Mortgage Rates Make Huge Drop
Mortgage rates have resumed their downward drop.
One week after making the biggest one-week jump in six months, mortgage interest rates have retreated to near their best levels of the year, and of the last two years.
Rates may continue falling, too. Comments from the Federal Reserve suggest that inflation will run lower-than-planned through the near-term; and that the group has entered a wait-and-see mode regarding economic stimulus.
Conventional mortgage loan pricing is better by close to 100 basis points as compared to early-March. FHA mortgage rates and VA mortgage rates are even lower.
If you missed your chance to refinance earlier this quarter, now’s your second chance. Mortgage rates and APRs are cheap.
Current Mortgage Rates Beat Freddie Mac Report
According to Freddie Mac, the average 30-year conventional mortgage rate dropped 8 basis points (0.08%) last week to reach 3.78%.
The Freddie Mac rate, which is based on a survey of 125 U.S. lenders, is an average of the interest rates made available to prime mortgage borrowers where a “prime borrower” is one with credit scores of at least 740; a verifiable source of income; and a conventional purchase loan with at least twenty percent down.
Locking the Freddie Mac requires an average of 0.6 discount points.
Discount points are one-time loan fees paid at the time of closing. Each whole discount point carries a cost of one percent of your loan size such that this week’s average discount point cost of 0.6 would cost a San Francisco homeowner $3,753, assuming a loan at the local conforming loan limit of $625,500.
VA mortgages and FHA mortgages also improved this week, but are not captured by the Freddie Mac survey.
Recently, VA mortgage rates were beating conventional mortgage rates by 40 basis points (0.40%); and, FHA mortgage rates were beating them by 25 basis points (0.25%).
Combined with the recent reduction in FHA mortgage insurance premiums (MIP) for homeowners using 30-year fixed-rate FHA loans, the effective monthly costs of an FHA mortgage are now the lowest in history.
There’s never been a less expensive time to use FHA financing for a home.
The Federal Reserve Helped To Lower Mortgage Rates
Freddie Mac reports mortgage rates dropping to 3.78% this week, but it’s likely you’ll get a cheaper rate quote if you’re currently shopping for a loan.
The reason why you’ll get a better rate than what Freddie Mac is reporting is because, Wednesday afternoon, the Federal Open Market Committee adjourned from its second scheduled meeting of the year and told Wall Street that a change in economic policy may be farther into the future than for what analysts had been planning.
According to the Fed, it’s nearly certain that the group won’t raise the Fed Funds Rate in April of this year. A rate hike in June looks increasingly unlikely, too — Fed members remain too concerned about today’s low rates of inflation.
Mortgage rates respond favorably.
Remember that the Federal Reserve has a two-percent target on the economy’s inflation rate. Since last year, though, the rate of inflation in the economy has been closer to one percent despite the group’s zero interest rate policy (ZIRP) which has been in place since December 2008.
The zero interest rate policy promotes inflation, but inflation is stubbornly low. Furthermore, economic growth doesn’t appear to be bringing positive cost pressures on its own.
Therefore, the Fed may wait to raise the Fed Funds Rate until late-2015, or even sometime next year.
Mortgage markets responded to the news favorably. After the Fed adjourned, pricing made its biggest one-day improvement of the year, pushing rates to their best levels since early-February.
Freddie Mac’s survey, though, which closes Wednesday mornings, failed to capture the Federal Reserve action. This is why Freddie Mac is reporting this week’s mortgage rates so much higher than today’s actual mortgage rates.
Rates changed after the Freddie Mac survey closed.
Popular Refinance Programs With Low Rates
With today’s mortgage rates moving lower, literally millions of U.S. homeowners are eligible for a home mortgage refinance, with a large percentage are in the money.
The government defines “in the money” as having a loan balance over $50,000; having more than 10 years remaining on your mortgage; and having a mortgage rate 150 basis points (1.5%) above today’s market rate.
For homeowners in the money, refinancing savings are often hundreds of dollars monthly. However, because rates are now south of four percent, even homeowners not in the money can capture big savings.
Some of the more popular refinance programs homeowners are using include:
The Conventional Mortgage Refinance
The conventional mortgage refinance is the refinance of an existing mortgage to a loan backed by Fannie Mae or Freddie Mac. The loan getting refinanced can be of any type — it doesn’t have to be a conventional or conforming one, for example.
The conventional refinance has been especially popular among FHA-backed homeowners looking to get rid of FHA MIP. Mortgage insurance terms on a conventional loan are more favorable than comparable MIP terms with the FHA.
FHA Streamline Refinance
The FHA Streamline Refinance is an exclusive mortgage refinance program available to homeowners currently backed by the FHA. The FHA Streamline Refinance requires very little paperwork, requires no home appraisal, and allows for low credit scores.
Because it waives most documentation and verifications, FHA Streamline Refinance loans can close quickly — often in 30 days or fewer — and with very little hassle.
VA Streamline Refinance
The VA Streamline Refinance is available to homeowners with an existing VA mortgage only. The program allows for unlimited loan-to-value and waives the paperwork typically required with a refinance.
Homeowners using the VA Streamline Refinance are required to show a history of making on-time payments and may take small amounts of cash-out for certain home improvements.
Home Affordable Refinance Program (HARP)
The Home Affordable Refinance Program, which is sometimes called “The Obama Refi“, gives homeowners whose homes have lost value since purchase an opportunity to refinance to today’s low rates.
The HARP program is in its second iteration and today’s mortgage guidelines are “easier” as compared to several years ago. If you applied for a HARP mortgage and were turned down, it’s a good time to try again.
The HARP program expires December 31, 2015.