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Interest Rates Hit New Low – Avg 30 Yr. Fixed at 3.56%

 

My Crystal Ball May Be Broken But Interest Rates Aren’t!

MORTGAGE INTEREST RATES ARE PHENOMENAL

According to Freddie Mac, interest rates for 30 year fixed mortgages hit a new low this week. The weekly survey shows a .06% drop from the previous week’s national average of 3.62%. There has been a steady drop in rates since the week of March 22nd. That’s when national interest rates hit their peak this year. Since that time interest rates have dropped over .50%. However, the average this year has been 3.83% with 0.75 points paid. Therefore, interest rates are staying within a pretty tight margin thus far.

INTEREST RATES ARE INDIVIDUAL

In order to obtain an interest rate of 3.56% this week, Freddie Mac’s survey shows that borrowers paid an average of 0.70 points. This is important. Often times borrowers hear the headlines about interest rates  but don’t get the details behind them. Each borrwer has a separate and unique situation. Credit score, property type, loan amount, loan-to-value, occupancy and type of loan program are the major factors that influence a borrower’s specific interest rate.

For example, an Orange County resident has a 740 credit score and has a 20% down payment ofr a purchase of a single family home. Another Orange County resident has a 720 credit score with 5% down and wants to purchase a condominium. Who would get a better rate? The first resident would. Why? It’s the level of risk involved. What if you were loaning your own money? Wouldn’t you expect a greater return on your investment if there was a greater risk of losing your money? Of course! Banks are not in the business to lose money. They assess risk carefully and apply risk factors to cover each loan scenario. Just because the national average is 3.56% doesn’t mean that you qualify for 3.56%.

INTEREST RATES ARE PROPORTIONAL

All boats drop with a receding tide. Assuming that the rate adjustments remain constant, interest rates will drop and rise in proportion. Let’s look closer. Let’s assume an Orange County homeowner has a .375 point adjustment for property type (condominium) and a .625 adjustment for LTV(90%). In total they have 1.000 point in risk adjustments. The market interest rate is 4.000% with 1.000 point in adjustments. Two weeks later the market rate drops to 3.75% with the same 1.000 point in adjustments. All borrowers will receive the .250% improvement to interest rates, regardless of their individual risk adjustments.

THE CRYSTAL BALL QUESTION: WILL INTEREST RATES GO DOWN?

Will interest rates continue to go down? I get asked this question all the time. No one really knows. We can all formulate opinions based upon market trends and data. But speed of information and global interconnection means one piece of big news can turn trends around on a dime. Therefore, borrowers have to make the best decision for them at the time. Timing the market and knowing exactly when we hit the bottom is a matter of luck not skill. No one truly knows where the bottom is until it’s already gone. This year is a perfect example. From January to March we saw interest rates move upward in small increments. Many could have pointed to the upward trend and say that the best rates have passed. Then things changed and we’ve seen a  downward trend develop. In the coming weeks the trend might turn up again. This much I can say, a significant or prolonged decline in interest rates is unlikely. It’s more likely that we’ll continue to stay in a narrow range for a period of time. In the long run, as the global economy stabilizes and strengthens we will see rates go up.

The bottom line is this: Interest rates are phenomenal. Interest rates are individual. Interest rates are proportional. Regardless of your situation, you have a tremendous opportunity to capitalize on low mortgage interest rates. Timing the market can be very dangerous. It’s risky and speculative. It’s caused many people to miss out completely. Instead of speculating, my advice is to utilize this opportunity. Lower your payment, maximize the amount of home you can purchase and life will be good! You may not hit rock bottom but you won’t be left in the cold either.

Contact me if you would like to create a game plan for your unique scenario, get a rate quote or just shoot the mortgage breeze!

Scott Storace

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