With 2016 one month down,¬†mortgage rates¬†continue¬†to defy Wall Street predictions.
According to Freddie Mac's weekly mortgage rate survey, 30-year mortgage rates dropped again last week and, at 3.79%, on average, rates are now down 25 basis points (0.25%) since the start of the year.
It's a good time to shop for a home loan.
As February¬†begins, conventional rates are in the high-threes for buyers paying points at closing; and purchase and refinance rates for FHA and VA loans are as much as a quarter-point lower.
Because of how mortgage rates have dropped,¬†if¬†you could afford a $400,000 home in December, today, you can afford a home for $411,000.
That's a big increase but¬†it's not just home buyers whom are benefitting. Millions of U.S. homeowners are now in the money to refinance.
To be "in the money", your mortgage rate must be more than 150 basis points (1.5%) above today's rates; and, your loan must more than 10 years remaining with a balance larger than $50,000..
Even if you've already refinanced or recently purchased a home, take a look at today's low rates. There's money to be saved and closing costs¬†can be paid by your lender.Click to see today's rates (Feb 6th, 2016)
The average conventional¬†30-year fixed rate mortgage is 3.79%, according to Freddie Mac's Primary Mortgage Market Survey (PMMS).
The Freddie Mac rate is available to "prime" borrowers paying an accompanying 0.6 discount points at closing.
Discount points are a one-time loan cost, where one discount point carries a cost equal to one percent of your first mortgage loan size¬†amount.
For example, 1 discount point on a Miami, Florida loan at the 2016 conforming loan limit of $417,000 would carry a cost of¬†$4,170 to be paid at closing.
Discount points, which are typically tax-deductible, can be paid with¬†cash or they can¬†be added to your loan size for you.
Note, though, that Freddie Mac's weekly mortgage interest rate survey applies to conforming loans and conventional mortgage rates only. FHA mortgage rates and VA mortgage rates are not surveyed as part of¬†the report; nor are mortgage rates for USDA loans.
Rates for these other loan types are even lower.
All of this makes it¬†easier for today's refinancing homeowners to¬†qualify for streamlined loans such as the¬†FHA Streamline Refinance,¬†the VA Streamline Refinance, and the USDA Streamline Refinance.
Streamlined refinance loans can close in as few as 30 days because of reduced paperwork requirements and appraisal waivers. Streamlined refinances are simpler for banks to underwrite and approve.Click to see today's rates (Feb 6th, 2016)
Mortgage rates remain below¬†the psychologically-important 4 percent figure.
Loans now cost just $465 monthly for every $100,000 borrowed, excluding¬†escrows for taxes and insurance; and,¬†private mortgage insurance (PMI), where applicable.
Editor's Note: PMI is neither good nor bad.
It¬†should be noted, however, that mortgage rates may not stay low for long. Rates change quickly with the economy, and with shifts in market sentiment.
Mortgage-backed securities (MBS) -- the Wall Street asset upon which mortgage rates are "made" -- have been¬†erratic of late, which puts rates on shaky ground. MBS pricing is currently responding to influences on the economy, including the Federal Reserve, the jobs market, and developments in nations abroad (i.e.; China).
In February, then, mortgage rates could rise into the fours and stay there (finally); or, shoppers may find them retreating farther. Your luck with the month's mortgage rates will be part-economy, part-psychology.
Here are some stories to watch.
Last month, the December¬†Non-Farm Payrolls report showed 292,000¬†net new jobs added to the economy. This was more¬†than economists expected and, since 2010, nearly 13 million jobs have been added overall.
Unemployment has dropped to just 5.0 percent.
However, within labor markets, there still exists a fair amount of slack; and wages have not increased¬†in a¬†manner suggestive of a full recovery. Job growth is job growth, though, and Wall Street has been watching closely.
Eventually, economic forces lead worker wages higher which leads to increased consumer spending and inflation. Those forces have yet to materialize, though, and it could be years before they do.
