Today, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, signaled that an interest rate increase in March is likely. The Feds expect the economy to continue to improve; and accordingly, for interest rates to continue upward on a gradual incline.
30-year fixed rates:
Last summer – 3.75%
Now – 4.375% to 4.5%.
How long will it take to get to 5%?
I think that is the appropriate question: how long until rates are at 5%?
Not “if” but “when”?
If you have been procrastinating in buying a home, waiting for flowers or sunshine, that is a mistake. Not only will rates be higher, but sellers price their homes higher when their yards are gorgeous. Statistically, bidding wars are at their fiercest in March when both sellers and buyers come out of hibernation. Be smart and beat the rush if you can.
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The time is now to reach your dream of home ownership. The chart on the left is from a professional service (EZ Credit). The book on the right teaches you how to do it yourself to get the same results.
I want to make everyone aware that mortgage interest rates have been and are continuing to rise rapidly. The rate you were quoted last week no longer applies. In fact, the rate you were quoted yesterday no longer applies. Your interest rate is not secure until it is locked.
To lock your rate, ask your loan officer to do so. For a matter this important, make the phone call. Do not rely on an email which can be overlooked or missed.
A rate lock is tied to a specific property address, loan amount, and other terms. There is a “Lock and Shop” program where you can lock in your rate before you have an address; however, that is riskier to the lender, so the interest rate is higher, which pretty much defeats the goal in most cases.
If you want a lower monthly mortgage payment, I strongly suggest you resist the temptation to wait until after the New Year to find a house. Get with your Realtor now and make an offer. Then the minute you have a mutually signed Purchase Agreement, send a copy to your loan officer so that you can lock in your interest rate.
If you know someone who is thinking of buying a home in the near future, please pass on this vital information, because procrastination will result in a higher payment.
Thank you for reading my blog posts and for helping pass on intelligence through social media.
January 2014, financial experts and mortgage professionals said interest rates would rise by the end of the year. They remained fairly flat.
January 2015, same thing with rates remaining fairly flat.
January 2016, same thing and rates remained fairly flat until this month. At the beginning of November, interest rates started climbing, and they haven’t stopped. Day by day, we see small increases that add up over a week’s time.
One financial predictor has forecast 30-year fixed rates at 4.5% by the end of December.
The Federal Reserve Board has said they will likely raise rates in December. And remember, the market is anticipatory. So if higher rates are coming, lenders react now by raising rates so they aren’t caught short-handed.
If you have been thinking about refinancing — possibly into a shorter term or getting cash out — do not delay another day. Get your application in and get your interest rate locked.
If you want to be a home owner but are waiting until after the holidays, that’s a bad idea. You find less competition among home buyers and better rates now than in January. Get your home now, lock in your rate now, and set the closing for after the holidays. You can wait to move, but you can’t wait to get your financing in place if you want the best deal and lowest monthly payment.
If you are in California or Washington, I am happy to help you as I am licensed in those two states. If you live elsewhere, I suggest that you contact a full-service mortgage lender. Forget the Big Banks who have a terrible reputation on so many levels. A full-service mortgage lender has both their own money to lend and can shop wholesale lenders as needed.
My next post will be questions to ask your loan officer. I wanted to get this warning out about interest rates as soon as possible. No more procrastinating! Consider this is your last call before rates go even higher. Feel free to pass this on via social media.
Since I don’t have a crystal ball to tell the future, let’s look at the principles and then see if we can come up with a conclusion.
Factors and Principles that Determine Interest Rates
- The election result was a surprise to investors. Investors don’t like surprises. This caused a rapid selling of bonds, which pushed interests higher by .125 percent overnight.
- Any rapid change in rates settles back down along with investors’ nerves. Remember what happened with Brexit?
- Uncertainty brings higher rates.
- Good economic news brings higher rates.
- Interest rates were trending upward anyway, irregardless of, and before, the election. Last year at this time, 30-year fixed rates were averaging 3.5%. Now they are closer to 4%.
- Sometimes the market just goes with the momentum — for awhile.
- Other factors, larger on the global economic stage, influence interest rates more than the U.S. election. Specifically, the European Central Bank Announcement coming next month (and the anticipation of it) is having a greater impact on interest rates than President-elect Donald Trump.
- The President does not set interest rates. The global economic condition sets interest rates.
- The market is anticipatory. Investors try to guess what will happen tomorrow and then react accordingly today.
Back to our headline question: Where are interest rates headed? I’m sorry I can’t tell you exactly what will happen, but your crystal ball is as good as mine. If you are nervous about rates going up, lock in your rate and be secure.
Thank you for stopping by my blog. Feel free to subscribe and to pass this info on via social media.
If I can help you with a refinance or home loan, I am licensed in California and Washington, NMLS 1294134. Send me at email telling me what you need.
