Attention Consumers: Lock those 30 Yr Fixed Mortgage Rates! (Cryin' Wolf)
By: Ed Ferrara | March 19th, 2010
Mar. 19, 2010 (FreeRateUpdate.com) - Loan officers and the media in particular have repeated the same message to consumers nearly a year and a half, “Mortgage rates are at record lows and likely to rise soon, it’s a smart idea to lock your rate now”. The message has largely been ignored, as is evident in refi app volume, meanwhile rates have stayed the same or even declined.
On March 31st the Fed stops purchasing mortgage-backed securities. The Fed says in an ideal scenario the effect of the stoppage on mortgage rates will be minimal, but likely result in a rise in mortgage rates. Suprisingly with this forewarning, and higher rates just days away, mortgage apps are flat (down 2%- MBA).
How high could rates go? Historically rates have been as high as in the teens (early 80′s). More realistically in a short time rates could rise to levels seen in 06′ and 07′ – low to mid 6′s.
Consumer: Who cares what the Fed says they’re always wrong. - My Reply: Not often when it comes to mortgage rates.
For those that don’t know, these low mortgage rates didn’t fall out of the sky. Matter of fact, when mortgage rates were in the low 6’s, way back in…… November 2008 (sarcasm), the FED said they’d drive rates to exactly 4.5, and that’s what they did. Once in April and once in November FreeRate verified 4.5 available.
Where’s the rush to refinance?
Remember “The Boy Who Cried Wolf”? I think this scenario of borrowers ignoring rising interest rates falls into the category. The mortgage industry and media have hollered, “rates are rising, lock now!” for quite some time. Today’s consumer doesn’t believe. This time the wolf (rise in rates) is real.
Should interest rates spike, consumers with rates currently in the mid to high 5’s will be pushed out of the refinance market completely. Those in the market for a new home may need to look in a lower price range to offset higher rates. Some want to be buyers home buyers, whose DTI ratios are on the brink, will be disqualified at higher rates (higher DTI).
This article is by Ed Ferrara, an entry for his weekly column “Coffee After Midnight” which runs on FreeRateUpdate.com. Click here to subscribe to Coffee After Midnight by email.
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