FHA Mortgage Rate Predictions = Irrelevant

Filed under FHA Interest Rate by on March 17, 2011 at 9:00 am {no comments}

FHA have been on an absolute tear for the past few days.  The loan rate is controlled by trading on Wall Street, not the FHA.   HUD is “the FHA,” and their job is to maintain the underwriting standards.  For the most part, they only control who can get a loan, not the rate.

Except for one critical detail:  HUD is also mandated by Congress to maintain the liquid reserves at a level so that we don’t have Fannie Mae Part Deux on our hands.  As such, they’re raising the by .25% on April 18th.  is similar to a conventional loan’s PMI.  It’s your money that gets set aside to create a pool of money that insures future defaults.  That insurance is what allows the on an to be so low in spite of the loose guidelines and low down payment requirement.

Wall Street has been selling stocks and buying bonds for the past few days.  At the opening bell, that’s reversing a bit.  Nonetheless, global investors have been pouring money into U.S. denominated bonds for the past few days, including mortgage bonds.  That’s what has pushed the down anywhere from .25-.50%.  That’s the great news.

We’ve gone from a wide band of 5.00-5.25% to somewhere between 4.50% and 4.75% in just a few weeks.

All FHA have a problem right now.  You shouldn’t care about the , you should care about the total costs.

on April 18th are going to effectively be .25% higher with the new FHA MIP guidelines.

For argument’s sake, say that you were looking at a 5.00% mortgage last week on the current guidelines for a 3.5% down, 30 Year Fixed loan.  That MIP was 0.90%.  It’s a crude way to get to the number, but say that the effective cost was 5% in rate and .9% in MIP, voila, we’re at 5.90%.

Starting April 18th, that MIP will be 1.15%.  Basically, any mortgage rate higher than 4.75% would be “higher” than today’s 5%.

Add to it one more thing:  today’s are based on the past few days of trading.  Wall Street is trading on the assumption that there will be a total meltdown in Japan.  Anything less than a full meltdown and we already have plenty of room for mortgage rates to go up.  No matter what, they’re going up .25% in just a month if you treat the MIP like a rate change.

What does this mean?  If you can find your home, reach an agreement on price, and enter into an FHA mortgage application soon, you stand to gain both in terms of the mortgage rates but also utilize the lower MIP factor.

It makes now a great time to apply for a mortgage.  Unless FHA interest rates go down another .25% or more, the real cost of your FHA loan will be more expensive after April 18th than it is today.

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FHA Interest Rates Rallying

Filed under FHA Interest Rate by on March 11, 2011 at 7:59 am {no comments}

had been in an ugly trend from October until just a few weeks ago. We’d seen rates rise by nearly a full 1.00%.

With the spring buying market already heating up, had definitely taken a hit over the past 4-5 months. However, it probably still made sense to buy with the long-term projections just making today’s more attractive than those of the future.

That was until today’s mortgage rates decided to improve. I’m not a huge fan of the report. It is woefully delayed, publishing Thursday rates that are tallied from Monday to Wednesday. This week’s conforming rates held at 4.88%. There isn’t a direct equivalent tool for tracking , but they’ve been slightly lower. (more…)

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Today’s FHA Interest Rates v. November’s

Filed under FHA Interest Rate by on February 25, 2011 at 7:13 am {no comments}

FHA  don’t exactly follow the  results, but they’re close enough that we can use them for comparison.

Yesterday’s survey had the 30 Year Fixed at 4.95% and had it at 4.30% back in November.

If you look at that on a normal FHA loan, 3.5% down, the payment difference is fairly signficant for it only being four months ago.  We’ve used a $300,000 price, a $289,500 base loan amount.

Using those interest rates, it’s a $113/month difference.  That’s a whopping $18,940 in the first 10 years. 

So, for FHA interest predictions does it make sense to wait for rates to come back down?  No.  It’s a lot more likely that rates are heading higher, not lower. 

(more…)

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30 Year v. 5/1 ARM

Filed under FHA Interest Rate by on February 8, 2011 at 9:40 am {no comments}

The 30 Year Fixed has been the choice of borrowers for the past year or two.  The bad ARMs of the subprime world, those 2/28′s with the high adjustments, probably helped push us all towards a fixed-friendly state of mind.

In the past few months, we’re now seeing a historically huge gap between the 30 year fixed and the .  This is a big deal. 

Before we look at the savings, why is the ARM cheaper than the fixed rate mortgage?  It’s a prediction.  Rates have this big of a gap now because they are predicting that will be higher in the future. 

