Mortgage Market September 3rd 2010

Mortgage Rates hit new lows yesterday. If you have refinanced over the past 2 years there is a 70% chance you can refinance to .5 lower in rate and pay NO closing costs.  The 30 year fixed mortgage rate has fallen down to the  4.25% to 4.375% range for well-qualified borrowers.  Can you say high 3.875%,  30 year fixed rate paying points?!?!  These rates are amazing and may not be down this low again, I would take the safe play and LOCK in your purchase or refinancing application right now.  Please call/email it only takes you 5 minutes to LOCK in at today’s new all-time low rates.

Economic Data

Wednesday’s bond market has opened down sharply after this morning’s economic data showed surprising strength. The stock markets are heavily influencing bond trading with significant gains. Stocks have had quite a strong reaction to this morning’s news, pushing the Dow up over 230 points and the Nasdaq up. The bond market is currently down, which will likely push this morning’s mortgage rates higher by approximately .250 of a discount point. Strength in bonds late yesterday is helping to prevent a larger increase to this morning’s rates.

Today’s news came from the Institute for Supply Management (ISM), who released their manufacturing index for August late this morning. They announced a reading of 56.3 that was not only well above forecasts, but also an increase from July’s reading. This means that manufacturer sentiment about business conditions was much stronger than analysts had expected. When this happens, bonds tend to move lower and stocks higher as it is a sign of economic strength.

Yesterday afternoon’s release of the minutes from the last FOMC meeting didn’t reveal any significant surprises, but did indicate that the Fed is considering, or at least willing to invest more funds into mortgage-related securities. That can be considered good news for bonds and mortgage rates since the additional buying should drive mortgage pricing lower. However, it is just a thought at this time and cannot be given much weight until the Fed does decide to pursue that route.

There are two reports scheduled for release tomorrow morning that have the potential to influence rates. The first is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show a downward change from the previous estimate of a 0.9% decline. Forecasts are currently calling for a 1.7% drop, meaning productivity was weaker than previously thought. This would be negative news for the bond market and mortgage rates, but this data is not one of the more important reports we see each quarter. Therefore, unless there is a large variance from expectations, this report will likely have little impact on tomorrow’s rates.

July’s Factory Orders data will also be released tomorrow morning. This report measures manufacturing sector strength and is similar to last week’s Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 0.3% increase in new orders. A smaller than expected rise would be favorable for bonds, while a large than forecasted increase could lead to higher rates tomorrow morning.

Also worth noting are weekly unemployment figures that will be released by the Labor Department early tomorrow morning. They are expected to say that 475,000 new claims for unemployment benefits were filed last week. Since this data tracks only a single week’s worth of claims, it usually takes a fairly significant surprise for mortgage rates to react. This is especially true when monthly figures will be posted the following day, as is the case this week.

FLOAT or  LOCK

If I was closing on a Home Mortgage in the next 0 to 15 Days – LOCK

If I was closing on a Home Mortgage in the next 15 to 30 Days – LOCK

If I was closing on a Home Mortgage in the next 30 to 60 Days – LOCK

If I was closing on a Home Mortgage in the next 60+ FLOAT

Written by Brian Cav www.Smarterborrowing.com  – 617.771.5021

Jumbo Pricing, loan amounts greater than $523,750

• 30 year fixed at 5.25%
• 15 year fixed at 4.75%
• 5/1 ARM at 3.75%

Conventional Pricing, loan amounts greater than $417,000

• 30 year fixed at 4.5%
• 20 year fixed at 4.25%
• 15 year fixed at 4%
• 5/1 ARM at 3.125%

*For qualified borrowers

Market Watch

Paying Off the House in 15 Years

By Amy Hoak of The Wall Street Journal

A growing number of homeowners are choosing to pay down their mortgages at a faster rate–even if it means a substantial jump in their monthly payments.

Between January and June, 26% of homeowners who refinanced chose a 15-year fixed-rate mortgage, according to data from CoreLogic, a provider of financial, property and consumer information. During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term.

What’s prompting the shift to shorter loans? Historically low interest rates for fixed-rate mortgages.

