Mortgage rates improved again today, bringing them to their best levels of month, just on par with rate sheets from late August. Conforming, 30yr Fixed rates held at 4.500% in some cases with the improvement being more readily seen in the form of lower closing costs. In others, the the most efficient combination of upfront cost and monthly payment (best-execution) fell to 4.375%.
The Federal Reserve is very much in focus for several reasons. Of course the upcoming meeting and announcement on Wednesday have been in focus for several months as they've increasingly become the most likely venue for the Fed to signal a reduction in asset purchases (aka "tapering"). Wednesday remains important for that reason, but also because the text of the announcement, the press conference with the Chairman and the staff economic projections will help build the market's sense of how the Fed will handle itself as the tapering process (assuming it's announced) continues to unfold.
These things are important to mortgage rates because the nature of Fed policy with respect to those asset purchases has a direct effect on the mortgage-backed-securities (MBS) that underpin the world of mortgage rates not to mention the general effect on economic and market momentum. In other words, sentiment surrounding Fed policy can move "bond markets" in general and specific decisions regarding MBS purchases can have an additional positive or negative effect on Mortgage Rates specifically.
Even outside the realm of policy adjustments, the Fed is a market moving consideration. Today, for instance, the fact that Larry Summers withdrew from consideration as the next Fed Chair gave both sides of the market (stocks and bonds) a boost. This happened because Summers was seen as more likely to dial back the accommodation whereas the remaining frontrunner Janet Yellen is seen more like Bernanke. Fears of decreased accommodation under Summers have perhaps been a slight drag on prices of Stocks and Bonds. When bond prices fall, rates rise.
- Massachusetts Mortgage rates moved slightly lower this afternoon after beginning the day in line with yesterday's worst levels of the year. Things looked relatively bleak as domestic market participants were greeted with flat trading levels vs Wednesday's late day weakness and stronger economic data in the morning that, at first, threatened to take rates even higher. But bond markets, including MBS (the mortgage-backed-securities that most directly affect mortgage rates) were able to hold their ground long enough to make it to the 1pm 30yr Treasury Auction, which helped rates move lower into the afternoon. Best-Execution for 30yr Fixed, Conventional loans remains at 3.625%, with ongoing stratification between lenders due to recent volatility.
Mortgage rates in Massachusetts remianed quite steady to start the week, despite a recent rally in the equities market. The Obama Administration recently released their 2011 Budget/Forecast, providing analyst with a plethora of data to scrutinize. What does this mean for mortgage rates? Well, the budget calls for $1.6 trillion in deficit spending next year, thus placing a strain on Treasury auctions needed to eventually pay-off the debt, thus placing a burden on the yields (%) for mortgage backed securities. Should yields on mortgage backed securities (MBS) rise, a rise on interest rates will surely follow to offset the MBS yield pay-outs to investors. Furthermore, should the Federal Reserve continue its' plan to cease purchasing mortgage backed securities at the end of March 2010, mortgage rates will most certainly rise from the historic levels we've been celebrating for the past 12 months. This is one major reason HomeQuest Mortgage professionals are urging consumers to act now and avoid missing the opportunities in today's marketplace.
The Pending Home Sales report will hit the news wires today to provide us with some insight to the recent trends in the housing market. The National Association of Realtors releases the report, which shows the monthly change in the amount of existing homes (excluding new construction) in which a purchase & sale contract has been signed, however pending a closing date. Pending Home Sales is a leading indicator of the housing activity and economic momentum, as it provides supplemental evidence of consumer confidence. In addition, home purchases stimulate the economy in other retail merchandising, as there are many other housing fixtures needed to complete the furnishing of the home. The data in this report has a two month lag time, so today's data is for the prior month of December 09.
Massachusetts mortgage rates closed the month of November at a near 52 week low, causing new loan originations at many brokerage firms to soar. Many homeowners decided to take advantage of the opportunity and were able to lock-in at historically low interest rates. On November 27th, mortgage backed securities (MBS: FNMA 30YR 4.50%) traded at their highest price since January 7, 2009, driving 30 Year Fixed rates down to 4.625%. The national 30 year fixed rate mortgage averaged 4.71% for the week ending Dec. 3rd...the lowest average since Freddie Mac began its weekly survey in 1971. To benchmark, Massachusetts mortgage rates are down from 4.78% last week and 5.53% a year ago. Those tracking rates may recall mortgage rates around 6.00% this past summer.
