What Mortgage Rates Will Do Over The Next 30 Days (April 9, 2009 Edition)

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Are mortgage rates going up?  Are mortgage rates going down?  I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may have your answers.

The Bankrate.com survey is for conforming mortgages.  It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages.  For rate quotes,.

The group's 30-day prediction for mortgage rates:

• 31% predict mortgage rates will increase
• 15% predict mortgage rates will decrease
• 56% predict mortgage rates will remain unchanged

I am predicting that rates will remain unchanged over the next 30 days. My prediction may not be appropriate for your individual situation and it may be as wrong as hurting someone's feelings.

Here's what I told Bankrate.com:

"Rates will stay flat, but points should come down."

There are two components to mortgage pricing.  There is the interest rate, and then there are the points required to get that interest rate. "Points", you may not know, is industry shorthand for "discount points" and it's expressed as a percentage of the amount borrowed.  As an for-instance, 1 point on a $325,000 mortgage would cost $3,250.

When it comes to shopping for, or reporting on, mortgage rates, most people forget about the "points" part of the equation. You probably even do it yourself.  When you ask a mortgage guy, for example, "What're rates doing today?" you're completely discounting the question's second half.  This chart illustrates it.

To understand why points increased earlier this year, think like a bank.

• There is a finite cost to originate and/or service a mortgage
• Servicing mortgages earns more fees over a long period of time. 
• When rates fall, people refinance and that "long period of time" is never realized

Therefore, to make loans but still make profit, banks have offered today's market-driven low rates but with higher fees. And why shouldn't they? Each time the Federal Reserve steps in to support mortgages, rates plunge, homeowners refinance, and the banks' loans get paid off. 

Better to collect money fer sure up-front than to hope to collect it long-term.

Starting this week, though, the banks' collective push to collect points is easing. As mortgage rates rebalance near 5 percent for the third time in 5 months, it's clear that no matter how hard they try, the Fed can't hold rates down forever.  Banks are taking notice, too, and for rate shoppers, this week's discount point shift may be the ultimate signal to lock in; that this is as good as rates will get.

The banks wouldn't lower their up-front fees unless they thought your next refinance was years away.

As a reminder, mortgage rates do move quickly so I use Twitter to transmit near-real-time changes.  Come watch my feed at http://www.twitter.com/mortgagereports. I post several updates each day.  If you join Twitter and I'm your first follow, please let me know you're watching by sending me a tweet. 

Type "@mortgagereports First Follow" and I'll get the message.