FHA Interest Rates » fha loan

FHA Mortgage Rate Predictions = Irrelevant

Chris Richter — Thu, 17 Mar 2011 14:00:08 +0000

FHA interest rates 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 MIP by .25% on April 18th. MIP 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 mortgage rates on an FHA loan to be so low in spite of the loose FICO 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 FHA interest rate 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 interest rate predictions have a problem right now. You shouldn’t care about the mortgage rate, you should care about the total costs.

FHA interest rates 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 FHA MIP 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 FHA mortgage rates 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.

Today’s FHA Interest Rates v. November’s

Chris Richter — Fri, 25 Feb 2011 13:13:24 +0000

FHA interest rates don’t exactly follow the Freddie Mac PMMS 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.

It’s also important to remember that the FHA monthly mortgage insurance premiums (MIP) are going up. Fortunately, the up-front portion (UFMIP) is staying constant.

MIP is going up by .25%. Becuase that is paid on the loan amount, it’s essentially the same as mortgage rates going up.

So, to get to "4.3%," you’d actually need to get to 4.05% to off-set that MIP. It’s a lot more likely that we’ll see 6% before we 4% if we ever see 4% again.

Personally, I’d rather buy sooner than later. It wouldn’t take much for that payment to go up $113 more.

Assumptions

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

Comparison Term (Years):	10
Property Value:	$300,000.00
FICO:	720

Input	Then	Now
Loan Type	FHA	FHA
Loan Term (Years):	30	30
Loan Amount:	$289,500.00	$289,500.00
Interest Rate:	4.300%	4.950%
UFMIP:	1.00%	1.00%
MI Factor:	0.900%	0.900%
Closing Costs ($):	$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	Then	Now
P&I Payment	$1,446.98	$1,560.72
Mortgage Insurance	$219.30	$219.30
Monthly Payment	$1,666.28	$1,780.01
Monthly Savings	$113.74	$0.00
Total Loan Amount:	$292,395.00	$292,395.00

Full Mortgage Analysis

Over the comparison term of 10 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	Then	Now
Total Payments	$194,517.52	$208,646.01
Principal Payments	$59,725.99	$54,914.10
Interest & MI Payments	$134,791.00	$153,731.00
Remaining Balance	$232,669.01	$237,480.90
Total Cost	$137,686.00	$156,626.00
Total Savings	$18,940.00	$0.00

2010 FHA Mortgage Rate Predictions

Chris Richter — Fri, 15 Jan 2010 17:03:10 +0000

Mortgage rates hit all-time lows on December 1st and shot right back up during the month of December. We came into 2010 with mortgage rates 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 inflation data today indicates we’re not growing very fast right now.

2010 FHA Mortgage Rate 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 FHA loan 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.

Fed Indirectly Helps FHA Loan Rate

Chris Richter — Thu, 17 Dec 2009 16:30:35 +0000

There is no correlation between the Fed Funds Rate and mortgage rates. There is a strong correlation between the Federal Open Market Committee’s statement and mortgage rates.

The FOMC meeting yesterday was the big news item of the week. The tone was balanced and mortgage bonds have responded well today. Rates are lower by .125%.

Here’s is what we learned yesterday:

Economic Outlook

The Fed is being very cautious in its statements, but it’s being mildly optimistic. We have generally good economic signals and there is little concern over inflation. The job market is showing stabilization and possibly improvement. Housing has already turned the corner and is showing significant improvement.

There is concern and there could be set-backs along the way. We don’t have a perfect job market, confidence is low, and things are not fixed. They’re better and the signs say the worst is behind us.

FHA Interest Rate Predictions

Mortgage rates are increasingly getting closer to the beginning of the end. The Fed reiterated its plan to complete the $1.25 trillion commitment to the mortgage bond purchase plan. This will end by the end of March 2010.

Rates will go up. Simple. The “insider numbers” say that 1% is the target. WSJ reported that the Fed insiders think we’re looking at a 1% mortgage rate increase when support is gone.

