Still, the 30-year fixed is pricing about .50% higher than it did at the start of 2021, when it was closer to 2.65%.

Today, your quoted rate might be closer to 3%, though some lenders are back to offering sub-3% rates too with limited or no lender fees.

Higher Mortgage Rates May Just Make Matters Worse

  • There’s already a record low supply of homes for sale
  • And intense bidding wars are becoming all too common these days
  • The threat of even higher mortgage rates may just compel more buyers to enter the fray
  • That could result in even higher home prices as more buyers clamor over what’s out there

Let’s face it, there aren’t many available homes on the market at the moment. This has been the case for a while now, and hasn’t improved one bit lately.

Meanwhile, home prices are on a tear and record home purchase activity is expected in 2021 despite higher rates.

The median home price has already increased 17% year over year to $330,250, an all-time high, per Redfin.

That also happens to be the biggest increase on record, which goes back through 2016.

On top of that, asking prices of newly-listed properties hit an all-time high of $350,972, up 10% from the same period a year ago.

Oh, and new listings haven fallen 17% from a year earlier. Good luck.

In other words, if you thought homes were expensive last year, don’t look now! And if you thought competition was intense in 2020, well, hmm…yeah.

The good news is mortgage rates are still lower today than they were a year ago, with the 30-year fixed averaging 3.17% at last glance, down from 3.50% during the same week in 2020.

The bad news is that the threat of increasing rates may actually be pushing more prospective buyers off the fence and into the mix.

If more folks think the end of the low mortgage rate era is upon us, they might finally take action.

In the past when this type of thing has happened, the housing market has held up just fine.

Don’t buy into the idea that home prices and mortgage rates have an inverse relationship. In many cases, both can rise or fall in tandem.

Ultimately, you want to pay attention to the economy to determine the direction of the mortgage rates, not home prices.

What Happens When Mortgage Rates Go Higher?

  • Home prices may also increase because there’s no inverse relationship
  • Bidding wars may become even more intense as urgency rises among buyers
  • Mortgage lenders may loosen underwriting guidelines to facilitate home sales
  • Home builders may build smaller homes and/or cheaper ones to maintain some sense of affordability

If and when mortgage rates do increase, and actually stay elevated for a sustained period of time, a variety of things may happen.

For one, home prices may increase, for a couple different reasons. For one, there will be more urgency to lock in that low mortgage rate before they worsen even further.

Compounding that will be even more bidders on each home out there, which will further drive up the final sales price.

Additionally, higher interest rates are a sign of an improving economy, so if things are looking up, so too might home prices.

At the same time, mortgage lenders may ease up and loosen underwriting guidelines to ensure borrowers can obtain a home loan.

And home builders may take notice and make adjustments to the new homes they build by making them smaller and/or cheaper.

They might also ramp up their volume to satisfy the intense demand from prospective buyers. This is usually where things go wrong and we overshoot the mark.

Why It Might Be Good to Wait for a Pullback

While there’s a sense mortgage rates may never revisit their recent all-time lows, it’s also foolish to believe that.

Why can’t they go back to where they were just a few months ago? I liken it to the stock market, where human psychology plays a big role.

One day, stocks are flying high and everyone is piling in. The next day, it’s doom and gloom and everyone’s thinking about selling.

This mentality is exactly how/why many retail investors get burned, assuming they attempt to time the market.

With the recent rise in mortgage rates, you might think it’s best just to accept the higher rate before things get even worse.

And while that’s not imprudent, it’s time like these where we often see reversals. When all hope is gone, things suddenly improve.

Of course, this won’t do the hot housing market any favors. Either way, it’s not going to get any easier to submit a winning bid on a home, whether mortgage rates go up or down.

Read more: 2021 Home Buying Tips to Help You Win

Source: thetruthaboutmortgage.com

2020 Mortgage Rate Predictions: Expect Flat to Better

Last updated on December 14th, 2020

As 2019 wraps up, it’s time once again to consider what the future holds for mortgage rates.

Looking back over the past 12 months, it was another great year for anyone looking to buy a home or refinance, at least with regard to interest rates.

Sure, home prices aren’t on sale anymore, nor have they been for a long time, but financing remains dirt cheap, which is a big help for anyone struggling with affordability.

While most pundits expected rates to rise throughout 2019 (I said mostly flat, but was still wrong), they once again defied expectations and sank back near all-time lows.

