Weekly Recap (01/03/11-01/08/11)by Tim Manni
Adjustable rate mortgages (ARMs) were blamed by some financial commentators for the rise in foreclosures, so many homeowners are wary of them. Indeed, only 5 percent of mortgage applications at the end of 2010 were for ARMs. While it’s true that ARMs are a bit more complicated than fixed-rate loans, in an environment of rising mortgage rates, ARMs are especially worth a second look if you’re refinancing.
ARMs offer low initial mortgage rates
Most homeowners interested in refinancing are seeking the lowest possible mortgage rate. This is why ARMs–which tend to have lower interest rates than their traditional 30-year, fixed counterparts–are popular when market interest rates are high. In such periods, mortgage borrowers looking to minimize their monthly payments find initial ARM rates quite attractive. With today’s mortgage rates still holding at historical lows, most consumers prefer to lock in a low rate for the long term.
However, many refinancers in today’s market would actually come out ahead if they chose an ARM. This is particularly true now that mortgage rates have begun to climb at the end of 2010…
It’s the first Friday of the month so that means the Labor Department has released their jobs report from the previous month. Even though December registered an increase of 103,000 private-sector jobs last month, it wasn’t quite as much as many economists were hoping for. Some good news is that both the November and October numbers have been revised upward by 70,000 jobs.
What does this report mean for mortgage rates?
“If you want to know what will happen to mortgage rates in 2011, watch what happens to the economy,” wrote HSH.com VP Keith Gumbinger in our 2011 Mortgage Market Outlook. What we are witnessing in our economy seems to be a continuing, but not accelerating recovery. The December jobs report is the latest example of that.
“The economy and the outlook for inflation have the most influence over mortgage rates,” said Gumbinger. “If the economy remains soft, it should have a tempering effect on any upward pressure for mortgage rates”…
When you begin to ponder the idea of homeownership, you must first ask yourself, “How much home can I afford?”
HSH.com has a mortgage calculator just for that. Our “How Much House Can I Afford” Calculator can give you an accurate sense of almost all your homebuying expenses. The calculator is simple and easy to use — just fill in the seven required fields and hit the “Click Here to Calculate” button.
Here’s how the calculator works (I’ll provide some examples)…
I try to be as journalistic as possible on this blog. One of the ways I strive to do so is by presenting both sides of the story. We’ve read comments and published posts that call out the many frustrations borrowers have experience with Bank of America when trying to either modify or refinance their loans. Up to this point, not one comment on this blog or one news article that I’ve read sang the praises of the country’s largest lender. Like I said…until now.
One of our readers, “Steve,” recently shared a comment with us that said his BofA refi was “the best New Year’s present [he] ever had in [his] life.” Here’s Steve’s story:
My current servicer, BofA, approved my [Making Home Affordable] HARP today at 4.5% for 30 years. My old rate was 5.8% for 30 years. It was funded today. Loan/escrow closed…
What’s going to drive the mortgage market in 2011? Will credit standards ease in this year? Are mortgage rates expected to rise throughout the year? For the answers to these questions and more, be sure to read HSH.com’s 2011 outlook for the mortgage market: “The 8 most important factors for 2011’s mortgage market.”
Some of you may remember our 2010 forecast which examined the 10 most important factors for last year’s mortgage market. Last year we even revised our outlook in early July to give readers a more up-to-date assessment of how the market was doing and how well our forecast had fared mid-way through the year.
This year’s outlook is slightly different. For starters, we’re examining only eight factors since a couple of the federal programs we examined last time have expired. While certain topics — such as the Consumer Finance Protection Bureau — are still in the news, we explore new subjects such as HAMP…
HSH.com’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages rose by four basis points, (.04%) to end HSH.com’s national survey at 5.19%. FHA-backed offers, so crucial to first-time homebuyers and low-equity refinancers, increased by the same amount to finish the last week of 2010 at 4.82%, while the overall average rate for 5/1 Hybrid ARMs remained below the 4% threshold with an average initial five-year rate of 3.95% HSH.com’s FRMI and other public data series includes rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so cover much of the mortgage-borrowing public.
Mortgage rates in 2010
The graph below shows both conforming and jumbo rates throughout 2010. Last year was a historical one in terms of mortgage rates. We witnessed “multi-generational lows”, and the end of 2010 saw a quick reversal in the downward trend that seemed to last most of the year. As we’ve warned many times before, mortgage rates always rise more quickly than they fall…