CNC Mortgage Blog

When the Fed dropped the overnight bank rate 0.75% early on Tuesday January 22, we saw a big drop in mortgage interest rates that day and early on Wednesday. For a brief period on Wednesday rates bottomed out where a 30 year fixed mortgage was available at 5.125%. This joy lasted 20 minutes and then they have been increasing to today´s level that approach 5.5%.

Historically there has not been a strong correlation between the Fed funds rate and mortgage rates. Keep in mind that the Fed rate is what banks are charged for overnight loans. These typically affect loans tied to prime, such as home equity loans and credit card loans. Mortgage loans closely parallel the yield on the ten year treasury bond.

I usually don´t dare to stick out my neck with predictions as to the trend for mortgage rates, HOWEVER…. I don´t think they are going to go down soon from these levels of 5.5% on 30 year fixed and 4.875 to 5% on 15 year fixed loans for these reasons:

• Banks are flooded with refinance applications
• Banks have reduced personnel in the last year
• Rates are already near 45 year lows

So after looking at the little crystal ball on my desk, I suggest that you get your application in soon with a 45 day lock. Most lenders or brokers will let you float down the rate if there is an improvement.

Borrowers are definitely in a complicated situation these days. Rates on mortgages are very good, still in the 6.25% range for a 30 year fixed rate mortgage. Housing prices are also low. Some people want to move to another house but can’t sell their present house. People who price their house well seem to be moving their properties quickly.

Since people stay in their homes on average 7 years it might make sense to look at adjustable rate mortgages (ARM). Rates on ARMs have improved relative to fixed rate mortgages, this was not the case during the last two years. Today’s rates would be close to 4.875% on a three year ARM and 5% on a five year ARM. The five year ARM would appear a logical choice compared to 6.25% on a 30 year fixed mortgage.

If you do decide to get an arm make sure you understand for how long your rate will be fixed, what index it is tied to, what the margin will be when it does start to adjust and what are the yearly caps on adjustments on a yearly basis and over the life of the loan.

Call us if you have questions.

Mortgage interest rates have climbed again to levels that are still good but are very good considering historical levels. Today’s rates are close to 6% on a 30 year fixed mortgage, 5.25% on a 15 year fixed loan. They are not as good as the 5.125% 30 year loan that was available on January 23 for about 20 minutes.

I don’t think rates are going to be coming down any time soon. The banks are flooded with refinancing applications.

This drop in rates just got people to relook at their present situation and take advantage of close to historically low rates.

People should look at the conditions of their adjustable rate mortgages and study if it makes sense to get a fixed rate mortgage.

Unfortunately the spread that banks are charging for no closing cost loans usually makes the no closing cost option too expensive.