Your Questions About Mortgage Rates

Richard asks…

With Rates Falling At What Point Do I Re-Negotiate My Mortgage?

We have 4 years left on our 5 year term of 5.1%….there is still 208k left on our mortgage, the table looks like we should have it paid off in 18 years.

With rates the way they are, how do I figure out what point it makes sense to pay the penalty and re-negotiate my mortgage rate early of the renewal?

This is a Canadian question, and RBC is the lender if that helps.

admin answers:

Given that you have 4 more years at the current, low interest rate and would then have only 14 years left on the mortgage, the best answer likely is to NOT consider refinancing at all during the fixed rate period. Even if you were able to get a lower interest rate, the payment of penalties to refinance along with additional closing costs would require a significant amount of time to recover these expenses at the lower rate. A much better solution would be to apply the closing cost money and penalty money, along with any other funds you may find available, to make extra principle reduction payments. Even a modest extra amount of 5% to 10 % of the total monthly payment paid each month can reduce your eventual payoff considerably. With not much effort and consistently paying a little more toward principle each month, you could have about 10 years or even less left on this loan when the fixed rate ends. If the rate resets to a higher level, the amount remaining will be significantly smaller, thus the total remaining interest paid would not be a major concern. And if you did decide you wanted to refinance at that time, your options are much better as you would have lots of equity and the term would be very short, making the loan attractive to many lenders.

Mark asks…

When mortgage lenders say “the bond market moved” so the rates are going to go down, what does that mean?

Did the bond market go up or down, better or worse that causes the interest rates to go down. Which bond market is it, assuming there is more than one, that causes mortgage rates to go down?

admin answers:

There are two bond markets in general that affect mortgage rates. The first is US government bonds, which help establish a “credit risk free” yield (or rate).
The second is the mortgage bond market. When you get a mortgage, it is put into a pool of other similar mortgages. That pool is then sliced up and sold as bonds to investors. Those bonds trade in a market of their own.
When you hear someone say “the bond market moved” and rates are going Higher/lower, most likely they are referring to the US govt market rates going up or down.
For the record, there is not a 100% correlation between us govt bond rates and mortgage rates. Credit risk, housing market risk, etc will sometimes make morgage rates move more or less than the change in govt bonds. However, there is a positive correlation in general, which means they will usually move in the same direction, though at varying amounts.

Maria asks…

Are mortgage rates usually higher on investment properties?

Are mortgage rates usually higher on investment properties. I want to make sure that i’m gettin the right information. Right now if i go onto bankrate the interest rate is 6.27 on a fixed 30 year. My mortgage broker says that on investment properties that they add a point.

The rate I’m getting on on a 30 year fixed on the investment property is 7.5. Is that sounds right or is that too high?

Thanks!!!

admin answers:

Yes it is. Commercial loans can be even higher.

7.5% doesn’t sound too high, good luck on your venture.

Betty asks…

Will jumbo mortgage rates jump when the Fed stops buying Mortgage-backed securities?

I’ve seen lots of speculation regarding the inevitable increase in mortgage rates when the Fed curtails their MBS buying. I also usually see this limited to discussion of buying MBS from Fannie and Freddie. Would jumbo loans be less likely to jump since, presumably, they have a different investor behind them???

admin answers:

One tends to follow the other. When regular residential rates start to go up, jumbo and commercial will go up accordingly.

Sandy asks…

Where do you see Mortgage rates heading?

I’m closing on my house in November, what do you think a 30 year mortgage rate will be at? Any idea?
I’m only asking for an opinion. I understand no one can give a set number.

admin answers:

6.75% or higher. As banks continue to fail, and have trouble raising capital to make new loans they will have to raise interest rates to gain liquitity. Plus if the govt. Bails out Fannie and Freddie, that will cost almost 25 billion dollars and investors will not see benefit in investing in bonds, thus raising the yield on the 10 year note and raising interest rates. But we can’t predict the future, many different things can happen to effect interest rates. If I had a crystal ball,I would be retired….

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