Mortgage Pro's Take on Market

IS NOW THE TIME TO REFINANCE MY HOME LOAN?

Rates are at all-time lows
Freddie Mac, www.freddiemac.com, is reporting the average 30 year fixed rate to be 4.85% with 0.7% in points payable. This is the only source I use to track interest rates because these numbers are based on actual loans instead of advertised “quotes”. As we all know, many lenders tend to “low ball” their advertisements in an attempt to make the phone ring and unfortunately we find all too often that the advertised rates aren’t actually what gets sign at closing.

How did they get here?
Before we can understand where rates are heading, we must first understand how they got here. Mortgage rates are set based on the yield and price being paid for their bonds which are called mortgage backed securities. These bonds trade on an open market just like any stock you would look up. The lower the yield paid on the bond, the lower rates are at the time. Over the past 6 months, the US Government has invested hundreds of billions of dollars into these mortgage backed securities in an attempt to get the yields low and to keep them there. The first installment came from the Treasury under the direction of Hank Paulson and there have been two additional announcements from the FED. The most recent commitment was made from the FED on March 18th.

Where are they going?
The Treasury’s first injection in early November 2008 of approximately $500 billion pushed mortgage rates from over 6% down to just above 5% in just over a 30 day span. In early December the FED announced a similar investment commitment and projections of 4% rates began to run wild in the media. Jim Cramer predicted a 3.80% mortgage on his CNBC broadcast, WRONG! Those of us who follow these markets closely immediately realized the difference between the two plans and cautioned our clients that rates would not be hitting 4%. The Treasury bought the securities in bulk thus pushing the yield down very rapidly. The FED’s plan called for the purchases to occur over a 180 day cycle. This meant rates would remain low for the next six months as opposed to going significantly lower for a short period of time. The FED’s most recent announcement does the exact same thing except extends the time-frame through the end of this calendar year. The bad news is that rates aren’t going much lower. The good news is that rates aren’t going much higher.

Don’t take my word for it
On March 27th, Bloomberg quoted John A. Koskinen, Freddie Mac’s Chief Executive Officer, stating “mortgage rates are probably as good as they’re going to get and the housing market is likely to rebound sooner than some forecasts.” He went on to say, “interest rates are probably close to bottoming out, and therefore we are telling people to buy a house now.”

Now is the best time in the history of our market to either purchase a home or refinance your existing home loan. The key is working with someone who understands how a mortgage should properly integrate into your overall financial plan. Although a 30 year fixed mortgage is a simple product, you can cost yourself thousands of dollars by not having it tailored to fit your financial plan. The simple fact is that someone planning to move in the near future, someone with children entering college in the near future, and someone planning on living in their current home for the rest of their lives, all require a different plan. If your lender is simply quoting you a rate from today’s pricing sheet, there is a great chance you are about to cost yourself a lot of money.



Best,
Marty

Contact:
Phone (859) 293-0411 x234
Fax (859) 293-0511
www.martypreston.com
mymortgagepro