Have The Mortgage Rates Bottomed?

Should you lock in now or wait? It’s always the first question I’m asked when meeting with a client… Will the mortgage rates go down? I am almost never asked, “When will mortgage rates go up?!!” It seems perfectly logical to the borrower that a discount is always just around the corner, but in reality we have been lucky to have rates so low for an extended period of time. Many pundits have predicted rates will go down due to the sluggish economy, and about the same amount are preaching that they will go up when inflation rears its head. I started in the mortgage business in the mid 1980’s and believe it or not, fixed mortgage rates were in the mid-teens, if not close to 20%!. Even more astounding was that the Prime Lending Rate was close to 20% (today it is at 3.25%). Obtaining a great mortgage rate is quite a matter of perspective. Today those 1980’s rates sound crazy, almost unreal! Current rates on a 30 year fixed rate conforming loan (under $417,000) are hovering between 4.25% and 4.50% (make sure to check the lenders APR’s). On a 30 year fixed rate mortgage, you’d need to look all the way back to 1964 to see them at this low level. So why does it seem borrowers are waiting for lower rates? Recently, everybody is an optimist thinking rates are going lower ...until they don’t. The treasury market (which mortgage rates are loosely tied to) can be fickle. The one thing it has taught us is that rates can go up much faster than they come down. Since everybody has a different tolerance to risk, it is good to know what you are risking by waiting for rates to drop further. Many times people get hung up on the rate itself. After all, 3.75% sounds so much better than 4% without realizing what this equates to in a monthly payment. Of course it is. On a mortgage amount of $250,000, a .25% lower rate would SAVE $35.00 per month. Conversely, if the rate goes up .25% in rate, the same loan amount will COST $35.00 a month more! This volatility makes timing the lowest rate very difficult. The best advice I can give is to determine if you are “floating” your rate you must be willing to pay more if the rates go up on you before you lock. If you have no appetite for this risk, then shop lenders and lock in when you find the one you are comfortable with. And don’t look at the rates again after that…It will just drive you crazy!