In the last edition of Arizona Mortgage News, local expert Mike Goblet of United Mortgage and Financial Groupcovered the changes in qualified mortgages. Today he addresses, among other things, what will happen to rates in 2014.
The short answer: rates are going to go up. In this video, Mike will shed light on why, and how long it’s going to take to see those changes. Mike explains that, while it’s not an absolute, generally when the stock market’s going up, mortgage rates are getting worse, and when the stock market’s going down, mortgage rates are improving or, at least, staying the same.
Mike will also address the proposed “g-fee” and why the date of its implementation is still uncertain, as well as the doubling, or even tripling cost of flood insurance across the U.S., and the unexpected benefit of an adjustable rate mortgage in this market.
Learn all this and more in this informative video, or contact United Mortgage at 480‑503‑3533, or visitwww.unitedmortgagefinancial.com.
Matt O’Brien: Well, welcome back to another segment of Arizona Mortgage News “Insider Update.” We’re here with our resident expert, Mike Goblet of United Mortgage and Financial Group.
Good to see you, Mike.
Mike Goblet: Good to see you, Matt.
Matt: We’re hitting these new topics in 2014. I know you wanted to discuss some of the changes and things that we need to be aware of in this wonderful new year.
Mike: Yeah, we covered in the last video about what the changes are with regards to a qualified mortgage and what it will mean to guidelines and things, but I’m sure people are wondering, “Where are rates going to go in 2014?”
Matt: Well, that’s a good question. I’m thinking rates are going up.
Mike: You’ve heard the old saying, “If only I had a crystal ball.” Everybody falls back on that, particularly, old‑mortgage people. Candidly, on a day‑to‑day or hour‑by‑hour basis, you need a crystal ball because you don’t know what’s going to happen, but trends are there and indicators are there of what’s going to happen on a long‑time basis.
Candidly, you don’t need a crystal ball. You’re 100 percent correct, rates are going to go up, but understanding why and how long it’s going to take is part of the key.
Matt: We’re concerned and intrigued. Enlighten us.
Mike: You and I both have felt that rates will continue to rise. But let’s go back for a moment and remember, where do rates come from? They really come from this stock market, if you recall, but they operate in what’s called mortgage‑backed securities on the bond market.
Bonds are a safety venue for investors and where they go to protect their money. When stocks are doing poorly, it takes little incentive to get people to put money into bonds. There’s little they have to do in order to get people calm.
Rates have been going up, for instance, today, because the stock market is down 100 points, so there’s no need. But when the stock market’s doing well, like it has been doing in the past, to bring investors over, they have to increase the yield. That comes from the yield spread and everything that they have to give investors, and that’s what causes rates to fluctuate up.
It’s not an absolute, but generally, when the stock market’s going up, mortgage rates are getting worse, and when the stock market’s going down, mortgage rates are improving or, at least, staying the same. That’s a generalization in terms of where they come from.
What we’ve been seeing in the past… Again, the stock market’s been doing well, so rates have been going up, but we’ve also had an artificial influence with the QE3, or the quantitative easing, that the Fed has been doing. As everyone’s probably aware, they’ve announced they’re slowing that down. They’re slowing down their purchases and, candidly, that’s going to cause an increase in rates just by itself.
Matt: Interesting.
Mike: As they keep doing the quantitative easing as the economy shows to be healthier, rates are going to be inching up to a more natural level. Don’t forget, the average over the past history of mortgages, seven percent is what the average rate is in the history of mortgage rates. We’re still in the fours, incredibly low.
Matt: Well, it’s still a good time to think about it. Overall, if there’s going to be less purchases going on, that would mean that there’s going to be more inventory on the market?
Mike: That’s a positive sign. I’ll get into that as well, but there are other things that are going to effect mortgage rates.
Actually, one thing that was supposed to go into effect already this year was what’s called the g‑fee increase. This is space by Fannie and Freddie, additional basis points they were going to put into mortgages to protect themselves with their guarantee. That’s why it’s called the g‑fee.
Candidly, this was supposed to have happened, but the head of the Consumer Financial Protection Bureau, Matt… Bottom line, he’s put a temporary hold on this. So it did not take effect as it was supposed to, because he wanted to see what this impact was going to be. Mel Watt, that’s the name I was looking for. Mel Watt. He’s put a hold on that until he can evaluate it. That’s the good news.
But the fact is that it’s likely to be coming, so rates will go up, not only because of quantitative easing but also because of the g‑fee increase that Fannie and Freddie are going to put on loans.
Additionally, all lenders and Fannie and Freddie are going to put on what they call loan‑level pricing adjustments that get into DTI, that get into how much money you’re putting down, that get into what your FICO scores are. Those are scheduled for an increase, as well. Those are going to increase rates.
