WARNING, this is not a negative post, it's a reality check !!!!
Fence sitters, your fence post might have broken from under you. If you were waiting for rates to drop to 4.0% or 4.5% because you read it in the paper or heard about it in the news, don't look back wishing. It's still a great time to purchase or to refinance. Just get it out of your mind, what you could have had. Don't worry, not many did, because it wasn't around for more than a week or so.
Reality.... even the best of the best can't predict what rates will be or when. Most of what you read online are written by individuals that belong to market watch services who use to have great track records. But even their predictions now are crumbling.
Let's take a quick look at a few key issues....
- rates are still low. Sure, you can get 4.5%, but you would need to pay dearly for that. It would cost you about 4 points total for this, based on a $200,000 mortgage amount with little to no fees.
- rates from 5.0% to 5.5% is the reality of things. 5.0% costing you about 2.25 pts and 5.5% costing about a point. I bring this up for several reasons.
- Keep mind, rates were in the low to mid 6's a few months ago. But there are many reasons to why our economy can't sustain low rates, even for a short time. Please read this market report : rates going lower, or not??
- One main issue: if someone offers you 4.875% and makes it sound cheap, you probably won't end up with this rate. If you do, they will add more points and or fees at closing. This is called a bait and switch. Rates are bought in different pools of money called coupons. Example : for an extra point, you could go from 4.875% to 4.5%. The 4.875% coupon is more expensive than the 4.5% coupon. Hence the reason why the 5.0% coupon is going to be much cheaper for you than 4.875%. Going from 4.875% to 5.00% would save you just about a whole point. On a $200,000 mortgage, that is $2,000. And for what, just about $7.00 in savings per month? That would take you over 20 years to recoup that money, just for 1/8 of a percent.
Disclosure : Just because someone promised it on paper or in a good faith estimate, doesn't mean that it has to happen. There are many excuses one could use if they don't care about their reputation.
Interest rates in the near future : some speculate that they will come back down some. Okay, how much and when? In my professional opinion, I don't see it. And even if it did, it will be around for a day or two and that's it. As I have mentioned in the past, too many unknowns all at once. My prediction? Rates to be in the mid 6's by spring, low 7's by end of the summer, and possibly low 8's by the end of the year. Overall, we can't sustain low rates. We need to worry about inflation and deflation with all of this also.
The reality.... the Gut check : Mentally, 4.875% sounds a lot better than 5.00%, even though it's only 1/8 of a percent less. An average loan officer is not going to explain this to you, or show you examples, or break it down for you in basic numbers. They sell !!!! You want a true mortgage professional that will not only explain the ins and outs to you, that they will educate you on the process, but shoot straight from the hip.
I know of a few very good loan officers that lost clients this week to those that promised rates in the 4's this week. And their costs were cheaper than those rates in the low 5's. People, we all get the rates from the same place, no matter how you look at it. It doesn't matter if I am a broker, a banker, a retail branch, that I get my rates from a wholesale lender, etc, etc. Other loan officers that aren't built on educating the consumer, will use all of this mumbo jumbo mentioned to make it sound that they are the cheapest or the best. It all comes down to profit margin. But what should set apart the good from the bad or average are those that will give great service, explain everything to you, won't keep changing good faith estimates on you, and be honest. I speak about this from 16 years of experience in the mortgage industry. Just be careful out there, but not to careful or over shop. And if shopping for a mortgage, do it all in one day, because rates change daily. Good luck !!!
UPDATE : for a great explanation on how lenders buy and sell rates, please read this by Ken Cook : What is "PAR" rate and how can I meet or beat it?
The First Time Homebuyer Series :
- First Time Homebuyer Tips : Summary - Red Flags to be aware of -- Part 5 of 5
- FHA Loans - USDA Loans - Conventional Loans - VA Loans - Mortgages - Experience & Knowledge at its BEST !!!
________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2008-2009 Tax Credit for First Time Homebuyers : 2008 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2009 by Jeff Belonger
Smart advice to explain how it really works. Some persons are easily wowed by the first number, and never ask the right questions.
I was mesmerized by your backdrop, love the dollar bills and coins.........and got to count them for the 49 seconds it took for your page to open! :-) Is that you in the header? Very handsome, moviestarish........
Great post. I reblogged. I want my clients to know what's going on. Thanks, Jeff.
Hey Jeff,
Your statement about: "Disclosure : Just because someone promised it on paper or in a good faith estimate, doesn't mean that it has to happen..." So true, so true!
Now a quick question, I understand now there is an issue with consumers who have more than 4 loans, correct? Is this a Fannie/Freddie issue? Any other sources? BTW, this topic came up yesterday in my mastermind group.
