Mortgage rates head back down

BY ADRIAN D. GARCIA/BANKRATE.COM

Multiple key mortgage rates sunk lower this week. The average rates on 30-year fixed and 15-year fixed mortgages both tapered off. The average rate on 5/1 adjustable-rate mortgages, or ARMs, the most popular type of variable rate mortgage, also slid lower.

The average 30-year fixed-mortgage rate is 3.72 percent, down 11 basis points over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 3.78 percent.

At the current average rate, you’ll pay a combined $461.41 per month in principal and interest for every $100,000 you borrow. That represents a decline of $6.26 over what it would have been last week.

The average 15-year fixed-mortgage rate is 3.15 percent, down 11 basis points since the same time last week.

Monthly payments on a 15-year fixed mortgage at that rate will cost around $698 per $100,000 borrowed. Yes, that payment is much bigger than it would be on a 30-year mortgage, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more quickly.

The average rate on a 5/1 ARM is 4.01 percent, falling 16 basis points from a week ago.

These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.

Monthly payments on a 5/1 ARM at 4.01 percent would cost about $478 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.

Michael Becker, a branch manager at Sierra Pacific Mortgage, is among the 33 percent of experts to believe rates will keep going down. He said, “Hope surrounding a resolution to the U.S. trade war with China has been waning in recent days. This has helped bonds and mortgage rates rally a little bit, as of late. Without improvements or announcements of improving, negotiations rates will rally a little further. Mortgages rates will be slightly better in the coming week.”

Dick Lepre, a senior loan officer at RPM Mortgage, adds, “In the short term, the tech are bullish and should see slightly lower Treasury yields in the coming week. The problem for the last couple of months has been understanding and explaining the disconnect between Treasury yields and mortgage rates. Behind this may be something which has gotten little attention. After the Great Recession the Bank of International Settlements, an entity which defines what a well-capitalized bank is worldwide, instituted something called ‘liquidity coverage ratio.’ The goal is to make sure that all large banks have enough liquid assets to cover their net cash flow for 30 days if another Lehman-like event takes place. The problem is that this necessitates the set-aside of an enormous amount of money and creates preference for buying Treasury debt rather than MBS. These Basel III rules fully kicked in at the start of this year, and with the issuance of an enormous amount of Treasury debt in September, we saw that preference for buying Treasury debt hurt mortgage rates.”

Logan Mohtashami, a senior loan officer at AMC Lending Group, is one of the 56 percent of experts who see rates staying the same for now. He said, “I have talked about this range between 1.43 percent to 1.94 percent being a hard area to crack above or below. We finally had our first legit test as we closed at 1.94 percent last Friday. However, no close above this and no follow-through selling. Right now, we are at 1.89 percent on the 10-year yield. Markets are at all-time highs and are acting calm now. Keep a watchful eye on global and domestic PMI data. Any news from the trade war tap dance and impeachment hearings might move yields and the market in the short term.”

Jim Sahnger, a mortgage planner at the C2 Financial Corporation, said, “China, China, China! For the time being, it’s all about China, trade and tariff disputes. The days of waiting for the most recent economic reports have all taken a back seat to the latest Trump Tweet and information on whether we will have a deal or not. Currently, it looks like we will be staying range-bound for mortgage rates. Stay tuned though, if you are looking to refinance, I’d be more inclined to apply now and lock in that rate.”