Best Predictor of the Home Mortgage Rate?

Discussion in 'Archived Threads 2001-2004' started by Shayne Judge, Nov 20, 2001.

  1. Shayne Judge

    Shayne Judge Stunt Coordinator

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    My wife and I recently applied for a 30 year fixed rate mortgage. We opted for the float to lock our interest rate, and I have watched in horror as the rate has climbed 3/8 of a point in the last 5 days.

    I was wondering if anyone knew what areas of the market or other factors I could keep an eye on to help me predict any increase or decrease in the mortgage rates. I realize that the current rate of 7% is not bad, and I would have locked it in last week at 6.625 if not for the current thought that the Federal reserve rate will be cut in early December.
     
  2. Kelley_B

    Kelley_B Cinematographer

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    I cried when I saw that rate go up as I am trying to get a mortgage loan and will not know until Friday how much I will be getting.
     
  3. Patrick R. Sklenar

    Patrick R. Sklenar Second Unit

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    a little over two weeks ago I found 5.75% for only 1.5 points on a standard, conforming 30 year fixed. The only reason I didn't grab it is that my house completion date has been slipping and I have no idea when it'll be ready to close yet. This great rate was with a 45 day lock. At this time I'm being told to expect to close on 1/28. It was 12/5 when I started. And I don't believe that this is the last slip ... still waiting for them to backfill to the foundation so they can start framing. [​IMG]
     
  4. Colin Dunn

    Colin Dunn Supporting Actor

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    The 30-year and 15-year fixed mortgages generally move in tandem with the yields on 10-year Treasury bills.

    Treasury bills pay a fixed dollar amount in interest. When the price of the bill goes up, the result is a lower rate of interest on the investment. Conversely, if the price of the 10-year T-bill goes down, you get a higher interest rate on your investment.

    There are day-to-day fluctuations in interest rates as these securities are traded on financial markets.

    Likewise, banks will "bundle up" conforming mortgages and sell the resulting "bundle" as mortgage-backed securities. Demand for these securities tends to coincide with that of T-bills.

    That 3/8 of a point interest rate rise was probably due to the 10-year T-bill taking a hit within the last week. Institutions were selling other interest-rate-sensitive investments, such as mortgage-backed securities, causing market interest rates to rise.
     
  5. SteveA

    SteveA Supporting Actor

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    Interest rates tend to move in the opposite direction of the stock market. When confidence is high and the market rallies (like last week), interest rates rise. When the market stalls, rates go down. This is because many investors put their money into 10-year bonds when they take money out of stocks (and vice-versa). When stocks go up, demand for bonds decreases, forcing the price down and the yeild up. Mortgage-backed securities must compete with 10-year bonds, so their prices tend to move in parallel.

    I'm closing on a house in January and have not yet locked my rate, so I'm sweating this situation too! I think rates went up a lot last week because of all the "good" news about the war in Afghanistan. I predict there will be a lot of profit-taking and more of a sell-off in the stock market soon, forcing interest rates back down somewhat.
     
  6. Mike I

    Mike I Supporting Actor

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  7. Ashley Seymour

    Ashley Seymour Supporting Actor

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    a little over two weeks ago I found 5.75% for only 1.5 points on a standard, conforming 30 year fixed.

    I am hard pressed to see too many scenarios where paying any points makes sense. It usually costs a point to get a 1/8th reduction in the interest rate. On a $100,000 loan you would pay $1,000. Your payments on rates of 6% and 5.875 are $599.50 and $591.38, or a savings of $8.12 per month. That is a period of 10.26 years. Now look up at the other post which speaks to mortgage rates tracking the 10 T-Bond and the logic becomes clear.

    If you keep your loan less than 10 years you will loose money. If you keep it longer than 10 years, you can come out ahead.

    I have worked with brokers who sell a client on lower rates by saying that the seller will pay two points. It shounds good, but see the analysis above. If a seller has this much to give away I would rather have it applied towards closing costs (over and above what a good broker should normally be able to negotiate) or better, to get a further price reduction.

    Conventional rates today seem to be about 6.5%
     
  8. Patrick R. Sklenar

    Patrick R. Sklenar Second Unit

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    Ashley,

    I'm currently expecting to be in this new house for 10-12 years. T'is one reason paying 1 1/2 to 2 points seems to make sense at this time. Of course, I'm only looking at lenders/brokers who don't charge "origination fees/points" and whose closing costs are competative. I'm doing this on a single income (single, no wife, no girlfriend), so I want to keep the monthly payments as low as possible. And the difference a 1/2 point makes is more like $70-$80 per month when you approach my loan amount of $192K.

    But you're quite right, for only an 1/8 of a point difference, I'd far rather save the cash up front. But for a 3/8 or 1/2 a percent rate difference (or more), then paying the point or so up front will help me.
     
  9. Brian Perry

    Brian Perry Cinematographer

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    Ashley,

    You also have to consider that the points are entirely deductible in the first year, so it really doesn't cost you the full amount. In your example, the break-even point is probably closer to seven years.
     
  10. Patrick R. Sklenar

    Patrick R. Sklenar Second Unit

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    Additionally, I've found Ohio Star Software's Amort software to be quite useful in comparing the effect of different rates, types of mortgages (ARM vs 30 Year) and of paying extra towards the principal for each of these scenarios. Unfortunately, it doesn't allow me to include the effect of paying points, but I've put together my own spreadsheet to at least allow me to compare various lenders/brokers closing costs with & without points.
     
  11. Shayne Judge

    Shayne Judge Stunt Coordinator

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    Ok, thanks for the advice. I am not comparing many banks, simply because I have been a member of my bank for 12 years. They offer a no PMI mortgage rate, and I am paying bi-weekly payments, which will allow me to pay off the loan in ~23 on a 30 year fixed rate.
     

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