If you were planning to be smarter than anyone else and wait until interest rates hit rock bottom to refinance, you were probably shocked to see interest rates climb one-half to three-quarters of a point in a single day.
While the stock market has been gearing up for a wacky ride this October, few mortgage experts were expecting to see interest rates rise by such a staggering amount in a single day. Dave Doyle, senior vice president of marketing for Countrywide Home Loans, based in Calabasas, California, says he can’t remember the last time rates rose as much in a single day.
Dick LePre, a senior loan officer with Homeowners Finance in San Francisco, was also surprised by the size of the jump. On the other hand, he’s been warning consumers that interest rates would jump since September. In his weekly free email mortgage update, he writes that rates always rise faster than they fall. In other words, interest rates might inch down week after week, but erase that progress in a single afternoon.
On Friday, October 9, that’s exactly what happened.
As LePre tells it, the 30-year bond was “absurdly ‘overbought’ and a correction was in order.” Translating from mortgage-speak, the interest rate on the 30-year Treasury bond was lower than it should have been, and was due to rise.
Borrowers who have been using the media to gauge whether mortgage interest rates were rising or falling were probably unprepared for happened. Even borrowers who had started shopping around for rates at the beginning of the week were probably caught off guard.
And as the second full week in October began, interest rates rose further, turning the stomachs of homeowners and home buyers who’d been sitting on the fence, waiting for that magical sign that interest rates had bottomed out.
So is that it? Will we ever see 30-year mortgage rates below 7 percent with zero points? Perhaps. In the meantime, here are some things to think about so you’re boy-scout ready next time.
Don’t rely on yesterday’s newspaper for today’s interest rates. Newspapers are traditionally printed once a day. Interest rates change frequently during the day. To stay on top of interest rate changes, get your information from several sources, including sites on the Internet that offer real-time rates and local lenders, who can give you an idea of what’s really happening in mortgageland.
If you see a rate you like, jump. If you think you’ll know if your gut when rates have hit rock bottom, you’ll probably miss the trough. No one really knows when interest rates have sunk to the bottom trenches. But with no-point, no-cost refinancing, you can start to shave your interest rate and save money from the get-go (or shortly thereafter).
Then again, true no-cost loans may go the way of the gold rush. In a true no-cost refinance, you pay nothing but get a slightly higher than market rate interest rate. Traditionally, for every half-point (a point is one percent of the loan amount) you save in fees, you pay an additional one-eighth point in interest. It’s high enough so that the lender can recoup his or her costs for closing on the loan. The problem is, lenders got burned during the 1993 refi rush, when some consumers refinanced their home as often as every other month. Now that interest rates are dropping once again to low levels, lenders are looking to protect themselves by charging a higher-than-normal interest rate for the zero-cost loans. While zero-point loans are still competitive, some lenders say the zero-cost loans are becoming unfairly expensive for consumers.
Shop around. The only way to find the best deal is to shop around. While looking on the Internet can save you time, the jury is out as to whether or not you’ll save money there. A spot check of interest rates on a 30-year $250,000 loan found Internet mortgage offerings to be about a quarter point higher than from a local mortgage lender.
Don’t think about getting the lowest rate. Refinancing isn’t a contact sport. You’ll never get the lowest rate on your block. So you shouldn’t even try. (If that’s important to you, however, seek professional help immediately.) The whole point of refinancing is to save yourself as much money today as possible, whether that’s $80 a month or $180 per month. Just remember, the best loan opportunities don’t come in the mail, you have to seek them out.
“The issue for any home buyer or seller right now isn’t that rates rose dramatically last week, but rather the volatility that permeates the market,” notes Doyle.
“There are indeed sizable swings in interest rates right now. This makes the reputation of the mortgage lender and the lender’s willingness to put everything in writing paramount considerations for anyone who needs residential finance assistance,” he adds.