Good news from banks is always good news for our economy and we need that. Unfortunately good news from banks is quite often bad news in the short term for homebuyers out there purchasing their new home. As a rule, when I am coaching my clients and discussing their interest rate on their mortgage, I tell them to follow along at home. Usually, a good day in the stock market is bad for my mortgage rates and vice versa.
This is an oversimplified rule of thumb of course but it is a good general rule for the typical borrower who has many other details to follow and digest during the home buying process. The thinking here is that if we have a good economy and more people are in a position to buy, this creates more demand for mortgages and rates go up. If the economy is sluggish, there is less demand for mortgages which forces banks to lower mortgage rates to attract business.
Another way to show the impact of good and bad economy on homebuyers is to demonstrate this with a few numbers. One of my clients this week went to contract on Wednesday. He is looking at a home purchase in the amount of $315,000 with 20% down. He started the week with a quote of 4.875% and may end the week at 5.125%. (Depending how mortgage rates come out this morning.) This customer, who is getting a mortgage of $ 252,000, just saw his payment go up $39 per month. This is not enough to break him, but it is enough for him to trim his spending somewhere else.
Currently we have an interesting tug of war going on in the mortgage markets with regard to interest rate. We have huge deficit spending which will push interest rates up. We have a weak economy that will help keep them down. We have a government that is purchasing huge amounts of mortgage back securities ensuring that our banks are liquid and ready to continue lending which has helped keep mortgage rates down. No doubt Washington will do everything in its power to keep our rates low to help get rid of the glut of houses out there and also continue to receive the stimulus that occurs when consumers refinance into a lower rate.
In an effort to proactively help answer questions for customers, I have created three auto-responder series on my website.* They are entitled “The Mortgage Process”, “First Time Homebuyer Workshop” and “Debt Relief”. You will see a separate subscription box for each series. They are of course free and include video of myself describing what to expect during each phase of the home buying or refinancing process. “The Mortgage Process” describes what to expect once your loan is at the bank. The “First Time Homebuyer Workshop” is a tool that coaches FHA customers who need to put their affairs in order before they go house hunting. The “Debt Relief” series describes alternatives for customers who are in need of debt settlement or credit repair.
Written by Preston Ware
First South Mortgage
Tel: 704-542-8057
* http://www.prestonware.com
Email is preston@prestonware.com.
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