Mortgage Rates Rise Faster Than Freddie Mac Survey Can Report

December 7, 2010 By Leave a Comment

Mortgage Rate surveys are not real-time

It’s been a wild 30 days for home affordability.

Since the Federal Reserve’s November 3 press release, in which our nation’s central banker committed $600 billion to bond markets, mortgage rates have leaped, moving quicker than the news can report them.

This week is a terrific example of that.

Today, newspaper headlines in Arizona and around the country read that mortgage rates rose 0.06% on average over the past 7 days, and that average loan fees remain unchanged at 0.8 points. The data is based on Freddie Mac’s Primary Mortgage Market Survey, a weekly poll of more than 100 lenders around the country.

Unfortunately for Tempe home buyers and other local rate shoppers, the Freddie Mac figures are low. Both mortgage rates and fees rose by more than what’s being reported.

Freddie Mac’s data is not real-time. It’s out of date for today’s pricing.

According to Freddie Mac, the survey’s methodology has it collecting rates from participating lenders between Monday and Wednesday, averaging the results, and then publishing that data Thursday late-morning. The problem there, as you know if you’ve shopped for a mortgage rate, is that mortgage rates change all day, every day.

Monday’s rates are unrelated to Wednesday’s rates, yet both are included and given equal weight by Freddie Mac. Some weeks, it’s not a problem; rates are relative static.

This week was not such a week.

Rates were jumpy Monday and Tuesday, rising and falling throughout the course of the day. Action like that is normal. But Wednesday, mortgage bonds put forth their third-worst daily showing of the year.  Rates rose by as much as 3/8 percent between the market open and close, with the bulk of the sell-off coming late in the day. In other words, after the deadline of Freddie Mac’s survey.

Mortgage lenders accurately reported their rates to Freddie Mac, but they reported them before the market took a turn for the worse.

The lesson is that mortgage rates are time-sensitive and can’t be captured by a weekly, average survey. When you need to know what mortgage rates are doing right now, the best place to check is with your loan officer. Otherwise, you may just get yesterday’s news.

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Conforming Mortgage Rate Discount Points Rise, According To Freddie Mac

June 22, 2010 By Leave a Comment

Mortgage discount points are risingMortgage rates may be dropping, but mortgage costs are not.

According to Freddie Mac, the average required discount points on a conforming mortgage rate are higher by 0.1 percent since early-May.

A “discount point” is prepaid mortgage interest; an up-front fee paid by a borrower in exchange for a lower mortgage rate. In most cases, discount points are tax-deductible.

Tax-deductible or not, though, rising costs are rising costs and Freddie Mac glosses over it.  In its weekly press release, the government group offers mortgage rate comparisons to weeks prior, but doesn’t do the same for required points.

The press fails to mention discount points entirely.

An increase of 1/10 percent in discount points costs homebuyers and refinancing households in Tempe an extra $100 per $100,000 borrowed.

The hike reminds us that there’s more to a mortgage than just its rate — costs matter, too.  And if you’ve only been watching the headlines, you would have missed how costs are rising.

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Adjustable Rate Mortgage Benefits Are Improving

April 16, 2010 By Leave a Comment

Comparing the 30-year fixed to the 5-year ARM Apr 2009-Apr 2010

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country.  According to this week’s results, the relative rate of a 5-year ARM in Arizona is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

  • In April 2009, the two products ran neck-and-neck with respect to rates
  • In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any one of the following scenarios could warrant a 5-year ARM:

  1. Buying a home with an intent to sell within 5 years
  2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
  3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting an ARM or a fixed, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there’s more to consider than just the payment.

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