For ARMs, it really only makes sense to compare them for the fixed term.  That’s 5 years in this example. 

We’re using ’s recent survey for the data.  On a $300,000 loan, the monthly payment difference is almost $200. 

Over 5 years, almost $17,000 different. 

Does that mean that you should choose an ARM?  No.  ARMs are suitable for certain people, certain life and financial situations and your mileage will vary if you choose that loan.  However, this is the widest spread that we’ve ever seen.  It makes for an interesting comparison if nothing else. 

Assumptions

These are the values used in this loan comparison. To update any values, go here

Comparison Term (Years): 5
Property Value: $400,000.00
: 720
Input

30 Year 5/1 ARM
Loan Type Conv Conv
Loan Term (Years): 30 30
Loan Amount: $300,000.00 300000
Interest Rate: 4.810% 3.690%
: 0.00% 0.00%
MI Factor: 0.00% 0.00%
Closing Costs ($): $0.00 $0.00
Closing Costs (%): 0.800% 0.700%

Monthly Analysis

Based on the information provided, this table shows the monthly payments for principal, interest, and mortgage insurance
(if applicable).

Loan & Payment Summary 30 Year 5/1 ARM
P&I Payment $1,575.81 $919.44
Mortgage Insurance $0.00 $0.00
Monthly Payment $1,575.81 $1,379.15
Monthly Savings $0.00 $196.66
Total Loan Amount: $300,000.00 $200,000.00

Full Mortgage Analysis

Over the comparison term of 5 years, this table reviews the true cost of the loan over time in a way that monthly payments cannot. We remove the principal portions of payments to isolate the cost of interest, mortgage insurance, and any closing costs to calculate the total cost over time.

Real Cost Analysis 30 Year 5/1 ARM
Total Payments $94,548.60 $82,749.16
Principal Payments $25,264.65 $30,039.07
Interest & MI Payments $69,283.00 $52,710.00
Remaining Balance $274,735.35 $269,960.93
Total Cost $71,683.00 $54,810.00
Total Savings $0.00 $16,873.00
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FHA Interest Rate Costs

Filed under FHA Interest Rate by on January 6, 2011 at 2:37 pm {no comments}

have been increasingly lately.  While FHA rates are slightly higher, they haven’t been increasing as quickly as conventional loans have been.

The FHA interest rate has settled in near 4.75% lately after tempting the 5% levels.  It has been so volatile lately that many individual days have seen rate swings of that full 0.25%.

Lenders used to have daily sheets.  Not anymore.  What does it mean in terms of payments when a 0.25% swing is a regular occurence? 

On any given day, on a $300,000 loan, that’s a $45/month difference and almost $3,700 in the first five years.  Feel free to update the calculator with details particular to your situation.

Assumptions

These are the values used in this loan comparison. To update any values, go here

Comparison Term (Years): 5
Property Value: $300,000.00
: 720
Input

FHA Now FHA up .25%
Loan Type FHA FHA
Loan Term (Years): 30 30
Loan Amount: $289,500.00 $289,500.00
Interest Rate: 4.750% 5.00%
: 1.00% 1.00%
MI Factor: 0.900% 0.900%
Closing Costs ($): $0.00 $0.00
Closing Costs (%): 0.00% 0.00%

Monthly Analysis

Based on the information provided, this table shows the monthly payments for principal, interest, and mortgage insurance
(if applicable).

Loan & Payment Summary FHA Now FHA up .25%
P&I Payment $1,525.27 $1,569.64
Mortgage Insurance $219.30 $219.30
Monthly Payment $1,744.57 $1,788.94
Monthly Savings $44.37 $0.00
Total Loan Amount: $292,395.00 $292,395.00

Full Mortgage Analysis

Over the comparison term of 5 years, this table reviews the true cost of the loan over time in a way that monthly payments cannot. We remove the principal portions of payments to isolate the cost of interest, mortgage insurance, and any closing costs to calculate the total cost over time.

Real Cost Analysis FHA Now FHA up .25%
Total Payments $103,516.24 $106,238.38
Principal Payments $24,858.73 $23,892.38
Interest & MI Payments $78,657.00 $82,345.00
Remaining Balance $267,536.27 $268,502.62
Total Cost $81,552.00 $85,240.00
Total Savings $3,688.00 $0.00
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FHA Interest Rate Predictions: Watch Inflation

Filed under FHA Interest Rate by on March 19, 2010 at 7:47 am {no comments}

Homes are significantly more affordable today because of these low rates.  We’ve been hovering around 5% for quite some time.

