Another week, another improvement in U.S. mortgage rates.
Interest rates fell last week as weaker-than-expected jobs data cast doubt on whether the Federal Reserve will raise rates after its October 27-28, 2015 meeting.
Raw pricing for mortgage-backed securities (MBS) reached their best levels since early-May, helping to push mortgage rates for all common loan types -- including conventional, FHA, VA, and USDA -- to 5-month bests.
There is a direct link between MBS pricing and today's mortgage rates.
For conventional loans with accompanying discount points, rates begin this week near 3.75%. FHA loans, VA loans, and USDA loans -- which are typically priced without discount points -- are running slightly lower.
Since mid-2014, FHA mortgage rates have averaged close to 20 basis points (0.20%) less than comparable conventional rates; and VA and USDA rates have averaged nearer to 35 basis points (0.35%) less.
Many eligible VA borrowers report rates near 3.50% with similarly low APR.Click to see today's rates (Dec 4th, 2016)
According to Freddie Mac's weekly survey of U.S. mortgage lenders, conventional 30-year fixed-rate mortgage rates averaged 3.85 percent last week nationwide.
As this week begins, however, rates are even lower.
This is because, Friday, the government released September's weaker-than-expected Non-Farm Payrolls report, which sparked a bond market rally.
Economists had forecast more than two hundred thousand net new jobs added to the U.S. economy in September.
The actual reading, after accounting for revisions to months prior, was less than half of that. Furthermore, quarterly job gains between July and September were their slowest in more than 3 years.
Wall Street had widely expected the Federal Reserve to raise rates at its October meeting. The weakness of the jobs report, now, is shifting that expectation.
Perhaps the U.S. economy is not as strong as previously believed.
After the release of the Non-Farm Payrolls report, briefly, mortgage rates dropped to near 3.625 percent for prime borrowers paying an accompany set of discount points.
By the afternoon, though, the rally had subsided and mortgage rates climbed. The best mortgage rates of last week were those quoted late-morning Friday.
This week, for prime borrowers, rates begin nearer to 3.75%.
"Prime borrower" is defined as one with verifiable income and assets; a reasonable debt-to-income ratio; and a twenty percent downpayment on a single-family home which is to be used as a primary residence.
For such borrowers, rates without points may be as much as a quarter-point higher.Click to see today's rates (Dec 4th, 2016)
When mortgage rates are low, it presents an opportunity to renters and homeowners who are considering the purchase of a property.
First, the math of "Should I buy or should I rent" begins to shift towards "Yes, you should purchase a house" -- especially in this market where rents are rising more than 4% annually nationwide.
Unlike with rent, it's your choice for how long a mortgage payment remains "fixed".
You can choose periods of 15 years or 30 years; or, if you elect to use an adjustable-rate mortgage (ARM), you can have your initial mortgage rate remain unchanged for as many as ten years.
It's noteworthy that this week marks the 16th straight week that 5-year ARMs are quoted in the 2s. The 5-year ARM tends to suitable for buyers of starter homes; and households which "move a lot".
The second opportunity low rates give to buyers is the power to purchase "more home". This is because when mortgage rates drop, purchasing power grows.
As compared to last year, today's home buyers can afford 8% more home.
This means that for every $100,000 you could afford last year, this year, you can afford $108,000. That extra eight-thousand dollars can mean the difference between buying a two-bedroom home or a three-bedroom one; or buying in a school district you really want versus a different one.
The answer to "How much home can I afford?" changes as interest rates drop.Click to see today's rates (Dec 4th, 2016)
Low mortgage rates do more than help renters become buyers -- they also change the math for an existing homeowner.
When mortgage rates drop, the opportunity to do a refinance loan opens up.
A refinance is mortgage transaction in which an existing loan is paid off by a new one. The loan size of the new one is used to retire the original in-full.
The majority of refinance home loans are of the "rate-and-term" variety. This means that the loan's purpose is to lower the mortgage rate, or change the number of years until the loan is paid-in-full.
One example of a rate-and-term refinance is lowering your mortgage rate from 4.50% to 3.75 percent. Another is refinancing to replace your 30-year fixed with a 15-year fixed.
Rate-and-term refinancing is especially popular when mortgage rates drop, and you don't have to lower your rate one percentage point in order to qualify. In fact, for some refinance programs, you only have to show that you're saving money.
For example, one of the very few qualifying criteria for the FHA Streamline Refinance program is that your overall principal + interest mortgage payment reduces by at least five percent.
This can be achieved with a mortgage rate drop of 25 basis points (0.25%) in some cases.
And, with the VA Streamline Refinance, the requirement is only that you save some money, with no minimum amount required.
That makes markets like these ripe of rate-and-term refinancing. Also, given how home prices have climbed, it can be a good time to "cash-out" refinance, too.
A cash-out refinance is a refinance loan where the new loan size is at least 5% greater than the original one.
As an illustration, if your original loan is $200,000, in order to be considered a cash-out refinance, your new loan size would have to be $210,000 or greater.
The extra monies are often paid as cash at the time of settlement.
Homeowners use cash-out refinances for a host of reasons, among the most popular of which are debt consolidation and the payment/reduction of credit card debt; as means to pay for home improvement projects; and, for making college tuition payments for a person in the household.
Mortgage rates start the week at their best levels in 5 months. It's an excellent time to consider your options as a potential home buyer or refinancing household.
Take a look at today's real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.Click to see today's rates (Dec 4th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)