A Mortgage Rate Prediction For The Next 7 Days (October 21, 2010)

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Looking to lock a mortgage rate this week? Wondering if you should float your rate instead? I'm a contributor to the Bankrate.com Mortgage Rate Trend Index and this week's survey should give you guidance.

Conforming Mortgage Rate Predictions Only

First, the fine print. These mortgage rate predictions are for conforming mortgages in Cincinnati, Ohio; Fairfax, Virginia; and everywhere else that conforming mortgages are available..

Jumbo mortgages are not covered because jumbo loans don't price the same as conforming ones. Same for FHA streamlines.  Furthermore, unique property types including non-warrantable condos in Chicago, condotels in Florida, and loans for people with more than 4 properties financed are excluded.

for a real-time rate quote.

Breaking Down The Predictions

Here's the mortgage rate outlook for the upcoming week:

• 33% think mortgage rates will increase
• 17% think mortgage rates will decrease
• 50% think mortgage rates will won't change

I expect mortgage rates to decrease.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent this fake, but funny, video on watermelon fruitality.

Either way, here's what I told Bankrate.com:

"The Federal Reserve meets in two weeks, and bond markets are pricing in expectations."

The world thinks the Fed will step in to help bond markets. If it does, the Refi Boom will continue.

Indirectly, The Fed Can Change Mortgage Rates

This mortgage blog talks a ton about how the Federal Reserve doesn't make mortgage rates. That's true.  The Fed only makes the Fed Funds Rate (mostly).

By contrast, mortgage rates come from the price of mortgage-backed bonds; securities bought and sold on Wall Street.

That said, the Fed does exert a fair amount of influence over which direction mortgage rates are headed. It's because the Fed is kind of a big deal. As the nation's central banker, the Federal Reserve's actions alter the course of the economy, causing stock prices to rise and fall, and forcing investors to rethink where they put their money.

So, when the Fed does something "pro-bonds", mortgage rates promptly improve.

The Fed Is Telegraphing Its Next Move

The Fed meets in two weeks. At that meeting, or before it, look for some announcement of the Fed's next move. Heck, its members have been telegraphing the debate since late-September.

In just the last week, though:

• Dallas Fed President Fisher says no decision has been made either way
• Fed Chairman Bernanke says there's a case "for further action"
• Richmond Fed President Lacker says it would be a "hard case" to make

Markets think Bernanke will win out and that's why bonds are rising. "Further action" means more bond-buying from the Fed, a move that would push mortgage rates down.

Rates May Drop, But It's Time To Lock-In Anyway

In the end, this rally could be the classic Buy On The Rumor, Sell On The News-type story. And you won't want to be on the wrong side of the gamble.  Given how far rates have dropped, it wouldn't be weird if they jumped a quarter-percent in a day.

We've seen it before.

Therefore, my advice is this: There's no penalty for refinancing twice (or thrice!) so take the bird-in-hand. Refinance now. And then, if the market affords it, refinance again later.

Just make sure you're asking your loan officer about "zero cost loans". It would be silly to pay closing costs twice.

An Easy Way To Get Low Mortgage Rates

I work for Waterstone Mortgage. Our rates have routinely bested the "Big Box" banks by 1/4 percent or more since July.  If you're shopping for a loan, make sure you see what my bank can do for you, too.

1. Send me an email with the basics of what you're trying to do. No novels -- just some bullet points.
2. Wait for my reply -- I'll have some follow-up questions for you.
3. Next, I'll get you pricing for your comparison shopping

If you like the rate, I'll lock it for you and we'll start working toward closing. That's it!

Expect me to reply to your initial email within about an hour, during business hours.