Mortgage rates¬†might finally lose steam on their journey upward in January.
Between November and December, rates skyrocketed more than 75 basis points (0.75%) to two-year highs.
A $250,000 mortgage now costs $110 more per month than it did in early November.
The good news, though, is that mortgage rates may¬†already be at their 2017 peak.
Recently, The Mortgage Reports averaged six prominent 2017 predictions for 30-year fixed rate mortgages. The concensus: rates would hover between 4.0% and 4.25% this year.
Freddie Mac confirms rates are already above that level, clocking in at 4.3% at the end of December.
Mercifully, the mortgage rate upheaval is probably "overdone" at this point. Mortgage rates could be set for a slow, steady drift downward.
But if not, the mortgage shopper still has access to low rates. 30-year interest rates are about half their 8.25% average since nearly 50 years ago.
2017 will prove an excellent time to shop for a mortgage.Click to see today's rates (Jan 16th, 2017)
The average conventional¬†30-year fixed rate mortgage started January at 4.32%, according to Freddie Mac's Primary Mortgage Market Survey (PMMS).
The 15-year was clocked at 3.55%, and the 5-year adjustable rate mortgage -- which will become more popular as rates rise -- dropped to 3.30%.
The Freddie Mac rates are available to "prime" borrowers paying about 0.5 discount points at closing.
A "prime" borrower is one with excellent credit, a large downpayment, and adequate income, and one who is applying for a mortgage amount¬†within¬†conventional loan limits.
That's why average rates are terrific for¬†market¬†trend analysis, but not¬†very useful to¬†consumers looking for their¬†rate. There are a number of reasons for this.
First, Freddie Mac compiles quotes from more than 100 lenders. Some quotes are lower, some higher; but each response is blended with all the others.
As a consumer, you make a final choice on¬†only¬†one rate. But that is actually advantageous. You can "poll" multiple lenders -- by requesting written quotes from three or four -- and choose the best offer. You're not stuck with an average.
Second, you may not want to pay discount points. Instead, you could choose to pay more¬†for a lower rate, pay no points at all, or even request a no-closing-cost mortgage.
Third, you might¬†not fit the profile of the "prime" borrower. You¬†have little to no¬†downpayment saved, or have a recovering credit score. But less-than-prime qualification factors may work to your¬†advantage, too.
Namely, you¬†may be eligible for a government-sponsored loan program.
Freddie Mac's interest rate survey¬†applies to conforming loans and conventional mortgage rates only. Government-backed FHA 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 no appraisal in most cases. These refinances are simpler for banks to underwrite and approve.Click to see today's rates (Jan 16th, 2017)
Today's mortgage rates are hovering around 4.25%, and many mortgage rates predictions¬†have them unchanged-to-higher through 2017.
It¬†should be noted, though, that although mortgage rates are still historically low, they may not stay that way for long. Mortgage 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 has¬†rates on shaky ground.
MBS pricing is currently responding to influences on the economy, including the Federal Reserve's monetary policy, the jobs market, and forecasts around the incoming administration's policies.
Thirty-year mortgage rates found a resting point at around 3.5% this summer, and, if not for the election, they may have stayed there.
Instead, they increased dramatically hours after President-elect Donald Trump clinched the victory. But now the mortgage rate run-up may have hit its peak.
Rates tend to rise quickly and fall slowly.¬†A historic rise in interest rates is usually followed by a reversal downward.
Rates crested 4% in late 2015, then fell steadily all year until the presidential election. Rates skyrocketed to 4% almost overnight.
But that does not mean rates will keep rising -- or even stay the same -- through 2017. Rates could actually fall, and here's why.
The mortgage rate market is forward-looking. It forecasts the economic environment six-to-twelve months in advance.
It's exactly like the stock market. When a stock might be worth more in the future, prices rise to its future predicted value right away. Conversely, when a company hits turmoil, its stock loses value immediately.
Mortgage rates responded to the proposed Trump policy just hours after final election results were in.
MBS investors tried to "get ahead" of market shifts coming in mid- to late-2017 when the new president's policies started to affect the economy.
The logic went like this: The candidate campaigned on bigger defense and infrastructure spending, which would lead to a flood of mortgage bonds in the market, increasing supply and diminishing demand.
Because MBS are a type of bond, demand would wane for them, too, driving up associated interest rates.
Investors predicted inflation, and inflation is very bad for mortgage rates.
After inauguration day on January 20, 2017, investors may realize their¬†fears were somewhat overblown. Perhaps policy would take longer to work its way through the economy, or proposed initiatives would die in Congress.