Now let’s take a look at the freshest 2020 mortgage rate predictions from some industry heavyweights.

MBA 2020 Mortgage Rate Forecast

As always, we’ll start with the Mortgage Bankers Association first. Last year, they expected the 30-year fixed mortgage to hit 5% by the third quarter.

Instead, it fell to around 3.5% at that time, which was way off the mark. But they weren’t the only ones to get it wrong. Most predictions proved to be incorrect, just like in prior years.

That being said, this is what their 2020 forecast looks like on a quarterly basis:

First quarter 2020: 3.7%
Second quarter 2020: 3.7%
Third quarter 2020: 3.7%

Fourth quarter 2020: 3.7%

This year they’re playing it a lot safer and just going with a 3.7% average for the 30-year fixed all year long. Yep, all year long. Great news for anyone looking for a home loan.

Fannie Mae 2020 Mortgage Rate Forecast

Then we’ve got Fannie Mae, the biggest buyer and backer of home loans in the United States. They weigh in on rates every month via their housing forecast as well.

In 2019, they got it wrong too, going with 4.8% across the board the entire year. We know now that rates moved in the opposite direction.

This year, they’re going with a different approach, predicting slightly lower rates, as opposed to slightly higher rates. Hopefully they’ll be right this time!

Fannie expects the following:

First quarter 2020: 3.6%
Second quarter 2020: 3.6%
Third quarter 2020: 3.6%
Fourth quarter 2020: 3.5%

If their prediction holds true, home buyers and homeowners looking to refinance will enjoy mortgage rates near all-time lows.

Freddie Mac 2020 Mortgage Rate Forecast

Brother Freddie Mac is the mortgage rate guru of the bunch, having released their weekly mortgage rate survey since 1971.

Of course, those are real quoted rates from mortgage lenders nationwide, which may differ from their own forecast.

Last year, Freddie predicted a 30-year fixed as high as 5.3%, matching the National Association of Realtors for biggest whiff.

It appears they’re playing it more conservatively this time around, as evidenced by their mortgage rate predictions for 2020:

First quarter 2020: 3.8%
Second quarter 2020: 3.8%
Third quarter 2020: 3.8%
Fourth quarter 2020: 3.8%

Like the MBA, Freddie Mac is forecasting completely flat mortgage rates for 2020, with the 30-year fixed pegged at 3.8%, very near current levels.

NAR 2020 Mortgage Rate Forecast

Next up is the National Association of Realtors, notorious for forecasting higher mortgage rates to scare you into buying a home today!

Okay, maybe that was a hair harsh, but they do tend to predict higher as opposed to lower rates, and generally win the prize for highest rate prediction year in and year out.

That was true of 2019, when they expected the 30-year fixed to finish the year at 5.3%, nowhere near the 3.73% it averaged this week. But to be fair, everyone else anticipated similar.

Here is their 2020 mortgage rate projection, per their latest U.S. Economic Outlook:

First quarter 2020: 3.7%
Second quarter 2020: 3.7%
Third quarter 2020: 3.8%
Fourth quarter 2020: 3.8%

Like the rest of the bunch, they’re staying pretty neutral, though they couldn’t help themselves and had to forecast rates 10 basis points higher by December 2020.

My Mortgage Rate Prediction for 2020

I mostly agree that mortgage rates will be flat in 2020, though as I mentioned last time around, there will always be opportunities throughout the year.

In other words, keep an eye out for favorable swings as hot-button issues like the U.S. presidential election, impeachment, trade war, Brexit, and other geopolitical events take hold.

If things get haywire, which with the above list wouldn’t be a surprise, mortgage rates may dip closer to all-time lows again, or even break new records.

Of course, such movements might be short-lived and erratic in nature, so you’ll have to pounce and lock your rate if given the opportunity.

All in all, I’d say we’re experiencing a new normal for 30-year fixed mortgage rates.

Instead of averaging 5-6% year after year, they’re holding steady in the 3.5%-4.5% range. And nobody can complain about that.

Update: 2021 Mortgage Rate Predictions

(photo: Marco Verch)

Source: thetruthaboutmortgage.com

What Mortgage Has the Best Interest Rate?

Here’s an interesting question: “What mortgage has the best interest rate?”