In general, bond prices and bond yields share an inverse relationship...when mortgage backed securities are in high demand, MBS prices increase and yields decline. When bond yields decline, mortgage rates typically decrease. Bonds are a safe-haven for financial investors looking for an alternative to the risky equity markets. Last week, Fed Chairman Ben Bernanke announced that the recovery would not be an easy one, inflation will remain low and that rates will remain low for an extended period of time. As a result, the mortgage backed securities experienced a substantial sell-off, causing prices to drop and mortgage rates to increase .125-.250% by week ending Friday December 4th.
In summary, I encourage anyone pondering the thought of refinancing to act now and take advantage of the all-time low rates...don't attempt to time the market! Many homeowners are hesitant to pull the trigger in hopes of obtaining a lower rate and end up missing the opportunity. Often times, the media/publications can confuse borrowers. Rate shoppers become frustrated when they call their mortgage broker inquiring about current rates to find out the rates are different then what they're reading online or in the newspaper. It's important that shoppers understand mortgage backed securities are indeed "securities" that trade in "real time" and are subject to change hourly due to market volatility. Many online advertising websites are updated 3-4 times daily, however it is too cumbersome a project to modify websites an a minute-by-minute basis. Newspaper rates are typically due the Wednesday before the Sunday publication, thus mortgage rates are nearly 4 days out-dated by the time shoppers are reading the mortgage grids.
Lastly, Fannie Mae announced it will be tightening their lending guidelines on December 12th...no doubt causing headaches for borrowers looking to obtain financing.
HomeQuest Mortgage offers a FREE Rate Alert program to assist our customers. Simply tell us what rate you desire and our team of analyst will contact you once your target rate is available. To learn more, visit www.HQWorksForMe.com.
The mortgage lending guidelines will tighten once again on December 12, 2009 making it more difficult for some borrowers to obtain a purchase loan or refinance their existing mortgage.
Fannie Mae announced it will limit the maximum debt-to-income ratio to 45% of a borrower's gross income. Previously, a borrower could qualify up to 50-55% debt ratios. Fannie Mae did mention that they will consider debt-ratios up to 50% assuming the borrower can provide "strong compensating factors". This would include high credit scores, low loan-to-values (LTV's) and/or significant cash reserves.
In addition to debt ratios, Fannie Mae will also require a minimum credit score of 620, previously the minimum was 580. Fannie Mae believes raising the minimum credit scores and tightening the debt ratios will support prudent risk management and better ensure sustainable homeownership. One can argue that this is an effort to crackdown on the loose lending standards that led to the mortgage crisis that started in 2008. Industry professionals are concerned the new requirements may offset the initiatives introduced by the government to provide more liquidity in the secondary lending market.
Current mortgage rates are at an all-time low right now, so act now and avoid these stringent guidelines. Please call a HomeQuest Mortgage representative for more details at 866-839-1117.
Mortgage interest rates are currently at the lowest levels of all time surpassing the best levels from January of this year. The new run lower in mortgage rates has been spurred on by tightening spreads between mortgage backed securities and US treasury debt. The Federal Reserve still has money left in their program to keep mortgage rates low but they have begun to wind it down.
Mortgage rates are at all time lows across the board from 30 year fixed rates to 20, 15 and 10 year fixed all the way to 5/1 and 7/1 adjustable rate loans.
Other good news in the mortgage market to go along with all time low interest rates is the announcement of the first time homebuyer tax credit being extended into next year. Also, the expanded conforming jumbo loan limits will also be carried over into next year. Both of these programs were originally going to expire in 2009. This helps open up the guidelines and allow more borrowers to take advantage of the low mortgage interest rates that are available.
The big current event that is impacting both the mortgage market and the equity markets today is news out of Dubai that Dubai World, the city-state's largest corporate entity, has asked it's creditors for a 6 month break on payments of $60 billion (60,000,000,000) in debts. This has caused concern that the worst of the financial crisis might not be over. Yields on US treasuries have moved lower this morning as stocks have been declining. US treasuries are used as a benchmark for Mortgage Backed Securities which have also seen their yields dropping (leads to lower mortgage rates) this morning.