Interest rates are down today! In the past two months, we’ve seen rates go from 4.75% down to 4.375%. Some aggressive lenders might even offer 4.25% to their best borrowers with high scores and large down payments today. So what’s going on?
Why did economists predict higher rates for 2014 when we’ve seen this drop in January? Does this mean they were all wrong and that rates are headed down again? There are good answers to those questions.
First, mortgage interest rates do not go up in a straight line. On a graph, rising rates will look like an upward zigzag. Right now, we have a dip. This does not mean rates won’t turn around and go up again. That could happen very fast on Friday, which I’ll explain in just a moment.
Second, there are many factors that go into interest rates. This recent rate drop is largely due to December’s weaker than expected jobs report that came out in January. Investors try to anticipate what will happen, so if the unemployment report ends up being worse than expected — even if it is improved over the previous month — then that is bad economic news and rates drop.
Will Mortgage Interest Rates Go Up or Down From Here?
Friday, February 7, the January Jobs Report will be released. The results will be influential in which direction rates go. On the days between now and Friday, investors will be speculating, so we could see some volatility in rates. If the report shows a stronger hiring economy than expected, rates will go up — and that could happen very quickly. On the other hand, if the report shows a weaker hiring economy than expected, rates will go down. No one can say with absolute certainty what will happen.
My philosophy on rate locking is this: Lock the dips and be happy. If you see a rate you like, lock it and be happy. Even if rates go lower after, you still got a rate you liked, so remain happy. Once you lock in, stop watching rates. Why drive yourself crazy? But until you lock, watch rates and keep in touch with your loan officer on a daily basis.
A Few Rules About Rate Locks
Once your interest rate is locked in, you don’t have to worry if rates go higher. You are locked. A rate lock is a commitment from an investor to give you a certain loan amount at a certain rate, with certain points (or no points).
The rate lock is tied to a property address, so you cannot lock in your rate before you have a purchase contract. If you are refinancing, then you can lock at any time.
Once your rate is locked in, you have a commitment. That commitment cannot be broken if rates go down the next day. That would be like a husband asking his wife for a divorce the day after the wedding because a more attractive girl came along. That said, there are some lenders that will compromise if rates go down significantly. For example, if rates drop by .5%, they are willing to drop your rate by .25%. But if rates go down by .125% or .25%, don’t expect to get a lower rate. That is not a change that is worthy of a compromise.
The loan officer should never decide when to lock in the interest rate. It is your financing and your decision. Don’t stick your head in a bag and expect your loan officer to predict the future of rates for you. You must be the one to tell your loan officer when to lock in your rate.
After your interest rate is locked, GET IT IN WRITING. Failure to do so is a mistake on your part. How do you know the loan officer actually locked in your rate if you don’t get it in writing? What about the many people who were told their rate was locked, but then, to their horror, found out later that the loan officer failed to do so, and now they were stuck with a higher rate? Learn from their mistake and get your rate lock in writing.
For other vital tips like this, see Mortgage Rip-Offs and Money Savers. I suggest the paperback over the Kindle version, because the Good Faith Estimates cannot be read on the Kindle version. In this book, I put at least eight different (actual, real) Good Faith Estimates from banks and brokers with my comments on their junk fees, hidden fees, lender credits, and more.
If you found this information on mortgage interest rates to be useful, please pass it on by clicking the social media icons and/or emailing the URL to those who might be interested. Thank you.
As I wrote December 3rd, interest rates are trending upward, and that trend continues. Today, we’re seeing 4.625% to 4.75% for the conventional 30-year fixed rate. But in addition, fees are also increasing.
In the near future, I will dedicate a post to explaining the mortgage loan fee increase and what you need to do in order to pay the least possible in fees. For now, be forewarned that if you want to bring less cash to closing and get the lowest rate for the lowest monthly payment, the time to sign the contract and lock in your interest rate is now.
Remember, you cannot lock in your rate/fee without a purchase contract, because locks are tied to a specific property address.
You can have your real estate agent write the contract for you now, lock in your rate now, but write the closing date for the end of January when you have more time to pack and move. Waiting to choose could cost you financially.
Please feel free to pass on this information/blog link to folks who might be affected. You’ll be doing them a favor by helping them save significant money on their upcoming mortgage.
Will we reach the 4.75% that rates were at on September 18th? Will we go even higher, into the 5% range and beyond? One economist brave enough to forecast the future says yes. In fact, he expects mid-2014 to see 5.5%, at the least.
As we receive good news about the U.S. economy, rates continue to rise. Of course, the chart looks like a zigzag, because rates do not increase in a straight line upward. But looking at the overall trend, we do see an upward track.
