Mortgage Rate Forecast: July 2008

Looking Back

Interest rates rose last week as traders sold off some gains of recent weeks. Jobless claims were also up last week as layoffs accelerated, especially in the auto industry.

In other news, Construction Spending fell again in May, but by a slightly smaller margin than was predicted. Overall, residential construction spending is down 27.3% over the last 12 months.

Looking Forward

The most important financial data this week will come from several Fed officials who will be speaking on future economic conditions.  Fed Chairman Bernanke is slated for Tuesday when he will be talking about mortgage lending.

A Higher Rate That Costs Less Per Month

I always tell my customers "You will never write a check for an interest rate in your life!"  Buyers are too reliant on the pre-conceived notion that the lower the interest rate, the lower the payment. This is not always so.

When you buy a home and put less than 20% down, how your mortgage insurance is structured can make a big difference in how much the monthly check is written for.  

For example: a borrower is buying a house for $300,000, and wants to put 5% down. He is pre-approved with a competent lender for a $285,000 mortgage for 30 years at 6.50% with standard PMI. Their mortgage payment with monthly mortgage insurance premium is $2024/month ($1801/mo for principal and interest, and $223/mo for PMI). 

This same borrower could finance their PMI with the lender in exchange for a higher rate.  By taking the same loan at 6.875% with LPMI (Lender Paid Mortgage Insurance), the borrower's monthly mortgage payment is lowered to $1872/month. (a savings of $152/mo, $1,824 a year, and $9,120 over 5 years!).  

While some people may point out that over 30 years the higher rate would cost more, I counter that most people will refinance their current mortgage or sell their current home and buy another in 4 - 7 years. I also find that most buyers are more concerned with the monthly bill and are thrilled to save one full mortgage payment every year.

My Lock Advice for Today:

If I were considering financing/refinancing a home, I would...

• Lock if my closing was taking place within 7 days
• Lock if my closing was taking place within 8 and 20 days
• Float if my closing was taking place between 21 and 60 days
• Float if my closing was taking place over 60 days from now

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on qualification criteria from program to program. If you like the rate today, the safe bet is to lock. Even if rates improve, they wouldn't improve enough in the short term to make you cry about it. But if you are an ardent market bear, and accept the risk of negative mortgage headlines, and believe the economy will just get more bad news next week, and you have the money to risk, you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking and then watching rates get a little better.

My Lock Advice for Today:

If I were considering financing/refinancing a home, I would...

• Lock if my closing was taking place within 7 days
• Float if my closing was taking place between 8 and 20 days, but watch the markets carefully and lock if conditions change
• Float if my closing was taking place between 21 and 60 days
• Float if my closing was taking place over 60 days from now

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on qualification criteria from program to program. If you like the rate today, the safe bet is to lock. Even if rates improve, they wouldn't improve enough in the short term to make you cry about it. But if you are an ardent market bear, and accept the risk of negative mortgage headlines, and believe the economy will just get more bad news next week, and you have the money to risk, you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking and then watching rates get a little better.

The rate of foreclosures is up more than 100% across most parts of Massachusetts this year as compared to last year. And, the rate of increase in foreclosure is higher on Cape Cod than in any other county in the state. As of the end of May, 261 foreclosure deeds had been filed in Barnstable County, a 175% percent increase over this time last year. Statewide, foreclosures are up an average of 140%.

Across the state, fewer foreclosure filing were started in May of this year as compared to last year. However, this drop off is considered temporary due to a new state law which took effect on May 1st. Legislation that was passed last fall requires lenders to give struggling homeowner 90 days before they can file a notice of foreclose.

The foreclosure crisis is expected to continue as real estate values have dropped sharply, and homeowners who are now facing foreclosure are finding it almost impossible to sell their homes for a price high enough to pay off the outstanding mortgage balance. In addition, the tight credit market makes refinancing difficult for these homeowners.

The increase in foreclosure deeds, by county, comparing the first five months of 2008 and 2007:

• Barnstable County: up 175 percent
• Suffolk County: up 172 percent
• Essex County: up 163 percent
• Plymouth County: up 152 percent
• Middlesex County: up 144 percent
• Statewide: up 140 percent
• Worcester County: up 136 percent
• Bristol County: up 129 percent
• Hampden County: up 106 percent
• Norfolk County: up 101 percent
• Hampshire County: up 100 percent
• Berkshire County: up 90 percent
• Franklin County: up 28 percent
• Dukes County: up 0 percent
• Nantucket County: up 0 percent

My Lock Advice for Today:

If I were considering financing/refinancing a home, I would...

• Lock if my closing was taking place within 7 days
• Float if my closing was taking place between 8 and 20 days, but watch the markets carefully and lock if conditions change
• Float if my closing was taking place between 21 and 60 days
• Float if my closing was taking place over 60 days from now

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on qualification criteria from program to program. If you like the rate today, the safe bet is to lock. Even if rates improve, they wouldn't improve enough in the short term to make you cry about it. But if you are an ardent market bear, and accept the risk of negative mortgage headlines, and believe the economy will just get more bad news next week, and you have the money to risk, you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking and then watching rates get a little better.