How Long Are You Going To Put Off Locking Your Mortgage Loan?

Michael — Wed, 15 Dec 2010 20:55:31 +0000

After a huge and swift sell off in the mortgage bond market (click image to enlarge) since November 5th, 2010 that has led to an increases in interest rates, many in the mortgage business and real estate world are left scratching their heads (including myself). Both treasury and mortgage markets are overdue for some retracement (improvement in rates) as most all of our key momentum oscillators are at oversold levels. What that really means is rates have gone up hard and fast! Too fast and at overheated levels. Most likely it’s an end of the year sell-off, almost the exact same scenario played out last year. This could certainly be some selling to get profits booked and ready for a buying opportunity first quarter 2011.

Here is my question though. What if they don’t get back down to the low 4% range? Did you really miss the boat? I don’t think so! Let’s put some perspective on this. Even at current levels, interest rates are historically low. We haven’t been at these levels since the 50′s. 60 years ago.

The economic outlook is improving, or so it appears. The Feds WANT inflation somewhat higher; hard to expect lower rates with those hurdles. If you are in the market for a mortgage, and want to gamble rates go lower… at least get everything possible into your mortgage lender so you can be in a holding pattern to pull the trigger when and if they do. Good luck!

Have You Looked at the Spread Lately Between 30 and 15 Year Fixed Loans?

Michael — Fri, 12 Feb 2010 19:19:13 +0000

IT’S HUGE!

It’s a good time to look at the 15-year fixed rate mortgages.

As compared to 30-year fixed rates, the relative discount for “going 15″ is big. Interest rate spreads between the benchmark borrowing products haven’t been this high since 2004.

But there’s more to it than just the rates. The 15-year and 30-year fixed rate mortgages each have their benefits and, because of that, interest rates can be sometimes irrelevant.

For example, assuming a $250,000 mortgage at today’s rates, the lifetime interest costs on a 15-year mortgage are $142,000* less than a comparable 30-year fixed rate mortgage. That’s pretty significant, but is that the whole story?

The associated 15-year fixed mortgage’s monthly payment registers 41 percent higher than the same 30-year’s. Big payments like that can break a family’s budget — no matter how low the rate. Of course, the bigger the loan, the bigger the difference.

Furthermore, low rates don’t matter much with respect to mortgage planning. There’s a few sounds reasons you may want to pass over the 15-year in favor of a 30:

The 15-year mortgage’s tax benefits are relatively tiny
There’s opportunity cost in rapidly converting liquid cash into illiquid home equity (opportunity would be, could you earn more on the money than it costs you in interest)
In the event of an emergency, you still have to make the larger, 15-year payment (probably one of the biggest drawbacks)

Low rates are tempting, though, and when the spread between the 15-year fixed and 30-year fixed is as big as it is today, the arguments made above lose their weight. The ultimate test is a gut check. Does having your mortgage paid off sooner with less interest ‘sit right’ with you? If it does, no amount of number crunching it going to deter you.

One thing to remember is that mortgage rates change everyday and the delta from product-to-product is far from linear. The chart at top proves it. So, if you’re not buying a home for another few months, don’t settle in on a strategy just yet.

Know your options, until you are ready to buy that new home.

For help with your mortgage planning needs, feel free to call or send me an email.

*Based on $250,000 borrowed at 5% over 30 years compared to $250,000 at 4.375% over 15 years.

Michael J Eiden MLO-165229, Sr. Mortgage Banker/Broker » 15 year mortgage

How Long Are You Going To Put Off Locking Your Mortgage Loan?

Have You Looked at the Spread Lately Between 30 and 15 Year Fixed Loans?