For the last 18 months, mortgage rates have defied Wall Street predictions. The end of the Federal Reserve’s QE3 program was expected to push mortgage rates northward but, instead, the opposite occurred.
Rates for purchase loans and refinance loans dropped more than 100 basis points (1.0%) on their way to the cheapest market pricing in more than 90 weeks, and for a nine-month stretch beginning in October of last year, 30-year mortgage rates averaged in the 3s.
Only lately have rates began to climb, reaching into the 4s for the first time this year.
According to Freddie Mac’s weekly mortgage rate survey of more than one hundred banks, 30-year mortgage rates now average 4.02% nationwide, which remains 51 basis points lower from the start of 2014.
In the weeks ahead, though, rates could resume falling. A confluence of factors may be coming together at the exact right moment to bestow even lower mortgage rates on today’s home buyers and refinancing households.
Timing the markets to lock the absolute lowest mortgage rate is not possible.
However, with attention to markets and current events, today’s mortgage rate shoppers may find themselves in good position to lock the best rate available.
Each week, Freddie Mac publishes the average U.S. mortgage rates for common loan products, available to “prime” borrowers which is defined as borrowers with a high FICO score; verifiable income and assets; and, a twenty percent downpayment on a home.
The average 30-year conventional mortgage rate is now 4.02 percent. The rate is available to borrowers willing to pay 0.7 discount points at closing.
Discount points are one-time closing cost, based on a percentage of your loan size. Each discount point carries a cost of one percent of your borrowed amount.
A borrower in Philadelphia, Pennsylvania, therefore, paying one point and borrowing at the 2015 conforming loan limit of $417,000, would see a total discount point charge of $4,170 at the time of closing.
15-year mortgage rates are similarly, low. Freddie Mac’s survey lists the shorter-term product at 3.21 percent with 0.6 discount points due at closing.
For borrowers choosing not to pay discount points, mortgage rates are higher. This is because discount points are considered “prepaid mortgage interest” (which is why they’re typically tax-deductible).
In general, paying one half-point of a discount point gets you a mortgage rate “discount” of 0.125 percentage points.
For borrowers waiving discount points, then, expect for rates to be closer to 4.125% on a 30-year fixed; and 3.75% on a 15-year fixed.
It’s also worth noting that Freddie Mac’s survey applies to conventional mortgages only. For borrowers looking for FHA mortgage rates, VA mortgage rates, and USDA mortgage rates, the Freddie Mac survey does not apply.
The good news, though, is that interest rates for each of these loan types are usually lower than rates on comparable conventional loans.
According to data from Ellie Mae, VA mortgage rates beat conventional by roughly 30 basis points; and FHA rates beat conventional by roughly 15 basis points.
To continue reading about the upcoming changes in mortgage rates, continue reading full article here.