Or, maybe it will happen soon.
This is why the¬†release of the January Non-Farm Payrolls¬†report, which hits February 5, is a point of caution for today's rate shoppers. The jobs report will¬†have an outsized influence on this month's mortgage rates.
Evidence of a stronger jobs market -- especially with respect to wages -- may¬†give¬†the Federal Reserve confidence to raise the Fed Funds Rate in March at its next scheduled, 2-day meeting.
Economists expect to see that the economy added 188,000¬†net new jobs for November. The Non-Farms Payroll report releases Friday, February¬†5 at 8:30 AM ET.
Inflation rates are another influence on today's consumer¬†rates. As inflation rates rise, the Fed is more inclined to raise the Fed Funds Rate, which can cause mortgage rates to¬†move.
Inflation is the enemy of low mortgage rates.
Inflation works against low rates because inflation is the literal devaluing of the U.S. dollar. This, in turn, devalues everything denominated in U.S. dollars -- ¬†including mortgage-backed bonds.
When inflation pressures grow, mortgage rates often rise.
Since 2012, inflation rates have been stable and beneath the Federal Reserve's target rate of two percent -- sometimes, stubbornly. When inflation rates run too low for too long,¬†disinflation¬†can occur.
Disinflation, which is more commonly called¬†"deflation", is linked to falling mortgage rates.
Beginning in 2009, the Fed began to¬†take steps to stimulate the economy and avoid disinflation but, to date, those efforts have yet to have their desired effect.
And now, with oil prices ultra-low¬†and the dollar gaining value worldwide, some fear that Cost of Living indices will begin to show price drops instead of increases.
Recent data puts the annual inflation rate just above¬†one percent annually.
The Fed acknowledges low inflation rates as a near-term issue, but believes that inflation rates will return to a more stable range in the¬†medium-term.
It's unclear how long of a period of time "medium term" is.
Expect a push-pull on inflation/disinflation forces throughout the coming weeks.¬†Rising rates of inflation will typically cause mortgage rates to rise. Receding rates of inflation will typically lead mortgage rates lower.
If the dollar continues to strengthen, demand for mortgage bonds is expected to increase which could actually offset the effects of an increase in the Fed Funds Rate.
Weakness in non-U.S. economies should¬†also affect this month's¬†mortgage rates.
In general, as global economies weaken, U.S. mortgage rates improve. This is the result of an investing pattern known as a flight-to-quality.
"Flight-to-Quality" describes, during periods of economic or political uncertainty, the flow of money from risky assets toward safe ones. Investors seek safe assets to protect their principal investments, and to shield against loss.
This pattern is also known as safe-haven buying.
U.S. mortgage bonds are among the safest investment classes in the world. So, when war is imminent; or, when nation's such as China face an uncertain future; or, when oil prices threaten tens of thousands of jobs, mortgage rates fall.
Investment in the U.S. dollar has been strong, too, which also helps mortgage interest rates to drop.
This is because mortgage rates are based on the price of mortgage-backed securities (MBS), which are priced in U.S. dollars.¬†As the value of the dollar rises, so does the inherent value of owning MBS. This drives demand for mortgage bonds higher which leads prices up.
When bond prices rise, mortgage rates drop.Click to see today's rates (Feb 6th, 2016)
This week, the U.S. economic calendar is thick, including Friday's release of the January¬†Non-Farm Payrolls report. ¬†Expect for markets to be erratic and mortgage rates to jump as Friday morning gets nearer.
The complete calendar for this week reads :
The week's big event is Friday's Non-Farm Payrolls release. Interest rates will be erratic through Friday morning, but are subject to big swings after the report's release.
Remember: Mortgage interest rates change quickly and often without notice. It's a good, safe time to lock a low rate. Today's mortgage rates may not last.
Mortgage rates are currently below 4 percent. Home buyers have excellent purchasing power at today's rates; and refinancing households can¬†save more cash¬†with a refinance.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Feb 6th, 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)