The media picked up on the prospect of 4.5% fixed mortgages back in November causing a lot of people to wait for rates to come down to this level before refinancing. 11 straight weeks of interest rate drops lead us to 4.5% fixed rate mortgages for the first time ever!!! Yay! But that celebration was short lived as rates jumped back up about a half a percent later that same week. Boo!!! Fundamentally pressures on interest rates are sound with much of the increase coming from banks trying to unclog their pipelines. So many people rushing to refinance caused most lenders to slow things up a bit by raising rates.
Also, there is a chance of a rate drop again this week as the Fed sits in a two day meeting focused on further helping to shore up the crumbling credit markets and build investor confidence. The $500 Billion dollars committed to buying Mortgage Backed Securities has lead us to record lows in interest rates.
Now here’s the bad news. First, with 50% of all home sales in the Bay Area being foreclosure related, home values have plummeted, especially painful to folks who have 20% or less in equity (Down Payment). People looking to refinance are having trouble getting back appraisals that show loan to values within the new much stricter guidelines. There is a log jam currently with appraisals caused by this refinancing boom. I suggest your mortgage rep order an appraisal early in the process.
Jenny bought her home in May of 2008 with 20% down. The Median Home Sales Price for San Francisco dropped 12% in December over a year earlier (DataQuick Informations Systems). Her value only dropped 3.3% but found this will cost her an additional $8,320 in fees and points. She paid the difference and hopes to recover the charge within 2 years.
Second, the new Loan Level Price Adjustments from Fannie Mae are beginning to take effect and these have heavy penalties for condo owners, people with subordinate financing, multi-unit building owners and just about everyone else. We are talking thousands of dollars in many cases. The trade off is higher points verses higher rates.
Thinking about refinancing?
Don’t wait! Waiting for that extra half a percent drop can cost you in new additional fees as well as risk your home value coming in much lower than what you need. Get the process started and lock as the market indicates a change to the worse. If the average refinance takes 45 days, you will want to get started now. Talk to a mortgage professional today to find out your options.
Lee Williams
Sr. Loan Consultant
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