Before we dive in, “best” questions are always a bit difficult to answer universally because what’s best to one person could be the worst for another. Or at least not quite the best.

But we can still examine what makes one mortgage rate on a certain product better than another, in certain situations.

In a recent post, I touched on the different mortgage terms available, such as a 30-year, 15-year, and so on.

That too was a “best” article, where I attempted to explain which mortgage term would be best in a particular situation.

Related to that is the associated mortgage interest rate that comes with a given term.

Longer Term = Higher Mortgage Rate

best rate

  • The longer the mortgage rate is fixed
  • The higher the interest rate will be all else being equal
  • To compensate the lender for taking more risk
  • On interest rates over a longer period of time

Now I’m going to assume that by best you mean lowest, so we’ll focus on that definition, even though it might not be in your best interest. A lot of puns just happened by the way.

Simply put, a longer mortgage term generally translates to a higher mortgage rate.

So a 10-year fixed-rate mortgage will be much cheaper than a 40-year fixed loan for two borrowers with similar credit profiles and lending needs.

Additionally, an adjustable-rate mortgage will price significantly lower than a fixed-rate loan, as you’re guaranteed a steady rate for the full term on the latter.

This all has to do with risk – a mortgage lender is essentially giving you an upfront discount on an ARM in exchange for uncertainty down the road.

With the fixed-rate loan, nothing changes, so you’re paying full price, if not a premium for the peace of mind.

If the interest rate is fixed, the shorter term loan will be cheaper because the lender doesn’t have to worry about where rates will be in 20 years.

For example, they can offer you a lower mortgage rate on a 10-year term versus a 30-year term because the loan will be paid off in a decade as opposed to three.

After all, if rates rise and happen to triple in 10 years, they won’t be thrilled about your low rate that’s fixed for another 20 years.

That’s all pretty straightforward, but knowing which to choose could be a bit more daunting, and may require dusting off a mortgage calculator.

Mortgage Interest Rates from Cheapest to Most Expensive

  1. 1-month ARM (cheapest)
  2. 6-month ARM
  3. 1-year ARM
  4. 3/1 ARM
  5. 5/1 ARM
  6. 10-year fixed
  7. 7/1 ARM
  8. 15-year fixed
  9. 10/1 ARM
  10. 30-year fixed
  11. 40-year fixed (most expensive)

This can definitely vary from bank to bank, but it’s a rough order of how mortgage rates might be priced from lowest to highest, at least in my view.

Most lenders don’t even offer all these products, but you can get an idea of what’s cheapest and most expensive based on its term and/or how long it’s fixed.

Currently, the popular 30-year fixed is pricing at 4.06%, while the 15-year fixed is going for 3.51%, per the latest weekly Freddie Mac data.

The hybrid 5/1 ARM, which is fixed for the first five years and adjustable for the remaining 25, is averaging a slightly lower 3.68%.

[How to get the best mortgage rate.]

There are many other mortgage types, such as the 20-year fixed, 40-year fixed, 10-year ARM, 7-year ARM, and so on. But we’ll focus on those first three, as they’re the most popular.

As you can see, the 30-year fixed is the most expensive. In fact, it’s nearly half a percentage point higher than the average rate on a 5/1 ARM.

This spread can and will vary over time, and at the moment isn’t very wide, meaning the ARM discount isn’t great.

At other times, it might be a difference of one percent or more, making the ARM a lot more compelling.

Anyway, on a $200,000 loan amount, that would be a difference of roughly $44 in monthly mortgage payment and about $2,640 over five years.

A 3/1 ARM or one-year ARM would be even cheaper, though probably just slightly. And for a loan that adjusts every three years or annually, it’s a big risk in an environment where interest rates are likely at or near the bottom.

As mentioned, the low initial rate on the 5/1 ARM is only guaranteed for five years, and then it becomes annually adjustable for the remainder of the term. That’s a lot of years of uncertainty. In fact, it’s 25 years of risk.

The 30-year fixed is, well, fixed. So it’s not going higher or lower at any time during the loan term.

The ARM has the potential to fall, but that’s probably unlikely given where rates are historically. And lenders often impose interest rate floors that limit any potential interest rate improvement.

[30-year fixed vs. ARM]

So What’s the Best Interest Rate Then?

  • The best mortgage rate is the one that saves you the most money
  • Once you factor in the monthly payment, closing costs, and interest expense
  • Along with what your money could be doing elsewhere
  • And what your plans are with the underlying property (how long you intend to keep it, etc.)

