Monday, June 1, 2009

Low Mortgage Rates Are Going, Going…

The Wall Street Journal - If you're looking for a new 30-year mortgage, last week's events from the financial markets carry a very simple message: Get 'em cheap while you still can.

Rates on conforming 30-year loans jumped dramatically in just a few days, ending the week at an average of 5.27% according to That's still OK by historic standards, but it's a jump from the levels seen just a few weeks ago, when you could get loans at 4.75% or below.

The underlying cause isn't hard to find. Rising government debts, and burgeoning hopes of an economic recovery, are pushing up long-term interest rates on government debt. The yield on the 10-Year Treasury, which was barely 2% near the end of last year, surged to 3.67% late last week before settling back slightly. And that, in turn, pushes up rates on other long-term loans.

What does this mean for you?

This surge in mortgage rates, if it continues, is ominous news all around. It's bad for those trying to refinance an existing mortgage, those looking to buy a new home, and those looking to sell their home. It may also be bad for the stock market, and maybe even for the dollar, too. More on that later.
For those trying to refinance: If you hadn't locked in the rate already, you are probably out of luck. You may be stuck with higher rates.

Ironically, if you were stuck crawling through the refi process when the rates jumped, you may be a victim of new mortgage rules. These were introduced in the last year to prevent another subprime scandal. They have slowed down the loan approval process and have discouraged most lenders from offering rate locks until other steps have been completed. "Lenders are not locking in borrowers' rates until the (home) appraisals are in," says Paul Sapienza, broker at Drew Mortgage in Boston. Until last year you could lock in a rate while you refinanced, or even looked for a new home. "That's over," Mr Sapienza says.

For those looking to buy a new home: Be aware this rate hike -- to 5.25%, from 4.75% recently -- can add quite a bit to your expenses. It will cost an extra $50 a month for someone buying a typical $200,000 residence with an 80% loan.

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