October 8th, 2011 11:08 AM by Richard T. Cirelli
Rates Below 4% - Really?
Yesterday the headlines across the country screamed “Mortgage Rates Below 4% for First Time” and my phone rang off the hook with people saying “they lowered the rates, lock me in”!!!!
I actually locked a few deals in at 3.75% with no points last week so yes, rates did hit an all-time low. But, let’s examine the headline and what it really means.
Every week Freddie Mac releases a report announcing the average rate for loans originated Monday thru Wednesday of the previous week on a 30-year fixed rate mortgage that is owner-occupied for an amount less than $417,000.
Things to Know:
· Average implies that about half the people got a lower rate and half got a higher rate.
· Points: Many of the articles fail to mention that most people paid a point or some fraction of a point for that published lower rate. Last week’s average point paid was 0.8%. On a $400,000 loan that’s $3200. Loans for 0-points were at a higher rate.
· Not everyone gets the same rate. There are many factors that affect your rate. Credit Score and Equity are the two main factors but there are others. The best rates go to those with a combination of 40% equity or down payment and credit scores above 700.
· Rates change every day and throughout the day. By the time you read the news, it is Thursday of the following week. So, you can assume that rates have changed numerous by the time the average figure is reported.
· There is no “they”. Mortgage rates are not set by the Fed and they are not set by the banks or lenders that originate mortgages. Rates are determined solely by the supply and demand for Mortgage-Backed Securities that are created by Fannie Mae, Freddie Mac and Ginnie Mae and bought and sold in the financial markets along with other securities such as stock and bonds. These agencies account for 99% of all Conventional and FHA mortgages originated in the U.S. by all lenders.
So, remember that while the headline attracts readers, it’s only an average, and its old news by the time you read it.
Mortgage Rates This Week:
I hate to spoil the party but rates have risen slightly since last week’s Monday-Wednesday average rate of 3.94% with 0.8 points was reported. So don’t expect next week’s Freddie Mac report to show lower rates than this week.
The spoiler was today’s monthly Employment Report. On the first Friday of every month the Government releases the official Employment numbers for the previous month. While the rate of Unemployment was unchanged at 9.1%, the number of new jobs created was higher than expectations. This caused a sell-off of Mortgage-Backed Securities this morning forcing rates a little higher.
How Do You Get the Best Rate?
First of all, you have to deal with a mortgage professional with the experience and knowledge of how mortgage rates work. We subscribe to services that alert us to the trends and patterns of MBS trading and help us determine the best time to lock in your rate. The banks are too big to manage this type of service whereas independent mortgage brokers can not only keep their eye on the moving target of interest rates but they also deal with multiple lending resources to find the most competitive terms to fit your needs.
Secondly, if you are refinancing and wait for the headlines, you will be too late. Make your application and get your loan processed. Once you are in the system I can watch the rates and take advantage of the dips which sometimes last only a few hours. Mortgage rates are just as volatile as the stock market these days and the average borrower has no chance of timing the market to take advantage of opportunities when they occur.
You can always visit the “Daily Mortgage Lock Advisory” on my website for current news about mortgage rates. Just click here:
Do You Like Classic Cars?
Next Sunday, October 16th is the annual Laguna Beach Rotary Club’s Annual Classic Car Show. This is always one of the best car shows anywhere. Click (or copy & paste) the link below for more information. I’ll be there and hope you’ll contact me for tickets and say “hello” at the show.