Mortgage interest rates have been falling over the past month back to the best levels of the year. This drop in mortgage rates has happened despite a strong rally in the stock market. Usually when stocks rally, mortgage rates get worse.
Many analysts think that the stock market is overbought and will sell off soon. If that were to happen then we could see mortgage rates move even lower. One thing working against mortgage rates is the Federal Reserve beginning to wind down their purchase of Mortgage Backed Securities (MBS). This program was started at the beginning of the year in an effort to tighten the spread on MBS and bring mortgage rates down. Originally the Fed was going to use $1.25 trillion dollars to buy mortgage backed securities by the end of this year. On Wednesday the Fed announced that instead of spending all $1.25 trillion by the end of this year, they would be slowing their daily purchases of MBS so that the funds are not gone until the end of March 2010. As the Fed buys less MBS each day in order to make the $1.25 trillion last longer and gradually exit the market, mortgage rates could begin to go up.
It is always hard to predict where mortgage rates are headed. In the current times it is even more difficult because of the unprecedented Fed involvement and the uncertainty about how much rates will increase up when the Fed exits the market.
Tax Credit for Homebuyers
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Tax Credit Versus Tax Deduction
It's important to remember that the $8,000 tax credit is just that... a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit... and still receive a check for the remaining $4,000!
According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.Homes that Qualify
To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:
Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify.Higher Loan Amounts
More good news - there is an extension on the additional tier of conforming loan amounts which had been first established in 2008. This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750. These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard "jumbo" loan rates.
Mortgage rates in Massachusetts look like they will begin the holiday shortened work week slightly higher after hovering around historic lows recently.
30 year fixed rates should still be available in the low 5% range this week. With so much uncertainty in the market it is hard to predict where rates will go on any given day. This is why it is important to lock an interest rate when one is available that makes sense for you to refinance at. There is no guarantee that rate will be available the next day.
There is not much news scheduled for this week that will have an impact on the mortgage market. We will update you though if any mortgage rate news comes out.
As more and more borrowers realize that mortgage rates in Massachusetts and all of New England are at historic lows, they are inquiring about the possibility of refinancing into a lower interest rate. Once they find out they have the credit scores and income to qualify the next obstacle is home values. To get the lowest interest rate and avoid paying Private Mortgage Insurance (PMI) you need the loan amount to be 80% of the home appraised value. Given the current state of the housing market, many borrowers are discovering that they no longer have the required 20% equity, even if they did just a few months ago.
This is when PMI comes into play. A lot of people immediately think of PMI as a bad thing. It adds to the monthly mortgage payment without helping to pay down the balance of the mortgage. A lot of people don't realize that going from a loan with no PMI to a loan with PMI might still be a good move.
One reason having PMI on your new loan could be a good option is that in some cases it may be used as a tax deduction. You will have to consult a tax advisor to see if this deduction can be applied to your taxes. If it can, it will help reduce the actual cost of the PMI.
Another reason PMI is not as bad as it may initially seem is because it is not a permanent expense. On conforming loans the PMI may be eliminated once you have 20% equity in the home. Once it is removed you will be left with the original interest rate and no PMI payment.
Interest rates are at historic lows right now making it possible for many people to reduce their current mortgage payment, even if their new loan has PMI. For example, say you bought a home 3 years ago for $400,000 with a 20% down payment. You took out a loan for $320,000 and got a fixed at 6.375% with monthly principal and interest payments of $1,996.38. Now that rates have come down, you have the option to refinance into a 30 year fixed loan amount of $315,000 at 5.00% with monthly principal and interest of $1,690.99 per month. The only problem is that your home now appraises for $360,000 due to the weak housing market, leaving you with a little more than 10% equity in the home. PMI is now required on the loan in order to get the lowest rates. In this scenario you could expect to have to pay a PMI payment of about $130 per month.
Even with the new PMI on the loan, your total payment would still be $175.39 less than you were currently paying. And once you have 20% equity in the home again, the PMI would fall off and you would then be saving $305 per month compared to the loan you had with an interest rate of 6.375%. Once you factor in potential tax savings from the PMI it becomes clear that it is worth it to refinance even if you no longer have the 20% equity in your home.
To see if it makes sense for you to refinance given the historically low 30 year fixed rates that are currently available, give us a call at 508-839-1117 to talk with one of our loan officers.