JIM.... . thank you... I think we need more people to explain things, than to allow the consumer to just assume or think they know. So much misinformation out there. And yes, so many are easily consumed with that lower number, especially when it seems a lot different or lower, but in reality, it isn't. thanks for the compliment.
LIZ.... . I might change it up some, but I think it works for now. 49 seconds? I have heard from some that it takes long. It doesn't take me long though. In any case, thanks for the compliments.
FRAN G. ..... . my pleasure and thanks for the reblog. I hope many get something from this.. thanks
Lynda.... . yes, that is so true. I had a woman argue with me that they thought since the other loan officer put it in a good faith estimate, that he couldn't change it. RED FLAG just that moment... obviously he didn't go over the rate/lock procedures. hhhmmm
In regards to the 4 loans.. yes, this is a Fannie/Freddie guideline. I think I have an investor that will do 5, possibly 6, but those things keep changing. thanks
I just sent this to my cousin..... we were just talking today about a condo for one of her kids and this surely tells it all. Thanks Jeff.
Another terrific explanation.
I just actually wrote a similar piece in my blog today and sent an email to 1000 prospects telling them to take advantage of the buying opportunity NOW ! Not just for house prices but especially for mortgage rates.
Nicely broken down Jeff. Good post.
It amazes me when people do not appreciate the low rates that we are enjoying now. 5.5 is a good rate! Thanks - I will be quoting you.
SALLY.... that's good... spread it around... and my pleasure... thanks
SHELDON.... . thank you very much sir... I'll take a look at what you wrote tomorrow. It's time for bed... lol It's an opportunity even if rates were in the 6's. It all comes down to the fact that they buyer understands what they are getting into and are truly educated and things have been explained. Overall, thanks for the kind words...
VIRGINIA.... . hell yes, 5.5% is a great rate... so is 6.0% and 6.5%.... people bought when they were 8%, 12%, and 18%.,.... it can be done, you just need a professional to cover all of your basics... and explain things. Just not give you what you want or what you think you have. thanks
I am still preferring consumer confidence over rates. Let's hope the little switch in people's heads start to turn on very soon. There is a buzz out there. Hopefully it will continue...then the rates will really mean something.
Jeff,
I love your quote, "people, we all get the rates from the same place." So true and so many people just won't accept that premise.
Rich
Jeff, This is just what the consumer needs. Yhey have to understand costs associated with the loan and ask questions, not just accept what someone is telling them
Jeff- This definitely is a reality check. The pairing of softer pricing and low mortgage rates is providing a great opportunity for qualified buyers. Holding off in the hope that rates will dip a bit lower, may mean missing out on the best deal. It's like trying to time the market. You only know you've hit bottom, after the prices start going up.
Jeff--Good info. I know a lot of fence sitters and reality is the payment is not too different on that 1/8 or 1/4 pt difference. Is it worth waiting for bragging rights with your buddies to locking the lowest rate? What if you already missed the lowest rate?
Hi Jeff,
Yes, the truth is usually hidden underneath many layers in the advertisements and/or news. Teri is right, the difference in the payment is very small. Thanks for all the great info you put out there for all of us.
TIM..... . sure, consumer confidence is great.... but from what I saw back in August and September, when sales were up.... rates were still in the mid 6's as an average. Rates have been lower for the last month and the lowest just in the last 1 1/2 weeks, up until 5 days ago. They have climbed for the worst in 4 straight days. The media doesn't help, because they don't report this. Many loan officers don't help, because they don't educate this. I just wanted this to be food for thought. thanks
RICHARD.... . I don't think it's always that people don't accept this... I think it's because many loan officers sell against each other and what they can offer that others can't, which is what then confuses the consumer. Basically which I call misinformation. Yes, some lenders will be cheaper than others. But we are talking about a fraction of an 1/8 of a percent in most cases. That's an average of $7 to $10 a month. And I have seen companies or loan officers advertise or put down zero points, but they charge like $1,500 in fees. 2 things.. that client, all they hear then is zero points. Secondly, I would rather put the $1,500 into the points, because you can't write of the fees on taxes, just the points. thanks
BARB..... . that is so true, that they have to understand the costs associated. Just as I explained to Richard, above you. But the negative part of this is that they get much of their education from online or that loan officer that is misleading or passing misinformation along... thanks
MARILYN.... . I agree, low rates is providing a great opportunity. But as some of us have mentioned, you included, holding off could allow them to miss the best deal or a very good deal. thanks
TERI..... . no, the payment isn't as different for an 1/8 or a 1/4.... and as I mentioned in my previous post, I truly think at times that is why people wait, for bragging rights, as you mentioned also. People need to understand this and what it could cost them. thanks for the compliment.