On a $200,000 loan, the difference between today’s 5%-ish rates and April 2010′s 6%-ish rates would be about $125/month.

FHA Interest Rates Back to 5%

Chris Richter — Wed, 16 Dec 2009 17:21:38 +0000

It’s been an interesting week for the FHA loan rates.

We’ve had every piece of bad news that mortgages could hear:

The economy is rebounding. We’re seeing expansion in nearly every key metric.
Housing is on a roll. This also has negative signals for the FHA interest rates.
Inflation is starting to creep up. Inflation equals higher rates.

Still, after all of this bad news and after losing 11 of the last 15 trading sessions, the FHA mortgage rate is still at 5%. That’s surprisingly great news.

We’re still looking at an odd scenario where the rate is 5% for FHA vs Conventional rates at 5% as well. That conventional rate requires a 740 FICO for the best rate. For a buyer with a 700 FICO score, it is actually cheaper to get the FHA loan. That’s significantly different than just a few years ago.

FHA Interest Rates Recovering

Chris Richter — Wed, 09 Dec 2009 16:50:17 +0000

It’s been a crazy few weeks with mortgage rates charging all the way to all-time lows and then suffering a pretty ugly sell-off last week.

The FHA loan rate has shown surprising resilience and has now fought back since Monday to get back below 5%.

For first time home buyers who have a seller credit of closing costs to help reduce their down payment, the current discount rates for FHA loans don’t look too bad.

We’ve been seeing home buyers with 2 points to spare secure rates into the mid-4%’s. It’s a crazy market and home affordability is incredible at these rates.

FHA Loan Rates Improving Today

Chris Richter — Mon, 07 Dec 2009 17:02:13 +0000

Last week saw rates take a bruising after chasing all-time lows right near Thanksgiving. The FHA interest rate was pushed higher, but still opens this week under 5%.

It is hard to keep in context how low mortgage rates are. We went up .25% and are still below 5%. That’s great news today. It’s scary news into the future.

The economic data continues to point towards a slowly rising economy with sporadic pockets of bad news. Every time that the Federal Reserve says “inflation,” rates go up .125%.

Today’s mortgage rates still sit more than 1% away from their ‘normal’ levels. If you are looking at refinancing an FHA loan, this is a great time for it. If you are looking at buying a home, today’s FHA interest rates make it much more affordable than it would be in a year.

Interest rates starting to correct

Chris Richter — Wed, 02 Dec 2009 16:07:47 +0000

We’re seeing some follow-through from yesterday’s big sell-off. Presently, the GNMA 4% is off about 20 basis points. That might or might not be enough to move rates a full .125%.

Gold hit another record, now up to $1,207/oz.

The ADP jobs report came in today. The report was worse than expected in terms of how many jobs were lost, yet mortgage rates are deteriorating. Right now, the momentum appears to be that mortgage bonds were a little overbought in these past few weeks. The FHA interest rate predictions have to be more heavily favoring rates rising rather than falling.

FHA Loan Rate Hovers at 4.75%

Chris Richter — Tue, 01 Dec 2009 17:50:21 +0000

We’re starting to see a reversal today as the GNMA bond is under pressure. The Dubai mess is unwinding and appears to be regional. We’re getting blistering numbers in the housing market. Add to this the fact that mortgage bonds appear to be overbought, we’re ripe for a reversal.

We’ll start today at 4.75% on a 30 Year Fixed FHA Interest Rate with EXTREME volatility possible.

Switching to 4.0% Coupon

Chris Richter — Tue, 01 Dec 2009 14:12:18 +0000

This is great news. When we look at interest rates, we track a GNMA mortgage bond.

Recently, we’ve been using the 4.5% coupon. With rates dropping so rapidly, we’re switching over to the 4.0% coupon as that is more closely related to the security that lenders are using to set FHA interest rates.

Mortgage bonds are flat to open today. It could get a little dicey as fears over the Dubai debacle are subsiding. With the high quantity of securities bought during this recent flight to safety, we could have a situation where the FHA loan rate could correct pretty quickly.