Timing Your Mortgage Refinance

Timing Your Mortgage Refinance

This is the question that everyone is asking.  Are rates going to go any lower?  Will I lock in a higher rate than I could have attained if I had waited longer?

These are authentic questions that should be addressed, but let me put my two cents into the mix. 

Let’s talk first about why interest rates are so low and who is controlling the market at this time.  You may have heard that the U.S. Treasury has committed to purchasing up to $1.25 TRILLION  worth of Mortgage Backed Securities.  What the heck is a Mortgage Backed Security?

I am glad you asked.  These are packages of loans that are sold to big investors who need to put large amounts of money to work.  These are strictly mortgages and not any other kind of investment instrument.  Loans that are backed up by real estate.

These types of securities are completely different than U.S. Treasury Notes that people refer to when they are talking about interest rates on mortgages.  Notes are issued by the Federal Government and are backed up by the complete faith and credit of the U.S. Government.  Mortgage backed securities are private loans to private individuals.

There is a specific market where buyers and sellers can buy Mortgage Backed Securities.  This market has it’s own price swings on a minute by minute basis.  Your loan officer may quote you an interest rate of 4.875% one minute and then the next call, he may quote 5.00% because the market has moved against him in the few minutes that he was on the phone.

Don’t think that interest rates are stable for any length of time.  If you see a rate that you like, you had better make the decision right then to move forward.  If not, you may risk losing the rate that was quoted to you.  This is not the fault of the loan officer, it is current market gyrations that happen in the blink of an eye.

So if you look on CNBC and they are showing 10 yr Treasury Notes rallying and the rates are falling, this does not necessarily correlate into lower rates on mortgages.  Sometimes Mortgage Backed Securities and Treasury Notes move in the opposite direction.

Understand that a competent loan officer will monitor this market very closely and provide up to the minute advice that you can rely on to make a more informed decision.

Do I think interest rates will rise anytime soon?  The answer is YES.  This low interest rate party is permanent and will come to a screeching stop within the next few months.  It may take 30 days or 180 days, but it’s coming.

Let me explain to you what is going to happen.  You will call your loan officer on Monday morning curious about wanting to get the lowest rate possible before rates move higher for good.  He will quote you a rate and then you say that you will call him back within a few days.

Well, about two hours after he hung up with you, a rumor was circulating in the Mortgage Backed Security pits that the U.S. Government was finishing up their purchases of these securities very soon.  What happens next will be devastating to the “refinance procrastinator.”

The market will start to sell off, meaning that interest rates will rise over 3/8 of a point within minutes.  Rates will continue to increase until they rise over 1% in 3 days on their way to a total increase in rates of 1.5%. 

You decide to call your loan officer about a week later to get the ball rolling and he informs you that the rate has increased over 1%.  You are dumbfounded.  You cannot believe what has just happened.  You blew your last chance to get the lowest rate in decades. 

Procrastination and greed is not your friend, but your enemy.  You must find a point you are comfortable with and move now.  Don’t think you are going to catch the final bottom in rates.  If you do, you were lucky.

The Federal Government is the only entity that is buying Mortgage Backed Securities right now.  No investor in their right mind would buy these securities at these prices.  Yields (rates) are too low for the risk and when the Government runs out of money that they have allocated, then Katy bar the door.  You will be trampled!

Don’t look a gift horse in the mouth.  Call your loan officer and get the time of action started now.  This is your final warning.

For more information, please visit [http://www.dallas-mortgage-lenders.com/] or you can call 972-248-1390.

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