CYNTHIA..... . I see so much hidden and loan officers that dont' explain, can't explain, or don't care, they hurt this market and industry just as much. I just got off the phone with a client yesterday that told me that he learned more from me in 20 minutes then he did from the other loan officer in 1 week of talking... thanks for the kind words...
I was mesmerized by your backdrop as well, but that has nothing like meeting you in the flesh;)
In my opinion, there has been way too much emphasis on interest rates... which has probably been heightened by our wonderful friends on the television and a long stand of lower than historical rates. Rates are important, but as soon as you start quibbling about 1/8th of percentage here and there... it may get one into more trouble than the "financial savings" folks so want to take advantage of.
... Jeff any truth to the 4.75%, no points rate my buyer was quoted yesterday ? Is that possible right now or are they likely to be hiding extras for closing ?
Sheldon
Hi Jeff ! How is it going????? I just love the "fence post breaking" line! It is so true - We are in an historical time and it just kills me to see this great opportunity pass people by. The questions is how do we move a people off the fence???? love your blog -
Jeff, I'm glad you broke this down into a way everyone can understand. There are so many people waiting and still believing the rates will go down--and they are already so low. Also good to inform them about Good Faith Estimates. You provide the best information.
Jeff - Once again, great post. I've been telling my fence sitters this for months (ever since last fall when rates started dropping). However, I do explain the difference to my clients between 5% and 5.5%. I always "do the math" for them so that they can actually see the difference for themselves. Any mortgage consultant not doing that, isn't doing their job.
JASON.... . I am going to ignore the first part... lol And yes, our lovely friends of the media, making this sound bigger than it is. Yes, rates are important, but shouldn't be the complete focus of things.
SHELDON.... . no truth what so ever. Right now, depending on the loan amount, that rate would cost me or any other lender about 1 pt. And that would be if I was charging no points and no closing costs. Now, it could be even higher, depending on the type of loan, down payment, and credit scores. We are basically shooting in the dark on this one... but even for the best loan, 4.75% would cost 1 pt. That client needs to talk to 3 other lenders just to get an average. This wasn't even possible 4 days ago when rates were lower, because this rate would have been par to the lender. Meaning the lender would have made zero dollars on this loan. For some reason, I am finding some more consumers and my clients finding loan officers that are low balling for 2 reasons in my opinion...
thanks, jeff PS... send some of these blogs to this client... open their eyes. Again, we all basically get the money from the same place and people don't do loans for free....
GWENN.... . do you have 4 hours? lol Thanks, I actually love it also when I wrote it down last night... lol and yes, we are in historical times and many loan officers/lenders are using that to their advantage to make things seem that they are lower, even when rates go up.. they are taking risks at the borrowers expense... and either things get changed on them now or later, at closing. Yes, it still happens.
In regards to your question.. How do we move people off the fence? push them off.. lol Seriously, educate them.. find a great loan officer that will give them the positives and negatives.. yes, the negatives.... but there are 80% more positives than negatives, in my opinion. By doing both, explaining and educating them, this should help curb their fears. Share with them these 2 benefits...
Tax Credit for first time homebuyers - how to save now.
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Information about the tax credit & gifts.
And thanks for the compliment.
CAROLE.... . thanks, my pleasure.. well, as some of us have mentioned, the media hasn't helped with this. Besides, as I have mentioned, even at 6.0% and 6.5%, that's low... sure, saving an extra $100 to $150 is a biggie for many.... but if that is all your savings and without that you had nothing, then you shouldn't be buying, which is another reason why the market is still semi slow with extremely low rates. And thanks for the kind words...
DONNE.... . I think the math thing, comparisons with real numbers on paper, and education is the key to truly understanding the difference... and not just listening to the media, that realtor, your neighbor, or friend. Thanks for the polite compliment.
... thanks for a great in depth answer Jeff, and quite honestly, thats exactly what I thought the reality was, but my client was insisting his contact was providing him no points - I knew it couldnt be true !
Thanks as always - and yes I got your email, lets grab some time to sit down and go over some of this at some point.
... I'm forwarding your reply to my buyer :o)
Cheers !
Sheldon
THANK YOU THANK YOU THANK YOU I am sick and tired of people waiting for something even better. When is it enough?
Jeff - another great post and we need more like you in our industry. I too had clients caught because other "mortgage professionals" told them rates would keep dropping to the low 4% range this week. Add to that the "Obama is going to buy down rate rumors" and lowball GFEs and many home owners and buyers were getting some awful advice.
It is a small difference and rates are still excellent, but its sad to see clients lose out on .25 - .5% on rates (with new LLPA adjustments coming out with many lenders at the same time) because they listened to the uneducated. I also was competing with GFE stating 4.5% rates with no points, origination fees and sometimes no application, processing or underwriting either. Clearly cases where the loan officer was pulling a bait and switch... or quoting rates they hoped would exist, not the ones they had.
