For buyers and refinancing households , adjustable-rate mortgages are a relative bargain as compared to fixed-ones.
According to Freddie Mac’s weekly survey of more than 125 banks nationwide, mortgage applicants electing for a conventional ARM over a conventional fixed-rate mortgage will save 105 basis points on their next mortgage rate.
“Conventional” loans are loans backed by Fannie Mae or Freddie Mac.
Today’s average, conventional 30-year fixed rate mortgage rate is 3.91% plus points and closing costs. The average rate for a comparable 5-year ARM is 2.86%, plus points and closing costs.
In other words, for every $100,000 borrowed, a conventional 5-year adjustable-rate mortgage will save you $58.15 per month, or $698 per year.
That’s a 12 percent savings just for choosing an ARM.
12 percent is a big figure that adds up over 5 years — especially for households that plan to sell within those first 60 months anyway. There is little sense in paying the mortgage rate premium for a 30-year fixed-rate mortgage when a 5-year ARM is perfectly suitable.
For the reason why adjustable-rate mortgages continue are so much lower than their fixed-rate counterparts, look no further than the U.S. economy. ARMs reflect Wall Street’s short-term economic expectations; whereas fixed-rate mortgages reflect medium- to long-term expectations.
In the short-term, analysts expect the U.S. economy to grow slowly, with low levels of inflation. This supports the U.S. dollar, the currency in which mortgage bonds are denominated. When the dollar is strong, demand for mortgage bonds tends to increase.
This supports lower interest rates.
Conversely, over the longer-term, inflation is expected to return, which devalues the dollar and everything paid in it (e.g.; mortgage-backed bonds). This is why inflation is linked to higher mortgage rates. When inflation is present in the economy, mortgage bonds lose value, driving mortgage rates up.
Adjustable-rate mortgages aren’t perfect for everyone, but in the right situation, they can be a big money-saver and a helpful tool for stretching a household budget. Given today’s rates, the money-saving potential is larger than usual.
As mortgage rates drop, so do housing payments. It’s a good time to consider refinancing your home, or making an offer on a new one. Mortgage payment affordability has never been so high in history.
According to Freddie Mac, the average 30-year fixed rate mortgage rate is now 3.94 percent – an all-time low – with an accompanying 0.8 discount points. This means that in order to get access to the 3.94 percent rate, homeowners and home buyers should expect to pay a loan fee equal to 0.8% of the borrowed amount, plus “normal” closing costs.
Last week, the average 30-year fixed rate mortgage rate was 3.99 percent with an accompanying 0.7 discount points. (Those are Freddie’s numbers. We at First Heritage don’t charge discount points.)
Mortgage rates have been in decline for most of the year. Since peaking in early-February, the average home owner’s principal + interest payment on a 30-year fixed rate mortgage had now dropped by 12.2 percent.
Here is how mortgage payments compare, then and now, not accounting for your individual tax-and-insurance escrow :
For existing homeowners, the dramatic drop in payments is reason to reach out to your loan officer. A refinance could save you tens of thousands of dollars over the life of your loan — especially if you chose to refinance your mortgage into a 15-year program.
The 15-year mortgage, says Freddie Mac, is also at an all-time low, registering 3.21 percent with 0.8 discount points, on average.
For home buyers, today’s low rates present an interesting opportunity.
Mortgage rates are the key factor in determining your monthly housing payment so, with average mortgage rates below 4 percent, it’s no wonder home affordability is cresting. However, the housing market is showing signs of recovery. Home supplies are dwindling, buyer demand is rising, and the economy appears to be mending.
Home prices are expected to rise in 2012 and, as they do, they’ll take housing payments with them. The best time to buy a home may be now; before the recovery completes.
Call me at 240-223-1730 if you or someone you know if thinking about refinancing or buying a new home.
Mortgage rates have troughed. Or, so it seems.
According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage is 4.00 percent nationwide — roughly the same rate as it’s been for 5 weeks.
During that times, rates have ranged between 3.97 and 4.02 percent with an accompanying 0.7 discount points, plus “typical” closing costs. Closing costs vary by state and 1 discount point is equal to 1 percent of your loan size. (These are national figures; we do not charge discount points on our loans.)
In other words, to get the weekly, published Freddie Mac rate, borrowers should expect to pay a complete set of fees to their respective lenders. The larger the loan, the higher the costs. “Low-fee” and “no-fee” loans are available, too — typically in exchange for a slightly rate.
A breakdown of the Freddie Mac survey shows that interest rates and discount points vary by region. Typically, states in the West Region offer the lowest rates but with the highest costs. East Region states work in reverse; rates are often highest but the accompanying points are fewest.
The most recent mortgage rate breakdown by region shows :
What’s most notable, though, is that in all 4 regions, rates are well below their 2011 highs. Since mid-April, mortgage rates have been in descent, dropping for 5 consecutive months before reaching to their current, “rock-bottom” levels in early-November.
Since then, however, rates have idled and the forces that combined to make rates low are subsiding. The U.S. economy is showing signs of a rebirth; the Eurozone is edging closer to solvency; and the housing market is recovering.
So, if you’ve been wondering whether now is a good time to refinance, or whether higher rates will harm home affordability, the answer is yes. Get in touch with me ASAP at 240-223-1730 to review your home loan options because, looking ahead to 2012, mortgage rates look poised to rise.
First Heritage Mortgage, LLC
6550 Rock Spring Drive, Suite 260, Bethesda, Maryland 20817-1131
Direct: 240.223.1730 • Toll-free: 866.833.LOAN • Fax: 240.223.1703