When is the ?  If housing prices were to jump a whopping 5% in just a few months, it wouldn’t be as expensive as getting a 6% rate instead of a 5% rate.

Example:  If a home jumped from $100,000 to $105,000, the payment would go up somewhere around $25-30.  If the home priced stayed steady at $100,000, but rates jumped from 5% to 6%, the increase in payment would be more than double at just over $60 extra dollars per month.

The FHA , not prices, have been driving this affordability.

So, when’s it going to end?

Watch .   Mortgage rates are highly responsive to .

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring , these FHA have never been lower.

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FHA Interest Rates Rally Back

Filed under FHA Interest Rate by on February 5, 2010 at 12:48 pm {no comments}

Just a quick mid-day update: Since opening significantly lower after the jobs report, mortgage bonds have rallied. The have recovered all of the losses from opening bell and are now up 18 basis points.

We are now overbought according to every technical signal so the market could move quickly if it reverses.

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FHA Interest Rates Drop Today

Filed under FHA Interest Rate by on February 4, 2010 at 7:24 pm {no comments}

Our predictions aren’t looking so good this week.  We really thought that yesterday’s ADP report and tomorrow’s Non-Farm Payrolls account would be the market movers.  They weren’t.  Global fear turned out to be the main story, so far, this week.

Investors have pulled out of the stock market with the Dow now below 10,000 and at a 3-month low.

The rate is back to 5% after ticking up yesterday, but many lenders did not re-price rates late in the day.  Below 5% is a possibility when the market opens tomorrow.

However, the Non-Farm Payrolls report hits first thing.  We’ll have an update tomorrow, but this report has the potential to help this rally challenge all-time lows or it could push rates back up significantly with a strong reading.

How’s that for a prediction?  The market is so uncertain that we’ll try and report on it, not predict it.

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FHA Interest Rate Predictions: January 25, 2010 Edition

Filed under FHA Interest Rate by on January 25, 2010 at 7:46 am {no comments}

The FOMC meets this week -- mortgage rates will be volatileConforming and improved last week on the combination of soft economic data and new talk from the White House about tightening up banking regulations.

The S&P dropped 4% in its worst week since October.  As money left stocks, it went into bonds, and pushed rates lower.

Since a very ugly December, mortgage bonds have made up half of the losses and it is helping with and has opened the window on another surge of refinancing activity.

This week is loaded with news and could push rates back up in a blink.

Today, the December report came in and it was very weak.  This is because of a combination of factors including:

  1. The initial expiration date of November 30, 2009
  2. Sharply rising throughout the month of December
  3. A general slowdown from the holidays and from the weather

Home sales are down 16%, but there are a lot of reasons.

Later this week, we’ll see the Case-Shiller Index – a measure of home prices nationwide — and the New Home Sales report. The Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same.  New Home Sales should be similarly strong.

But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.

The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely.  The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed’s post-meeting press release.

As always, what the Fed says is almost more important than what they do. If the Fed says the economy is growing and everything is going as expected, mortgage rates should rise.  On the flip side, if the Fed says there are still significant risks, rates could drop a little lower.

Rates will be volatile all week, but once the Fed’s press release hits the wires, it’s anyone’s guess what will happen.

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2010 FHA Mortgage Rate Predictions

Filed under FHA Interest Rate by on January 15, 2010 at 11:03 am {no comments}

hit all-time lows on December 1st and shot right back up during the month of December.   We came into 2010 with just trading higher one day, lower the next.

We’re starting to get some direction this week.  The FHA 30 Year Fixed rate has moved back to 5% and is now developing a fairly clear trend towards lower rates…for now.

The reason for the move this week has been that the economic news simply wasn’t that great.  The Retail Sales showed we aren’t buying very much and the low data today indicates we’re not growing very fast right now.

2010 FHA Predictions

I don’t believe that the data we’ve seen is enough to forecast rates going lower for the entire year.  Things simply weren’t as great as they appeared in December and they’re not as bad as they appeared in the past 48 hours.

To get the best rate in 2010, you need to lock in your rate before the average person starts to think the economy is recovering.  There was great news in housing for nearly all of last year, the jobs market isn’t better–but it’s not worse, and the stock market has come back a lot since the lows.

Still, people aren’t confident.  The “trick” to getting a great rate or buying at the lowest price is simply doing it before CNN broadcasts that housing has recovered.   Consumer Confidence is low and the Retails Sales reports confirm it.

When confidence levels soar, so do home prices and mortgage rates.

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