How Low Might Mortgage Rates Go After QEII? What if QEII Disappoints?
If you are floating, closing costs rose by about 0.10% of your loan amount today. That works out to $100 for every $100,000 in loan amount.
The bond market continues to demonstrate a clear unwillingness to push interest rates any lower without hearing new guidance from the Federal Reserve regarding their Quantitative Easing plans. With exception to a few periods of increased lender competitiveness over the past two months, the best 30 year fixed mortgage rates have generally held steady in a range between 4.00% and 4.25% for well-qualified borrowers.
This post shares background on Quantitative Easing: Mortgage Rates in Limbo. Waiting on Quantitative Easing
The best par 30 year fixed mortgage rates remain in the 4.00% to 4.25% range, for well qualified consumers. Rates below 4.00% are available but the closing costs/points structure is only advantageous to borrowers who intend to keep their mortgage for at least the next 5 years, otherwise paying points to float down your note rate is not worth the additional closing costs (ask your loan officer for a breakeven analysis). If you're seeking a shorter term mortgage loan, the best par 15 year rates are in the 3.375% to 3.625% range.
Mortgage Rate Disclaimer : Loan originators will only be able to offer the lowest conventional and government (FHA/VA) mortgage rates if the terms of your loan do not trigger risk-based loan level pricing adjustments (LLPAs). If you do not fall into the "perfect borrower" category make sure you ask your loan originator for an explanation of the characteristics that make your loan a riskier investment. (eg. credit scores under 720 and investment properties)
If you're getting closer to your closing date and need to lock in the terms of your loan before the November 3rd FOMC meeting, you have likely seen rates go as low as they're gonna go. At this point the lock/float decision is starting to split hairs. The current mortgage rate/closing cost structure is extremely aggressive. It's time to lock in the terms of your loan.
If you have more time to float, on November 3, 2010 I anticipate the Federal Reserve will announce another Quantitative Easing program. This event is expected to lead consumer borrowing costs back down to recent record lows, which means we should see mortgage rates dip below 4.00% with much more attractive float down structures (in terms of how long it will take to recover points paid at closing).
Do I think mortgage rates will go lower than 3.75% if the Fed announces QEII?
No I do not. Why don't I see rates moving below 3.75? Because I don't see 3.0 MBS trading in enough liquidity to allow lenders to offer rates below 3.75. This is a bold prediction considering we don't know exactly what the Fed is plotting. If 3.0s do trade in size, lenders will be able to go as low as 3.25%
How long do I think QEII will keep mortgage rates at the record lows?
Long enough to lock your loan at record low rates!!! :-D
Unfortunately I can't provide an acceptable answer to that question yet, we just don't know enough details about the QEII program. We do however know that the Fed is looking to spark a little "Demand Pull Inflation", and we also know inflation is the enemy of mortgage rates. While demand pull inflation won't ignite immediately, if the Fed's QEII plan is as successful as previous alternative policy strategies (which were intended to stabilize the economy, and they did), mortgage rates will eventually rise, and it will happen on the slightest hint of consumer led inflationary pressure or sustained job creation. I'm not even going to venture a guess on when that might happen though. Traders, economists, and analysts alike are still operating in a very reactive manner. Outlooks are constantly changing as the economic and political environment evolve. Let's see what the Fed says on November 3rd and go from there....
I will say this about the timing of your refinance though...
I fully anticipate another dip in home prices over the winter. If you're waiting to refinance and you know home values in your area have already been negatively affected by foreclosures, make sure you keep track of sale prices in your neighborhood, especially if you see "HomePath" signs hanging in the front yards of homes for sale in your area. You don't want to miss an opportunity to refinance at record low rates because your home lost another 5% in value while you were waiting for borrowing costs to go even lower.
What if the Fed chooses not to announce QEII on November 3, 2010 or if they announce it but it disappoints the marketplace???
If QEII disappoints the bond market would sell off and mortgage rates would suffer, instantly. The 3.50 MBS coupon would become illiquid and the best par 30-year fixed mortgage rates would move up to at least the 4.375% to 4.625% range for well-qualified consumers.