The best interest rate? Well, that depends on a number of factors unique to you and only you.

Do you plan to stay in the property long-term, or is it a starter home you figure you’ll unload in a few years once it’s outgrown?

And is there a better place for your money, such as the stock market or another high-yielding investment?

If you plan to sell your home in the medium- or near-term, you could go with an ARM and use those monthly savings for a down payment on a subsequent home purchase.

Just be sure you have enough money to make larger monthly payments if and when your ARM adjusts higher if you don’t actually sell or refinance your mortgage before then.

Five years of interest rate stability not enough? Look into 7/1 and 10/1 ARMs, which don’t adjust until after year seven and 10, respectively.

That’s a pretty long time, and the discount relative to a 30-year fixed could be well worth it. Just expect a smaller one relative to shorter-term ARMs.

If you’ve got plenty of money and actually want to pay off your mortgage early, a 15-year fixed will be the best deal, as you’ll get the lowest, fixed rate available.

The shorter term also means less interest will be paid to the lender. The downside is the higher monthly payment, something not every homeowner can afford.

As a rule of thumb, when interest rates are low, it makes sense to lock in a fixed rate, especially if the ARM discount isn’t a lot.

Conversely, if interest rates are high, taking the initial discount with an ARM may make sense.

In the event rates have fallen when it comes time to refinance (after the initial fixed period comes to an end), you could make out really well.

And even if rates fall shortly after you get your mortgage, you can always refinance to another ARM, thereby extending your fixed period a bit longer.

Or simply go for a fixed-rate mortgage if rates get really good.

The other side of the coin is that rates could keep climbing, putting you in a tough spot if your ARM adjusts higher and interest rates aren’t favorable at the time of refinancing.

Ultimately, you’re always taking a risk with an ARM, though you could also be leaving money on the table with the fixed-rate loan, especially if you don’t keep it anywhere close to term.

Either way, watch those closing costs and be wary of resetting the clock on your mortgage if your ultimate goal is to pay it off in full.

In the end, it may all just come down to what you’re comfortable with.

For many, the stress of an ARM simply isn’t worth any potential discount, so perhaps a fixed mortgage is “best.”

Read more: Which mortgage is right for me?

Source: thetruthaboutmortgage.com

Borrowers Don’t Choose Mortgage Lenders for the Best Interest Rate

Last updated on December 8th, 2020

Conventional wisdom would lead us to believe that consumers go with the mortgage lender that offers the lowest interest rate. This appears to not be the case…

In fact, it’s the least common reason why a borrower selects a particular home loan lender, which is pretty shocking considering how much money is at stake.

I suppose this is the power of marketing, taking a very boring product that is for all intents and purposes a commodity and selling it for more.

Referrals, Referrals, Referrals…

purchase loans

When it comes to home purchase loans, which are all the rage these days with refinance volume tanking, a referral from a real estate agent or builder is the top reason (53%) why a borrower chooses a certain lender, this according to data from STRATMOR for the 12-month period ending June 30th, 2018.

The survey results are part of its MortgageSAT Borrower Satisfaction Program, which the company claims is the mortgage industry’s only “Borrower Satisfaction measurement tool.”

This isn’t the first time I’ve mentioned how important and influential referrals are in the mortgage business.

Back in 2013, I noted that real estate agents influenced lender choice for nearly half of home buyers.

In other words, lenders can advertise all they want and dangle the lowest mortgage rates possible in front of consumers but still lose out to the agent’s preferred guy or gal half the time.

Ultimately, the path of least resistance wins, and a little prodding from the real estate agent doesn’t hurt either.

The second most common reason (19%) to go with a certain lender was due to an existing relationship with the lender or a specific loan officer at the company.

This could be due to a previous mortgage deal or perhaps simply turning to your bank or credit union that you already do business with. It makes sense, but again is the easy route.

The third most common driver (17%) was a referral from a family member or a friend. So really a whopping 70% of purchase mortgage business is referral-based.

And you wondered why all these real estate and mortgage synergies have been happening left and right.

Think Motto Mortgage or Redfin Mortgage (or the new Zillow Mortgage venture). It’s clearly a very valuable relationship.

The next biggest influencer was positive online reviews, with a paltry 2% of borrowers saying it’s what led them to make their decision.

