FREQUENTLY Asked Questions
The basics are supply and demand pressures. Mortgage money is raised (Borrowed) in the bond market by mortgage lenders selling mortgage backed bonds to investors. When the demand for them goes up the rate they need to pay for that money goes down. That bond rate is what drives our mortgage rates.
Usually Stocks and Bonds compete for the investment dollar. So when Stocks are rising and look as if they will provide a higher rate of return, then Bonds must raise their rates to attract investment dollars away from stocks. It’s like a see saw.
These days Stocks and Mortgage Bonds both continue to move lower. It’s easy to understand why stocks are plunging, why then are bonds not benefitting? The stock markets’ dive lower has resulted in an avalanche of margin calls and that is causing many to dump everything, including bonds and treasuries, to come up with the money. Additionally, the $1 Trillion in stimulus that the Fed is planning on has to come from somewhere. The way the Treasury raises those funds is by selling Treasury Bonds. Adding more supply. So we have Bonds flooding the market and weakened demand due to uncertainty. Cash sitting on the sideline. If you have much more supply coming into the market and not enough demand, that causes prices on Bonds to fall and interest rates to rise.
Another factor is a play. When the Stock market began to react to the COVID-19 threat back in early March rates did drop initially in classic fashion. What happened then that there was an unforeseen Tsunami of refinances which flooded lenders with new loans, swamping their systems exhausting their existing supply of money to fund these loans. They in effect exhausted their cheap money and had to go out and find more at a higher price which squeezed their margins. They had to turn off the spigot and they did so by raising rates…. drastically. I was actually on the phone with a client trying to lock and when I got through to get pricing rates had risen by half a percent from what I had priced a few minutes earlier.
As of this writing rates continue to rise everyday. Personally I believe rates will remain high for the next few months. Hang on the see saw is broken and it’s now crack the whip and I feel like I’m on the end!
If you are asking the question you are probably hearing what others have too, and it may already be too late. Rates are volatile in this age of instant worldwide communication. It is vital to be in position to take advantage of rate movements that may last only a few hours.
Here is what I advise. Get Pre-Approved for a refinance now. The most important step is to talk to your lender and determine what are the benefits you want and the rate at which you can achieve them. Then go through the steps to get Pre-Approved. In many cases these are few. For a salaried employee it is often just an ID, most recent W2 and a pay-stub.
You will need to get your credit pulled to determine what rates you qualify for and complete an application (These are good for 90 to 120 days but once done can be easily refreshed). This under normal circumstances will take about 15 minutes at most.
I am happy to take the time to explore your situation and give you the best advice I can. I will prepare a Spreadsheet so you will know exactly how much you can save, what your costs are and what your break-even point would be on a range of interest rates and programs. Give me a call and get prepared today.