Where will rates go? They’re going to go up. Don’t forget, I talked about those loans that don’t hit a qualifying mortgage and fall into a different venue. Those are going to be called high‑price mortgages. The expectation is, those are going to have a one to one and a half rate above whatever a conventional conforming loan will be that hits the qualified mortgage or the QM. That’s going to add.
Candidly, to show you where it’s going, Wells Fargo has projected that 40 percent of their new loans are going to be non‑qualified mortgages or those high price mortgages. There’s going to be a thing where…
[crosstalk]
Matt: [indecipherable 6:24] has not gotten any better through all these wonderful changes.
Mike: No, they’re not meant to be. They’re designed to protect the industry from collapsing, but they will definitely affect the consumer on where rates will be.
Another big issue, if anybody needs flood insurance, it’s doubling and tripling in terms of cost for 2014. That’s going to be huge.
[crosstalk]
Mike: Say that again.
Matt: I said, look out for those in the Midwest.
Mike: Yeah, any place. Talk about New Jersey, just anywhere along the Mississippi, all the way down to New Orleans. If you need flood insurance, expect to pay significantly higher rates.
The ultimate question, besides going up, where do I think rates will be? It’d be easy to evaluate that by the end of the year, rates will be up to about 5.5 percent. Still very good, but that’s about a point higher off of par pricing than where we are right now.
What does that mean, a point? If you had a $250,000 loan at today’s pricing, assuming 4.5 being close to par pricing, that would have a principle and interest payment of $1,267. If at the end of the year rates are 5.5 percent, that same loan at 5.5 would have a principle and interest payment of $1,419. That’s $152 a month increase, or 12 percent higher than what it’s currently at now. That’s going to affect a lot of people.
Matt: Locking in to a fixed rate would seem like the best option.
Mike: It would. If you’re going to get into a mortgage, obviously, try to do it as soon as possible. Whether you’re looking at purchasing or whether you’re looking at refinancing, if you have the capability of doing it early, do it as early as you can.
I’m going to throw something else out there, too, that might sound a little counterintuitive. Also, if it makes sense, if the consumer’s in the right circumstance, look for an adjustable rate mortgage or non. What I say makes sense, not just because it’s a lower rate, because they’re about a point or even a point and a half lower than what a conforming loan is.
If you think or are very confident that you’re only going to be in that mortgage anywhere less than 5 or 10 years, then it could make a lot of sense to be looking at the adjustable rate and saving interest money, because that’s what it’s all about.
Matt: Makes sense.
Mike: Even the period of time after it adjusts, depending upon the particular the ARM you’re in, it can still be very safe. Adjustable rates mortgage, particularly as the 30‑year fixed rates climb, may make even more sense as we go along. But again, it has to make sense to your circumstance and not just go for it because it’s the lowest rate available.
Matt: This is interesting. That seems a little counterintuitive to concerns of rising interest rates and doing adjustable rate, but then again, if you’ve got more of a short‑term plan, then you’re going to put some money in your pocket.
Mike: Exactly. A good window is 5 to 10 years. If you expect to be out of that mortgage within 5 to 10 years, a consideration an ARM can make sense.
If equity is important to you, make a fixed‑rate payment. In other words, I always use the example, the difference between taking out a 15‑year term mortgage versus a 30, but making a 30‑year payment or making a 15. Take out a 30‑year but make a 15‑year payment adds about eight months onto the life of that loan.
You have the protection of making the lower payment, but you all these advantages, or most of the advantages, of taking out a 15‑year term. Even if you take out an ARM and you want to worry about equity and everything, make a bigger payment, but you’re not forced to make it.
Matt: Good advice. I like it. Might have to use that.
Mike: Very good, Matt.
Matt: Mike, this is good information. For those who want to get in touch with you, what’s the best way to reach out?
Mike: Our office number here at United Mortgage Financial Group is 480‑503‑3533. If you want to call me direct on my cell, I’m happy to take your call at 480‑220‑2329. Of course, we have email available at Mike.Goblet@ our company initials, @umfginc.com.
Matt: Very good. Well, thanks for sharing some of the forecasting and things to look for in 2014. We’ll look forward to our next session with you.
Mike: Thanks, Matt. Let’s talk about where the housing industry is going to go and what will that mean to rates and to potential buyers and sellers.
Matt: Sounds good.
Mike: Talk to you later, Matt.
Matt: Thanks, Mike. Bye.
via:http://www.arizonamortgagenews.com/arizona-mortgage/forecasting-2014-mortgage-rates/
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