So two out of 100 borrowers care what’s being said about a lender online. I guess that’s good news for all the questionable lenders out there.

Finally, yes finally, the best mortgage rate was cited as the primary reason to choose a given lender. And it also claimed 2% of responses, though fell below online reviews. Amazing.

Relationships Fuel More Refinances

refinance loans

Now let’s talk about why an existing homeowner chooses a lender to refinance their home loan.

Again, with the path of least resistance, in most cases (56%) the borrower simply returns to the lender where they previously got a loan. Makes sense right.

Why venture out and deal with the unknown, especially if the interest rate is only an .125% or .25% higher?

Well, there are thousands of reasons why, but it’s only money…

The next most common driver was, you guessed it, a referral, cited by 15% of respondents. This includes family members and friends.

It was followed by referrals from real estate agents or builders with a 7% share. Surprising they even got that since they’re not directly involved in a refinance, but shows the power they still wield.

Next up was best interest rate, taking the fourth spot, slightly better than dead last, with a massive 6% share.

Yes, six out of 100 consumers choose a mortgage lender to refinance with because they offer the best mortgage rate. Wow.

Last time I checked, interest rate was a pretty darn important detail when it comes to a refinance, but what can you do.

It narrowly beat out positive online reviews, which held an equally dismal 3% share.

The takeaway here is that consumers should really pay more attention to interest rates, while also ensuring that the lender they choose to work with is above board and capable.

For loan officers, mortgage brokers, and lenders, it’s actually great news because the survey shows borrowers aren’t all that interest rate sensitive, and really drives home the importance of referrals and keeping in touch.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

Do Mortgage Rates Change Daily?

It’s that time again folks, where I answer your burning mortgage questions.

The latest mortgage Q&A: “Do mortgage rates change daily?”

Mortgage rates are hot news right now, what with them hovering around all-time lows yet again but beginning to inch higher.

And it seems everyone is interested to see if they can save a little money on their current mortgage payment via a refinance or get into a new home with a super low rate.

But while mortgage rates have been historically low years, they’ve also been extremely volatile as a result of all the government tinkering and the economy at large.

So when shopping for a home loan, it’s now more important than ever to keep a close eye on loan rates, because they can and will change daily (learn more about how mortgage rates are determined).

The interest rate you receive is one of the most important aspects of the home financing process, so you’ll want to get it right.

Heck, it can even make or break your home buying decision if affordability becomes a roadblock!

Mortgage Rate Sheets Are Printed Monday Through Friday

  • New lender rate sheets are released daily throughout the week
  • Monday through Friday unless it’s a holiday
  • Sometimes interest rates will be different, sometimes they’ll remain unchanged
  • Depending on what transpired the day before or the morning of

Each morning, Monday through Friday, banks and their loan officers get a fresh “mortgage rate sheet” that contains the pricing for that day.

I know because when I first started in the industry, I got tasked with handing them out to fellow employees (back when we used paper).

I’ll never forget kicking the printer every time it broke, which as far as I can remember was also Monday through Friday.

Anyway, these rate sheets contain the day’s current mortgage rates, which are critical to anyone working in the biz.

Without them, loan officers can’t provide quotes to borrowers unless they’re using some sort of computer system, which some of the big retail banks probably rely upon.

All loan programs offered by a given bank will be featured, including fixed rates like the 30-year fixed, 20-year fixed, and 15-year fixed, along with other loan types offered such as adjustable-rate mortgages.

Expect fixed mortgages to move more than ARMs on a daily basis, seeing that ARMs come with short-term promo rates that adjust over time, whereas mortgage bankers are taking a bigger risk by offering a rate that will never change.

You might see a slight difference in pricing between conforming mortgages backed by Freddie Mac and Fannie Mae’s guidelines, even though they’re nearly the same product. So ask for pricing on each if both are offered.

There will also be a section for jumbo loans, FHA loans, VA loans, and other government loans offered such as an FHA streamline.

Each type of loan will have its own section on the rate sheet page with corresponding pricing, which details how many discount points must be paid, or conversely, if a lender credit is offered at a certain price.

These rate sheets are also what mortgage brokers rely on to get pricing updates from all the banks and wholesale lenders they work with.

