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Question about today's mortgage rates

Posted by kylie_m (My Page) on
Mon, Sep 8, 08 at 16:35

I'm hoping Tricia or Dave Donhoff will weigh in on this! I'm a semi-lurker, having bought and sold a few houses, most recently in 2006. Our daughter & SIL are under contract to buy a home and we're involved since we're gifting part of the down payment. They are getting a 90% conventional loan with PMI thru Wells Fargo Mortgage. When we started the process about 2 weeks ago (before they had an actual contract on a house), the rates were 6.75%. Friday's rates were 6.5%. Now they are under contract and can lock their rate. Today's rate dropped to 5.875%.

The question... do y'all think the 5.875% rate is worth locking in, or should we anticipate further rate reductions this week as a result of the FannieMae/FreddyMac bailout?

I think, historically speaking, 5.875% for 30 years fixed is a pretty good rate and they should save themselves the worry and just lock it in, but I'd appreciate feedback from the experts here. Many thanks!


Follow-Up Postings:

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RE: Question about today's mortgage rates

Hi Kylie,

OK, so they're under contract, and could lock if they want to.

Rates *COULD* get a bit more volatile at this point, with the various uncertainties in the markets that a government takeover creates. Aside from that, rates aren't likely to go up very much from here but for maybe 1/4 to 3/8 max in the upcoming 30-60 day period.

Conversely, rates on a 30 FRM are unlikely to drop like a stone much further below the 5.875%-ish to 5.75%-ish range either.

With locks, "time is money" which means the longer you can float the less the locking costs and better the situation ALL THINGS BEING EQUAL... but all things are never equal, unfortunately.

*IF* you (or your financial advisor) are diligent market watchers, and comfortable with floating and pulling the trigger on a more specific basis... I would say to float... but that means you are managing (and carrying) the risks in exchange for the potentials of the rewards.

I think both the risks, AND the rewards of floating are fairly small at this point however... so doing so is really more of a "game" than it is a financially savvy decision.

I think, historically speaking, 5.875% for 30 years fixed is a pretty good rate and they should save themselves the worry and just lock it in, but I'd appreciate feedback from the experts here. Many thanks!

If that's how you feel, and how you'd sleep best at night, then lock it up, close your eyes to the markets from here, and proceed into closing!

Luck!
Dave Donhoff
Leverage Planner


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RE: Question about today's mortgage rates

Thanks, Dave. Unfortunately, I ignored your advice to "close your eyes to the markets from here" and checked Wells' rates late today. Daughter locked at 5.875 and yup... rates are at 5.75% late, late today. Oh well. If the rates were to "drop like a stone", their re-lock fee is 1/2%. But I have to think the 5.875 sure beats the 6.75 from when they first started the process.

On another note, the Wells site showed an FHA rate of 7% earlier today and when we peeked at 5pm or so this evening, it went UP to 7.5%. The FHA rate and conventional rate were pretty much the same last week and now they are almost 2 points apart! Has the buyout created this huge disparity? Wow!

Thanks for the reply, Dave. Always enjoy reading your comments!


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RE: Question about today's mortgage rates

I locked in yesterday at the 5.875 rate as well and my heart dropped when you mentioned 5.75. I emailed my mortgage broker this morning and asked him if the rates dropped after I locked and he told me they actually went up to 6.

I'll call it good with the rate I got. Of course, it's not as good as the last rate I had but anything under 6 I'm quite happy with.


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