It can go without saying how sick I am over the awful events in NY and DC, however that is for another forum. The comment that this event will cause intrest rates to drop is most likely very true. The mortgage rates in the US are generally based on the value of US Government Bonds. (If you understand bonds skip to the next paragraph) For those of you that are not familiar with the bond market, bond quotes work in a sort of backward way. When you see the price of bonds go up, the yield (intrest rate) drops. I will now make a very simplified explanation. If you gave me $100 and I promised you a 7% return for one year, at the end of
12 months I would give you $107 back. Now, if my promises of returning the money plus intrest became a high demand investment, I would eventually raise my price. At the same time I would still only return $107 back to you at the end of 12 months even though you had to pay me more than $100 for the promise to pay you $107. So, when person 1 gave me $100 and I gave him back $107 in 12 months, person number 2 had to pay me $101 for which I promised to pay back $107. Thus person number two only received a intrest rate of 5.9% because he paid more for the right to receive $107 in
12 months. (Does this help?) 
Anyway, US Government Bonds are considered the safest investment in the world. Essentially the world feels that the safest place to lend money is to the US Government because assumedly, if the US Government can’t repay its bond debts, the world has much bigger problems to worry about. Additionally (even though this would destroy the economy) if the Government could not repay its debts for some reason, they can always just print more money to pay you back with…
(Oy!)
Ok so, that being said, if you were an investor and faced with serious world stability questions and economic uncertainty (recession comming) where would you trust your money to be… Answer: US Government Bonds. Demand for bonds then rise and thus yields (intrest rates) drop. (Keep in mind that the Federal Reserve will also be lowering rates even further to help stave off a recession which is all but certain).
Additionally consider that even without this, I won’t explain why, but when the Federal Reserve lowers intrest rates it usually takes 3 to 6 months for those rate drops to effect the mortgage market. The fed made their 6th cut since January last month, so all of the previous rate cuts have not yet even been absorbed in to the mortgage market.
So where I am going with this? Well the economy was shaky as it was last week and rates were amazingly low and dropping. Now, with unbelieveable financial instability in the market, as people flock to US Bonds as a safe haven and the fed cuts rates, mortgage rates should drop even faster. Note however that on Thursday the banks raised rates in the morning out of fear but they started dropping by the end of the day.
Here is my advice (legal disclaimer – unless you become a client of mine, this advice is for informational purposes I do not warrant or imply any agency with you and will not be responsible for anything you do to which I am not a party): if you refinance, look at the 3/1 or 5/1 adjustable – INSIST ON NO PRE-PAYMENT PENALTY. You might be able to save a few hundred to a few thousand dollars a month today depending on your loan size, you should look to have this savings surpass your loan costs within a few months. The 3/1 and 5/1 adjustable offer you a locked in fixed rate loan for 3 to 5 years and after that it becomes adjustable. The reason to use these loans are that you will get a very low rate today for accepting a loan that converts to an adjustable later. Then in the next 3 to 5 years could be tomorrow could be in a year and could be in 5, when you think that rates have bottomed you refi again and smile with your perfectly comfortable low rate 30, 20 or 15 year fixed rate loan. This even works if you want the insurance policy of buying a 30 year fixed today. IE you can still refi it again when you feel rates have bottomed. You may be asking what about my costs of refinancing multiple times? Well the issue becomes more an issue of cash flow than cost. If a new loan costs $1000 and you save $500 a month, you will spend $1000 that is true but in the next 12 months you will save $5000 over all…
A word of caution. Watch out for brokers that promise you no money upfront on your loan. You seem to hear that in commercials all the time these days…
Remember you dont get anything for free. We brokers get a fee from the lender based on how high an intrest rate we submit you at. So, if somone tells you there will be no fee for an appraisal or credit or whatever, what they are not telling you is that you are paying those costs, they are just charging you more in your intrest rate and getting paid a higher commission. If you are in California, read your MORTGAGE BROKER FEE DISCLOSURE it explains this to you in other states its called something else.
So what should you do? Well if you are paying 7% or higher on ANY mortgage, conforming, jumbo etc (if you have an adjustable at that rate or higher get offline and refinance now hehehe). I would at least shop around and see what rates you might be able to get and how that would affect your current monthly payment. I also would suggest that you contact a mortgage broker… if you find an honest broker his rates should almost always beat the banks rate even if you both shop at the same bank. The reason… the broker shops for you on the banks wholesale pricing while you will shop retail if you contact the bank directly.
Like any business there are good people and bad. Some brokers charge a very high price and some treat you right.
Another suggestion would be that you get your fico from equifax at www.myfico.com. In case you didn’t know, getting a credit report run on you drops your credit score each time you do it. If you do it yourself at myfico, it does not effect your score because it is a personal consumer request. This way you can give the broker your score and he can quote you properly without having to run your fico just to quote you. Then if you decide to use the broker he can run a credit report on you for use with your loan and you won’t have 5 inquiries on there dropping your score causing a higher rate on your mortgage.