All eyes will be on the Employment Situation Report to be released later this week. If you have a loan in progress that is not locked in yet, you are taking a big gamble, because the trend is not your friend at the moment.
How Locking In Your Rate Works
Locking in your rate secures a specific rate and protects you if rates go up. To lock in your rate, you must have a fully executed purchase contract, because a rate lock is tied to a specific address. If you are still house shopping, you cannot lock, unless your lender offers the rare “lock and shop” program.
Get It in Writing
When you ask your loan officer to lock in your rate, you must also ask for a written confirmation of the lock. An email confirmation is sufficient. Keep this confirmation! Too many home buyers have been burned when a lock officer failed to honor their rate lock request.
Verbal promises mean nothing in the land of mortgage loans. Only what is it writing stands. So make sure you receive confirmation of your rate lock, the expiration date, and any points (dollar amount) you’re paying. If you’re getting a no-point loan, the lock should state a zero fee.
If you have friends or colleagues who are interested in buying a house or refinancing, please feel free to refer them to this blog information.
This post is not a prediction of interest rates, only a commentary on the apparent trend. It is not advice to lock or float. You and only you are in charge of deciding what interest rate you want to accept and lock.
The report shows that hiring has increased above expectations. This good economic news means mortgage interest rates will be going up as well.
Based on that, I expect mortgage lenders to be showing interest rate price increases this morning. Yes, again! If you have a purchase contract, my advice is to lock in your rate ASAP this morning. If you do not yet have a purchase contract, you cannot lock in your rate, because rate locks are tied to a specific property address.
This is just my opinion and not a guarantee. Make your own decision about locking or floating your interest rate based on your own opinion.
If you know a home buyer or home owner refinancing, please alert them to this information as well.
To answer, when a lender gives you an interest rate higher than par rate, there is an extra profit, or extra cash that can be given to you as a credit. Par rate is the base rate that does not yield extra profit to the lender nor require money (charged in percentage points) to buy it down. Par rate changes daily.
A perfect example is a set of two mortgage estimates I reviewed yesterday for one of my coaching clients. The lender had given him these choices for a 30-year fixed rate, 10 percent down payment, top tier credit:
3.375% with a cost of 0.4 percentage points. For his loan amount of $405,000, that was a cost of $1,701.
3.75% with a lender credit of $8,059. That would give him over eight grand to pay his closing costs. The lender had that much money to give, because 3.75% was over the par rate of 3.4% (on that day).
Which is Better?
The difference between these two loan offers is $9,760. (A cost of $1,701 versus a credit of $8,059.) Talk about going from one extreme to another!
First, I do not recommend paying $1,701 to get an interest rate one eighth of one percent (0.125%) lower than par rate. For his loan amount, it would take five years just to break even on that cost. That is too long, in my opinion. Also, he happened to be tight on money for closing costs after he made the 10 percent down payment, so why would he spend so much extra to buy down his rate? Better to keep that money in an emergency account.
I recommended asking for 3.5% with zero cost. This is because 3.5% is the closest rate to par rate for the day (yesterday). Depending on the day he locks in, there may or may not be a small credit, depending on exact par rate.
However, if he found that his dream house — the one he and his wife fell totally in love with and absolutely had to have — took all of his cash for the down payment, leaving him without enough left for closing costs, then taking the higher interest rate (and higher monthly payment) so that he’d get the big lender credit to cover closing costs was a viable option.
Personally, I would rather see him take 3.5% par rate on a more affordable house with a lower monthly payment.
But for a person with a low debt ratio and high income, the higher interest rate is not a turn-off, and the lender credit is an advantage one might choose to take.
By the way, if you read Mortgage Rip-Offs and Money Savers, you know this lender credit is the Yield Spread Premium (YSP). Per new lending laws, if a lender is charging an origination fee (including processing fee, underwriting fee, administration fee, application fee), then any YSP they receive must be given to the borrower as a credit. However, if the lender is a bank or a direct lender using their own money to fund the loan, they do not have to reveal or credit you any extra profit they make. And don’t bother asking, because they will never tell you what their overage/profit is. Most will deny it altogether, because as a bank or direct lender, they don’t call it YSP; they call it SRP (Service Release Premium).
If you have any questions about lender credit, please feel free to ask. And once again, thank you for stopping by to read my blog.
What happens next could be influenced by financial news in Europe. Midweek, we expect that stock prices will drive bond trading and mortgage rates. Our most important and influential data of the week will come on Friday when the September Employment Report is released.
Good news about jobs and employment will mean good news for the U.S. economy but bad news for mortgage rates. Unfortunately, we can’t have it both ways.
No one has a crystal ball that foretells interest rates. Therefore, my philosophy remains: If you see an interest rate you like, lock the rate and be safe from volatility.