So, you own a house and are wondering if you should refinance? Can you get a new loan? Are rates low and are they going lower? Man, you’ve got a lot of tough questions!
There has been a lot buzz lately about mortgage rates and mortgage availability; Rates are at 5% and the government is going to lower them to 4%. Nobody can get a loan. What’s the real deal? Well, we all know that the federal government does not “set” mortgage rates. Those rates are determined by the supply and demand for Mortgage Backed Securities (MBS) in the market place. When demand is high mortgage rates go down and vice versa. Lately, with all of the foreclosures the demand for MBS has fallen off because when a loan in a portfolio of loans (called a MBS and sold to investors) goes into foreclosure the investors in that pool all lose money, so mortgage backed securities are not the no-risk investment they were once thought of.
In steps the Federal Reserve with a mission to lower mortgage rates in an effort to stimulate the bruised housing market and what do they do? They become a buyer of mortgage backed securities – and a huge buyer to boot. The Fed announced last Wednesday a plan to purchase about a trillion dollars in MBS. The mortgage secondary market was elated and rates went down from 5.5% (conventional loan to $417,000) with no points to a low of 4.875%. Wow! The thing is that this can only be sustained if the Fed continues to support demand by buying and they can’t be a buyer everyday forever. So, as you can imagine, rates started creeping up the very next day and are currently at 5.375%. Still interest rates at or near 50 year lows.
The problem right now with keeping rates low is that the government is creating trillions of dollars of new government debt to pay for all of the various bailouts we are involved in and interest rates have to be attractive enough on this debt to encourage buyers to buy it and that is putting upward pressure on rates in general.
The bottom line on rates is that they are very attractive right now and although there may be some dips the likelihood of a significant drop is not very high.
In terms of availability, if you have good credit and equity in your home (or a down payment to buy) you can still get a great mortgage loan. Contrary to what you may have heard there are even some outstanding Jumbo loans available today. In my office we are doing loans up to $1.5 million at 5.25% on a 7 Year ARM. Granted, you have to have a 30% equity position in the property but if you do 5.25% is pretty incredible on a loan this size.
So, rates are great right now and are probably going to stick around this level for the immediate future, loans are still being made and if you are in the house buying market or considering a refinance the timing may be just right.
Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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{ 3 comments… read them below or add one }
Richard Stabile Bergen County Real Estate 04.02.09 at 9:35 pm
I think, the rule of thumb to refiance is 1% in the interest rate. If you can save one percent it is worth refinacing. Also if you can look for the new programs for refinacing by the new bill signed for people to lower their mortgage rate and princible. If you quialify it could make a huge difference.
Ken Mascia 04.03.09 at 9:23 am
Hi Richard,
There really is no “rule of thumb” for refinancing that matches all situations. A refinance always makes sense if the payback period (the time it takes to recover your closing costs with the reduced house payment) is short enough and you plan on being in the house long enough to benefit. With the advent of no-cost loans a few years back, if you can refinance and lower your rate for little or no cost then it always makes sense regardless of how big or small the rate difference. Thanks for your comments!
Detroit Homes 05.06.09 at 1:13 am
Nice informative post. I like your post because the information in your post is really very helpful.
Thanks,
Sofia