Check Out Daily Mortgage Rates on Lender Websites

  • If you don’t have access to lender rate sheets
  • Visit lender websites to access their daily mortgage rates
  • Keep track of them over time and make note of any changes
  • To determine their direction or any obvious trends

If you’re a consumer without access to mortgage lenders’ rate sheets, you can check their websites for purchase and refinance rates, though these aren’t nearly as reliable, and are typically just advertised rates with lots of assumptions.

While probably closer to national averages, you can at least glean some information, like mortgage rate trends if you see that they’re rising or falling over time.

Prospective home buyers may want to bookmark some mortgage lenders’ pages that feature today’s mortgage rates to chronicle them over time and stay in the know.

You’ll be able to get a better idea of monthly payments and hone in on the rent vs buy question.

Anyway, to answer the initial question, yes, mortgage rates can change daily, but only during the five-day workweek.

Mortgage rates do not change during the weekend, though pricing can definitely change between Friday and Monday depending on what happens on Monday morning.

In other words, pricing you receive on Friday could certainly differ from the pricing you receive on Monday morning depending on what transpires between then.

This is similar to the stock market or any other financial market for that matter. It’s constantly in flux and as such, things change, a lot.

Ask for Mortgage Rate Updates Daily

  • Ask for rate updates daily until you lock in your rate
  • Rates can move higher or lower based on a number of factors
  • Economic news, reports, data, and even geopolitical activity
  • Can significantly impact rates throughout the week

If you want to know where mortgage rates are for a given day, call your bank or broker and ask; and don’t be afraid to call every day to keep track of mortgage rates, as it’s their job to keep you informed.

Sure, they might be annoyed that you’re constantly asking for updates, but it’s their duty to provide you with this information.

It’s extremely important because it will determine how much you pay each month and over the life of the loan. So they should be more than understanding and happy to provide updated pricing.

After all, you’re the one that will be stuck paying that rate for the next 360 months if you go with a 30-year loan, so it’s worth the small effort.

Don’t just assume that the last rate quote they gave you, or the initial one to get you in the door, still stands. It could be completely different a week or even a day later.

Tip: Freddie Mac’s weekly survey just details what rates average during the week from several lenders, not necessarily the daily rate available to you.

Mortgage Rates Can Change During the Day

  • Intraday rate changes are also possible
  • If significant economic events take place during market hours
  • Like Fed meetings, major policy changes, or geopolitical events
  • That alter demand for bonds and/or mortgage-backed securities (MBS)

So we know mortgage rates have the ability to change on a daily basis, but sometimes mortgage rates may even change more than once during the same day if certain economic reports are released.

Things like Federal Reserve meetings, a bump in the 10-year Treasury yield, MBS prices, home sales data, economic activity, and other related mortgage news may make rates rise from day to day.

In other words, your interest rate is never really secure until it is locked and you receive written confirmation from the lender.

For example, a mortgage rate quote provided in the morning may no longer be valid that same afternoon.

If you drag your feet and tell the loan officer you’ll get back to them, even if just hours later, the rate may be ancient history.

Remember, if you want a guaranteed interest rate on your mortgage, you need to lock it in.

[Locking vs. floating your mortgage rate]

By locking, I mean speaking with your mortgage broker or loan officer, agreeing on certain terms, and getting lender confirmation in writing!

I can’t stress this enough; often times borrowers will be “promised” a certain interest rate or simply be told that interest rates are “X” and not to worry.

But when it comes time to close the loan, for whatever reason, interest rates may have gone up, and the promised rate is no longer available, often putting the borrower in a tough spot.

If rates increased, borrowers just bite the bullet and reluctantly agree to the current rate because they’re so far along in the loan process.

That’s why it is imperative to lock in your mortgage rate when you’re comfortable with it, and be sure to get it in writing and keep that document in a safe place!

Finally, be sure to take the time to compare rates and compare lenders too.

All too often, a borrower will just fill out a single mortgage application and call it a day. That’s fine if you don’t care about saving money, but my guess is you do care.

Take a moment to calculate the difference between two rates that are just an eighth or quarter apart using a mortgage calculator.

You might be shocked at the difference in interest over the life of the loan, which should illustrate the importance of putting in the time to shop mortgage interest rates.

Read more: What mortgage rate can I expect?

Source: thetruthaboutmortgage.com

What Mortgage Rates at 4-Year Highs Does and Doesn’t Mean

Posted on April 26th, 2018

You’ve probably already seen the alarming headlines, that mortgage interest rates rose this week to highs not seen in over four years. Gasp!