Homeowners are doing the math and realizing that rates have fallen enough so the increase in payment between a new 15-year mortgage and their current loan is no longer unbearable for their budgets, says Bob Walters, chief economist at online lender Quicken Loans.

The average rate on a 15-year fixed-rate mortgage was 3.86% for the week ending Aug. 26, according to Freddie Mac’s weekly survey of conforming mortgage rates.

A Change in Thinking

The financial situation of those capable of refinancing today is a factor in the shift, Mr. Walters says. These people typically are homeowners with the best credit and the most equity — and, therefore, most suited for a shorter-term loan.

But there might be some other psychology at work. “We’re seeing a different view on debt than maybe we’ve seen in the past,” he says. Today, homeowners are saying, “I really want to pay this off. I’m going to bite the bullet and take the payment and work toward paying this down.”

A 15-year mortgage also acts as somewhat of a forced savings account for homeowners, says Leif Thomsen, chief executive of Mortgage Master, a privately owned lender, given that the higher payments help a borrower pay down the principal at a quicker clip.

This is a huge shift in borrower thinking. “There was a drive a couple of years ago to take out the biggest mortgage that you could and use all of the money you would have otherwise had in the house and put it into stocks and bonds–to think of your house and mortgage as part of your entire investment portfolio,” says Amy Crews Cutts, deputy chief economist for Freddie Mac.

“That worked for people who do investment finance for a living and are good at managing accounts,” she says. “But for the average person, debt is a drag on their psyche as well as their overall budget.” Many Americans have reverted to the goal of paying off their house and getting rid of their mortgage, Ms. Cutts adds.

Doing the Math

Refinancing into a shorter-term mortgage isn’t a strategy for everyone, however.

Choosing a shorter term usually means you’ll get a better rate–and you’ll pay much less interest over the life of the loan–but a shorter time frame ramps up monthly mortgage payments.

For example, with a 4.5% interest rate on a 30-year fixed-rate mortgage of $200,000, you would have a monthly payment of $1,015, including principal and interest, Ms. Cutts says. The monthly payment jumps to about $1,480 with a 4% interest rate on a 15-year fixed-rate loan.

Of course, if the refinancing borrower’s current 30-year loan has a higher rate, the difference between the monthly payments could be lower. Still, you should count on some increase in monthly payments.

In general, Mr. Walters says, those who choose 15-year fixed-rate mortgages are older and have more equity and less debt than other folks. They also earn higher incomes and don’t have some of the added expenses that younger homeowners typically do.

“People who are taking these loans are financially stable and can afford the payments, but at the same time are planning on staying in their home for an extended period of time,” Mr. Thomsen says.

Mr. Walters says you shouldn’t take on a 15-year fixed-rate mortgage unless you have substantial savings, including at least a year’s worth of living expenses in liquid accounts.

Also, he recommends having a debt-to-income ratio below 35%. So if you have a gross salary of $5,700 per month, for instance, your monthly debt–including any mortgage payments, taxes, insurance, homeowners-association dues as well as auto and student loans and credit-card debt–would have to be a max of $1,995 to get a 35% ratio.

Make That Extra Payment

“ I was about 12 years ahead of the trend to minimize the dollars flying out of my pocket to pay for a house. I know the trend for the last 30 years or so has been “Me now!” There’s at least a faint possibility that delayed gratification is a better choice. ”

—William Skiba

Borrowers who don’t meet those standards, or are worried about future loss of income, might be better served taking a longer-term mortgage but making extra payments on the principal to pay off the loan faster, says Mr. Walters.

For instance, if you refinance a $200,000 mortgage into a 30-year loan with a 4.5% rate, and then apply $100 of the savings to the principal payment each month, you’d save $31,700 in interest over the life of the loan, Ms. Cutts says. And you would pay off the mortgage in 25 years, instead of 30, she adds.

What’s more, you would have the flexibility of not paying that $100 in months when money gets tight. “Maybe today you’re feeling flush with money. Maybe you’re worried in the future that income might change,” Ms. Cutts says. With a 30-year mortgage, you have more flexibility. “Shortening to 15 years is a pretty big bump in payment.”

Presented By RE/MAX Destiny Accredited Buyers Agent Jeff Persons – 617-512-3443

Contact Jeff

jpersons@wesellboston.net

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