Local mortgage broker explains home loan rates
Telling the future of mortgage interest rates
By Steve Allen
Connect Home Loans
Steve Allen, Connect Home Loans
When people are looking for a home loan, or a refinance, the first thing most folks think of is the interest rate. What rate can I get? Where are rates headed? Why can’t I get the rate I saw on television? Where is my television?
While it isn’t much help the only realistic answer as to where rates are going is to say, “… rates will do one of three things; they’ll go up, they’ll go down, or stay the same.”
Without a crystal ball, tea leaves or some bones to roll, there just isn’t any sound way to predict where long term rates will go. By observing market trends we can have a good idea about what will happen in the next 24 hours, but beyond that point predictability disappears rapidly.
There is one rule of thumb that most folks can use and that is to observe the stock market: when the stock market is down, mortgage interest rates usually improve and when the stock market is doing well, then rates are going up. This seems counter intuitive until you realize that the primary motivator in mortgage interest rates is the 10 Year Treasury Bond. When the stock market is getting hammered money flows out of the stock market and looks for safety in the bond market, since rates are driven by the ten year treasury bond the rates improve. And, the reverse is often true when the stock market is doing well; money flows out of the bond market and back to stocks and rates go up.
Money is perhaps the largest traded commodity of all and the markets are moving constantly so you can expect rates to change daily and in some cases multiple times a day.
There is no single rate for a loan program on any given day. In fact, there is a whole spectrum of rates that you can choose from.
Par Rate
This is the rate where you don’t pay anything extra to “buy down” or reduce the rate and the lender does not “rebate” any funds towards paying loan costs. This is a neutral rate and is the best place to start the discussion on rates.
Rebate
By accepting a slightly higher rate the lender will rebate or pay money towards closing costs. This is often beneficial for first time home buyers who may be short on the closing costs and need assistance in order to pay them.
Discount Points
This is when you pay a point, or fraction of a point, to lower the rate and have a better monthly payment. Depending on how much the point is, and how much it lowers the rate, this can be very beneficial.
When you are getting ready to enter a loan transaction talk to your lender and make sure that he or she will provide you daily information on where rates are going so you can observe the trends. Don’t be strong armed into locking the rate right away! This may not be in your best interests.
I often provide my clients a daily email showing the par rate, the rate with some rebate and the rate that requires payment of a discount point. Having more information at your fingertips helps you make educated decisions. After all this is your loan and your money.