Predictions are almost always wrong in some way.
As the "real" reality of the new administration takes shape, we could see rates fall in 2017. Dire mortgage rate predictions may be totally wrong, giving refinancing homeowners and new home buyers a second chance at rates in the mid-3s.Click to see today's rates (Jan 16th, 2017)
The Federal Reserve meeting commences January 31 to determine the nation's monetary policy. The 12-member panel will decide whether to raise the Fed Funds Rate on February 1, 2017.
In December, the Fed voted to raise its benchmark rate near 0.50% in a unanimous decision.
But the hike itself didn't affect mortgage rates. The market had already factored into rates the coming hike.
It was the Fed's prediction of three rate hikes in 2017 that sent rates skyward in December.
Four times per year, the Fed releases its projects for future Fed Funds Rate increases.
In September, it had predicted two hikes this year. In December, it called for an additional hike.
Including December's increase, the Fed predicts a one-percent increase to the Fed Funds rate between late-2016 and the end of 2017.
That put Wall Street on notice, and mortgage rates rose from the low 4s to 4.30%, on average, by December's end.
The Fed¬†doesn't control mortgage rates¬†but its rhetoric drives markets.
That's why mortgage shoppers should watch the Federal Open Market Committee (FOMC) meeting beginning January 31.
The Fed will likely not raise rates so soon after the last hike. But what it says about the economy could push rates higher -- or lower.
Watch for inflation-cautious remarks from the group.
More than 14 million jobs have been added in the economy since 2010¬†and the unemployment rate has dropped near 5.0 percent.
Wages are creeping up, causing wage-push inflation in the economy.
Companies increase wages to attract and retain workers. They need to: the economy is reaching full employment and workers are harder to find each month.
To pay more, though, firms charge more for goods and services. Prices rise, and the dollar buys less -- the very definition of inflation.
Mortgage rates rise during inflationary periods.¬†That's why the upcoming Non-Farm Payrolls¬†report has relevance to today's mortgage rate shopper -- the report may give convincing¬†reason for mortgage rates to jump in the coming weeks.
Now could be the right time to lock: before markets have more time to build in upcoming data from the Jobs Report and Fed Meeting.Click to see today's rates (Jan 16th, 2017)
Mortgage programs today come with low rates in the 4s.
But some mortgage programs come with even lower rates than that.
Ellie Mae, a mortgage software firm which processes 3.7 million applications per year, gathers data on loans¬†run through its system monthly. Its November Origination Insight Report was telling.
Government-backed programs, falsely perceived to have worse terms, actually carried the best mortgage rates.
The following average rates were reported by¬†Ellie Mae.
Conventional loans are the go-to program for most home buyers with large downpayments, good credit, and significant assets left after closing.
But Fannie Mae and Freddie Mac -- the two major mortgage rule-making agencies in the U.S.¬†-- have rolled out new programs for a wider array of buyers. A newer option donned HomeReady‚ĄĘ requires just 3% down and is available to those with modest incomes.
The government-backed VA home loan is even easier to qualify for. It comes with lenient credit requirements and is available to home buyers who have served in the U.S. military. There is no downpayment necessary, and no monthly mortgage insurance charged.
FHA loans are extremely popular, used by about 40% of first-time home buyers in their 20s and 30s. Flexible lending requirements allow new graduates to obtain an approval just after starting their careers.
A loan program not covered by Ellie Mae's report is the USDA home loan, otherwise known as the Rural Development (RD) Guaranteed Housing Loan or "Section 502" loan.
It supports homeownership in less dense areas in which incomes often lag those within cities. There's no downpayment required, and minimum credit scores are low.
USDA mortgage rates are about as low as VA ones, making them one of the most affordable home buying options on the market.
For rural and suburban home buyers, there are few better options than the USDA loan.
Mortgage rates for these programs are still¬†low, and could go lower in 2017.Click to see today's rates (Jan 16th, 2017)
The next four weeks hold no shortage of rate-affecting news. Most notably, watch for the Non-Farm Payrolls release (a.k.a Jobs Report) on January 6.
On January 20, 2017, President-elect Donald Trump will be inaugurated as the next President of the United States. The inauguration itself is unlikely to move markets. However, any public address that follows could give deeper insight into the new administration's policies.
Any major shifts in proposed policy could change mortgage rates.
The most important rate-affecting events for the month are as follows:
January could be another volatile one for mortgage rates.
Lock in now to avoid potentially negative mortgage rate fluctuations this month.
Mortgage rates are currently just above 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 (Jan 16th, 2017)
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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2017 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)