Mortgage News in the Carolinas
Mortgage Rates
Adjustable-Rate Mortgages Starting To Adjust Higher
0147 days
by Geoff Brown
in Mortgage Rates
For the first time in a year, homeowners with adjusting mortgages are facing rising mortgage rates. The interest rate by which many adjustable-rate mortgages adjust has climbed to its highest level since September 2010, and looks poised to reach higher.
This is because of the formula by which adjustable-rate mortgage adjust.
Each year, when due for a reset, an adjustable-rate mortgage’s rate changes to the sum of fixed number known as a “margin”, and a variable figure known as an “index”. For conforming mortgages, the margin is typically set to 2.250 percent; the index is often equal to the 12-month LIBOR.
LIBOR stands for the London Interbank Offered Rate. It’s a rate at which banks lend to each other overnight.
Expressed as a math formula, the adjusting ARM formula reads :
(New Mortgage Rate) = (2.250 percent) + (Current 1-Year LIBOR)
LIBOR has been rising lately, which explains why ARMs are adjusting higher as compared to earlier this year. There has been considerable stress on the financial sector and LIBOR reflects the uncertainty that bankers feel for the sector.
LIBOR last spiked after the collapse of Lehman Brothers in 2008 amid global financial fears. Analysts expect LIBOR to rise into 2012 because of bubbling concerns in the Eurozone.
Despite LIBOR’s rise, though, most adjusting, conforming ARMs are still resetting near 3 percent. For this reason, homeowners with ARMs in Carolinas may want to consider letting their respective loans adjust with the market.
This is because an adjusting mortgage rate near 3 percent may be better than what’s available with a “fresh loan” — even as 5-year ARMs rates make new all-time lows. Unlike a straight refinance to lower rates, an adjusting loan requires no closing costs, requires no appraisal, and requires no verifications.
So, if you have an adjustable-rate mortgage that’s set to reset this season, don’t rush to refinance it. Talk to your lender and uncover your options. Your best course of action may be to stay the course.
What’s Ahead For Mortgage Rates This Week : September 6, 2011
0154 days
by Geoff Brown
in Mortgage Rates
Rates were especially volatile, too, with the long Labor Day Weekend looming.
Overall, conforming mortgage rates in Carolinas improved for the first time in 3 weeks. On a product-by-product basis, though, mortgage rates are faring differently.
According to the Freddie Mac weekly mortgage rate survey, last week, the 30-year fixed rate mortgage was unchanged but the 15-year fixed rate mortgage and the 5-year ARM fell.
The 5-year ARM is at a new all-time low for qualified borrowers.
A drop in 5-year ARM rates throughout Charlotte without a corresponding drop in 30-year fixed mortgage rates signals that markets expect the economy to stabilize over the long-term but with weakness in the near-term. The 5-year ARM’s ultra-low rates suggests marked weakness ahead.
The 5-year ARM may get another boost this week, too.
While U.S. markets were closed for Labor Day, Eurozone nations were hit with new wave of sovereign debt concern, this time centered on Italy. Greece, Portugal and Ireland have already been the subject of debt default debate this year. Italy’s inclusion hit equity market hard and safe-haven buying re-commenced.
This should give a good start to mortgage rates this week. Look for rates to start lower. That’s not to say, however, that they’ll finish the week lower. With very little economic data due for release, markets will move on momentum and momentum can change in a flash.
The two biggest potential market movers both come Thursday. Fed Chairman Ben Bernanke speaks in Minnesota at 1:00 PM, and United States President Barack Obama addresses the nation at 7:00 PM. Both speeches are highly anticipated and should cause markets to move.
What’s Ahead For Mortgage Rates This Week : August 29, 2011
0162 days
by Geoff Brown
in Mortgage Rates
Last week was another volatile week for mortgage rates. Wall Street alternately sought risk and shunned it, causing mortgage-backed bonds to rise and fall rapidly.
There was a lot to move markets, too, including banking concerns across Europe, inflation figures within the U.S., and a public speech by Fed Chairman Ben Bernanke.
Conforming rates in Carolinas rose to their highest levels of the week Wednesday afternoon, then receded into the weekend. 3
0-year fixed rates remain above their all-time lows set 2 weeks ago. 5-year ARMs are at all-time lows.
This week, mortgage rates figure to be equally jumpy. As well as a full slate of economic data, because of Labor Day, bond markets will be light on volume. When volume is light, pricing gets volatile.
The week’s calendar of data includes:
- Monday : Pending Home Sales Index; Personal Income and Outlays
- Tuesday : FOMC Minutes; Fed President Kocherlakota speaks
- Wednesday : Factory Orders
- Thursday : Jobless Claims; ISM Manufacturing Index
- Friday : Non-Farm Payrolls
Of all the reports, though, it’s Friday’s Non-Farm Payrolls that might move mortgage markets the most.
Jobs are crucial to the ongoing economic recovery and, from Wall Street to Capitol Hill, it’s top of mind.
If the jobs report shows more jobs created than expected, or a positive forward trend, expect bond markets to fall, pushing mortgage rates up. On the other hand, if the jobs report is soft, mortgage rates may improve.
We can’t know what rates in Charlotte will do on any given day, so the best strategy for a shopper is to shop with purpose. Know what you want, and be ready to lock when you see it.
If you wait too long, the rate will be gone.
Mortgage Rates Don’t Move With The Fed Funds Rate
0172 days
by Geoff Brown
in Mortgage Rates
Last week, at its 5th scheduled meeting of the year, the Federal Open Market Committee voted to leave the Fed Funds Rate in its target range near zero percent.
The Fed Funds Rate has been near zero percent since December 2008 and, in its official statement, the FOMC pledged to leave the Fed Funds Rate untouched for at least another 2 years.
This doesn’t mean mortgage rates will be untouched for 2 years, though.
Mortgage rates and the Fed Funds Rate are two different interest rates; completely disconnected. If mortgage rates and the Fed Funds Rate moved in tandem, the chart at right would be a straight line.
Instead, it’s jagged.
To make the point more strongly, let’s use real-life examples from the past decade.
- June 2004, 529 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate
- June 2006, 168 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate
Today, the separation between the two benchmark rates is 407 basis points.
1 basis point is equal to 0.01%.
Between now and mid-2013, when the Fed may begin changing the Fed Funds Rate, the spread between rates will change based on economic expectation — not Fed action (or non-action). If the economy is expected to improve, mortgage rates in Charlotte will rise and the spread will widen.
Should mortgage rates cross 6 percent before the Fed starts raising rates, it will create the widest interest rate spread in history, surpassing the 615 basis point difference set in August 1982.
At the time, the Fed Funds Rate was 10.12% and mortgage rates averaged 16.27%.
On the other hand, if the economy shows signs of a slowdown for late-2011 and beyond, mortgage rates are expected to drop.
Shopping for a mortgage can be tough — especially in a volatile environment like the current one. Mortgage rates move independent of the Fed Funds Rate. Make sure you’re watching the proper market indicators. It’s your best chance to lock the lowest rate possible.