It sounds like doomsday for mortgage rates, but to really interpret what four years means, we have to take a look back at history.

30-Year Fixed Hits 4-Year High of 4.58%

recent rates

  • Freddie Mac said 30-year fixed rates hit 4-year highs this week
  • The 15-year fixed also surpassed the psychological 4% level
  • Will hurt refinance activity and could push more borrowers into ARMs
  • And might just make the housing market even hotter

This morning, Freddie Mac released its weekly mortgage rate survey, pointing out that rates hit their highest levels since the week ending August 22nd, 2013.

While that sounds like a really long time, and it is I suppose, nearly 5 years in fact, we have to take a look at the interest rate environment since then (screenshot above from Freddie Mac).

Since 2013, mortgage rates have been hovering around levels not seen in our lifetime, and a few months before that the 30-year fixed hit its all-time low in November 2012.

That low point was 3.31%, which is about a point and a quarter below current rates. Sure, it’s not great news, but let’s look at it the other way.

Before this period of uber low mortgage rates brought on by the Fed and their quantitative easing program, 30-year fixed rates were in the high-5% and mid-6% range, which you’ll see in the corresponding table below.

If you want to go back even further, rates were nearing the 10% range.

The takeaway is that while we no longer have lifetime low home loan interest rates, we still have historically excellent rates.

And if you already own a home, there’s a good chance you have one of these rock bottom rates locked in for life.

If You Can’t Afford the Higher Rate…

  • While the higher rates may give you pause
  • If you can’t afford the higher mortgage payment
  • You might want to reconsider your home purchase
  • Because it’s really not that much more expensive in the grand scheme

Assuming you haven’t yet purchased a property, it’s more bad news in a housing market that is already pricey and showing no signs of letting up.

But if you can’t afford today’s mortgage rate, which is a historically cheap 4.5%, you should question your decision to buy a home.

For the record, the 30-year fixed is only up about a half a point from a year ago. It averaged 4.03% this time last year.

On a $300,000 loan amount, we’re talking a difference of $88 per month. If that $88 does you in, maybe you were already overextended to begin with.

And even if you can afford it, if that $88 rubs you the wrong way, just wait until rates are back at 6%.

We Got Spoiled for a Minute

historical rates

  • Let’s all come to terms with the fact
  • That we got spoiled for the past five years
  • The problem is once you see something better
  • You’ll never look at the other thing the same way

It’s all relative, isn’t it? Once you see something better, it’s hard to ever look at the other thing the same again.

When the Fed first announced their plan to save the housing market with low mortgage rates, everyone fretted about the day they’d finally rise.

We seem to be getting our first real taste of it, and while it’s unwelcome news, it’s not really as bad as the headlines make it out to be.

If someone led with, “Your payment will be $88 more per month,” it would probably get brushed aside. But when we throw out “highest rate in over four years!” the panic and feelings of discontent rain down.

Instead of worrying, whip out a mortgage calculator and do the math to see what it all means to you. It might not be as bad as it sounds.

And as I often say around here, mortgage rates can reverse course just as easily. The 2018 mortgage rate forecasts still call for rates to stay flat or even fall by year-end.

We already saw one uptick followed by some relief, and that’s probably how things will continue to go.

The New Normal for Rates

  • Get used to higher mortgage rates
  • But look for periods of relief in between
  • We’re probably going to see higher highs over time
  • With pullbacks along the way that present opportunity so be ready!

It’s going to take some time to get used to this new environment of seesawing rates on an upward trajectory.

After all, we had it so good for so long that everyone got complacent, and even entitled.

It’s like a long stock market bull run that finally swings the other way and catches everyone by surprise.

But over time, we adjust our expectations and learn to deal with it, and perhaps appreciate the fact that it could be a lot worse.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

President-Elect Trump vs. Mortgage Rates

Last updated on June 1st, 2018

You may have already read the headlines. Things like Trump-fueled Treasury surge and the so-called Trump Effect, all driving mortgage rates higher.

And it’s not just fodder, it’s true. Since the election results came in last Tuesday night, mortgage rates have been on an upward tear, which clearly isn’t good news for those looking to secure a mortgage.