Sad really, they not only advised that rates would decrease but offered GFE based on that assumption. Now they have clients in process that will very upset when the rate/terms are not honored.
I don't understand why interest rates don't make it in to the media stories. The rates are one of the biggest things that affect anyone's ability to buy! Great explanation.
Jeff, This has to be your best blog yet! I am emailing it to some people who need to read it and am also reblogging it since you left that open:) Thankyou for the Hard Facts!!!
SHELDON.... . thanks... and I added a post by Ken Cook that your client should read. Ken gives an excellent breakdown, making my statements sound more real and factual. And yes, I would love to sit down or even just talk on the phone. Maybe over the weekend... thanks
SONJA..... . well, I just think that is human nature... wanting the best of the best... yet not knowing when that is and just assuming. Even when things go up a little, assuming that it will come down some. thanks
ROLAND... . rumors and assumptions have probably hurt many buyers and homeowners. Especially when the loan officer either lies or misleads... Many consumers think that the paper that it's written on is good enough. Many have found out the truth at the end. In any case, we both agree on this.. and thank you very much for the kind words.
PENNY..... . I am semi confused... rates have made it into the news when they drop or are low. But you rarely ever hear them mentioned when rates go up. Grant it, they are still very low. In any case, thanks for the compliment.
KAREN.... . wow... thanks, I truly appreciate that compliment. I think I have done some that were better, but again, thanks. And I am glad that you are passing this on, because these are hard core facts.... thanks
Thanks for the post Jeff. I've been advising of this very real possibility to some fence sitters recently. They just don't buy it. I'm reblogging this for them.
Well written!
Jeff - thanks for the mention! I really love this, "I think I wait until the rates go just a little lower." or "We're just going to wait and see where the rates go." Okay - let me think - last week rates were at an amazing all time low and we took maybe 30 new phone calls. ONE - ONE guy locked in at 4.5% - another couple of ladies locked in at 4.875% and were supposed to sign RESPA in our office yesterday. Instead one called and said, "My partner is a little hesitant to sign." WHAT??? Okay, you have a rate in the 6's and you can get a 4.875 with NO discount and our fees cut down to the minimum and you want to pass? I am blown away. Not to mention we have it REGISTERED and LOCKED. If any borrowers read this please know it costs us hundreds of dollars (at best) to acept an application, register and lock your loan. What you do when you "change your mind" is drive up the cost for everyone else.
Great explanation Jeff as usual. So why not lower the intrest rates down to 4.5% to jumpstart the 'heart' of the economy. I think shock paddles are necessary at this point! I know that the head mucky-mucks of the real estate industry are lobbying for just that. I think the home buyer tax credit is a bunch of hooey and so far the buyers could care less. BUT, give them something easier to understand like 4.5 vs. 5% and here's the difference in your payment - well that might get their attention!
My 2 cents. I guess we literally have to 'poke buyers in the eye' to get their attention.
Jeff, this is great -- just what I need to share with some clients and potential clients -- so I'm reblogging it. My office is hosting a Buyer's Seminar tomorrow -- I'm thinking about printing it out to share with them -- with your name on it, of course. :)
GABE..... . my pleasure... and I hope they read it... and some will just not want to believe it, because you also have loan officers out there that have quoted those low rates, hoping that it will happen also. False hope and then when it doesn't, you will have pissed off borrowers.
BOB.... . thank you for that very kind compliment.
KEN..... . it is amazing that people were given rates in the 4's and still didn't want to go through it. I had one that I gave 5% to, very cheaply, who had a has 7.65% rate on his first and a 6.8 on his second. His credit was a tad dinged up, and I said I will help you get your explanations together. He writes back, give me a few months and we'll do this then. Later might be back in the 6's.... and yes, it does cost to lock in a way. But if people can't understand the first part of this, they certainly won't understand the second part. And about the mention, my pleasure.. that was a great one.
LYN...... . well, I would semi disagree... I don't think 4.5% would even jump start this economy. Hell, 5% didn't. And the tax credit? I think it's a great thing... how can you borrow money and pay no interest? It's a steal in a bad economy. And you can take 15 yrs to pay it back... it's great security in my opinion... or use it to make money. I wrote 2 blogs about the tax credit...
How to use the tax credit in your favor before even receiving it.
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Information on the tax credit
In any case, that is my opinion.. and thanks for the very polite compliment.
JUDI.... . that's great and thanks.... let me know how it goes and how what they thought of this post. And thanks for the compliment.
Our dream would be for rates to stay in the 5% range but you are right...its not sustainable forever....