Of course, it’s been great for anyone with an investment account because stocks have surged during the same period. It may also be a boon for savers if depositories eventually raise the interest rates they pay out. Something above 1% would be nice…

The crappy part is that the recent jump could affect new homeowners for the next 30 years if they have to go with a higher rate today and things don’t improve anytime thereafter.

Why Are Mortgage Rates Higher with a President Trump?

  • Start with the basics
  • A strong economy leads to higher interest rates as a means to cool inflation
  • Everyone expects an economic boost under Trump
  • So with that there are expectations of higher mortgage rates

Put simply, mortgage rates tend to go up when the economy improves. The basic premise is a stronger economy means more inflation, which calls for higher interest rates to keep things in check.

When news broke of Trump winning, stock futures actually plummeted because there was a lot of uncertainty of what a Trump presidency would mean for America.

That uncertainty meant an expected stock selloff the next morning, which would have translated to lots of bond buying. Investors put money into bonds when there’s fear in the market because they’re reliable investments (albeit low paying and boring), unlike stocks.

It would have meant lower mortgage rates too because higher bond prices (up because of increased demand) mean lower yields (rates).

But then something strange happened overnight and the stock market opened markedly higher. The basic gist is that everyone apparently realized a Trump presidency would mean a more robust economy with looser regulations and more business-friendly policy.

The picture completely changed and we’ve had a stock market rally pretty much every day since he was announced as the winner.

Conversely, a Hillary Clinton win would likely have meant more financial regulations, or at the least no repeal of Dodd-Frank or anything else that’s already in place.

My assumption is that would have meant more of the same and no major market shakeup since her policies probably aligned with current administration.

Now we’ve got a businessman as our President-elect so the theory is a stronger economy and with that higher interest rates.

Long story short, mortgage rates are higher than they were last week, and significantly so.

Kiss Your 3% Mortgage Goodbye?

  • That rock-bottom mortgage rate might be gone forever
  • But rates are still going to be very attractive for at least the next couple years
  • When looked at on a historical basis
  • And your monthly payment may not even be that much different

The average 30-year fixed mortgage rate might be closer to 4% today compared to something like 3.625% pre-election.

On a $250,000 loan amount, we’re talking about a mortgage payment of $1194 versus $1140. That’s another $54 a month and roughly $650 annually. Ouch!

It’s not the end of the world per se, but it is a sizable jump and enough to change a lot of things for a lot of people.

For one, it could make a home unaffordable to someone on the cusp of approval simply because of DTI constraints.

Secondly, it could turn the decision to refinance on its head. A difference in rate of 0.25% to 0.375% is plenty enough to kill the deal, so to speak.

And rates could rise even more in the short-term, pushing you out of the 3% realm and into a very scary and unfamiliar 4% mortgage. I say that jokingly because there was a time not very long ago when a 4% mortgage would have been unheard of (in a good way).

Let’s face it, we had to come to grips with a rate rise, although it’s kind of ironic to see it come this way, from a presidential election, something perhaps few saw coming.

Hold On a Minute

  • Sure, mortgage rates might begin an upward march
  • Assuming the pundits are right about Trump
  • But the U.S. economy is still at the mercy of the world stage
  • And plenty can play out to change the direction of rates over coming months and years

But wait, this might not be the end of the story. Mortgage rates fluctuate all the time. They can shoot up at a moment’s notice thanks to some geopolitical issue or economic concern (or presidential election), but they don’t often move in one direction and never look back, just like the stock market.

We’ve seen similar instances in the recent past, and often the story changed quickly. Everyone expected a huge move after Brexit, but the result was fairly muted once the dust settled.

This Trump presidency still has a lot more questions than answers, and is mostly speculation rather than fact.

That could spell a mortgage rate reversal before most homeowners even notice a difference. Sure, it could be terrible timing for some people who have to lock and close their loans, but if you can wait, it might make sense to.

Yes, mortgage rates can surely continue to rise in the near-term, but there’s nothing to say they won’t trickle back down to levels seen a week or two ago.

For me, this certainly isn’t a done deal based on uncertainty alone! Remember, Donald Trump was seen as very uncertain before he became President-elect. So to think it’s now all figured out a week later is crazy.

Declaring low mortgage rates gone forever would be a huge blunder in my mind. We’ve made this mistake numerous times in the past few years and there’s little reason to think it couldn’t happen again.

Source: thetruthaboutmortgage.com