Rates at All Time Lows!?
Fact or Fiction and Why You should Care.
Rates at All Time Lows! Refinance Now! It doesn’t get any better than this!
You hear this all the time on media outlets and loan advertisements alike.
It’s just a teaser to get people to call, right? Or is it a reality? Are rates still dropping?
You’re smarter than that. How can we literally be hitting new lows every other month? We’re not. But, it doesn’t really matter.
Let me explain.
The chart below illustrates the 10 Yr Bond Yield over a 2 year horizon. The reason I’m showing you this chart is because most financial commentators tie mortgage interest rates to this indicator directly, even though it’s not 100% accurate. The 10-Year Treasury doesn’t directly affect mortgage rates, but since A) it is a supposedly risk-free investment and B) the VAST majority of mortgages are held for less than 10 years, the two rates tend to move in tandem—meaning, if you can earn the 10Y Treasury Yield “Y” without incurring any risk, or you can incur the risk of lending “R” and earn the current mortgage interest rates “I”, then roughly, Y + R = I.
So when Y changes and R doesn’t, mortgage rates will change too.
Remember Part B above...it’s important. I’ll come back to it later.
Index Tracking 10 Year Treasury Yield, currently at 1.74% as of February 8, 2016
(Link to this ^TNX chart in Yahoo! Finance is here)
Clearly, we haven’t got quite as low as we were last January (2015) as of this writing. We’re close, but not quite. And if I was to overload you with more charting, you’d see that we are NOT as low as the effective “real” all time low back in 2012.
I led with this comment, and I want to explain it: We are not at all time lows but this does not matter to you.
Today, the 10 yr Bond yield hit a recent low that we haven’t seen since January of 2015. When it hit this low last year, it bounced up quickly, and many people missed the free money on the hook before the market pulled back the fishing line.
What does this actually mean for YOU?
This means that the 3.25% option is again potentially available on a refinance with no costs, depending on the situation.
First you have to sift through the noise of what you hear on the radio, online and news and try to understand what is really going on. Many of the rates quoted include points or origination fees to make the rates sound lower.
And you know this, so you do nothing. There’s always a catch, right?
The reality is that over this 5 year time horizon, the rate of 3.25% on a 30 yr Fixed for a VA Loan is typically the lowest option with No Points/Origination included. There tends to be strong resistance when we get down to this level, because if rates get too low, there becomes little point for anyone to incur the cost of lending you money.
And that’s where we are there right now.
Today’s 3.25% should include an abundance of lender credits to help with (or completely offset) closing costs on either a Purchase or a Refinance.
APR varies with loan amount and amount of credits. We’ll give an estimate of 3.32% for compliance sake, but if you do get a true “no-cost” loan your APR will just equal your interest rate.
The difference between the July 2012, January 2015, and the current level is just how much in lender credits are/were available at 3.25%.
This means that the 3.25% option is potentially available on a refinance with no costs, depending on the situation.
You can have a lower rate, sure. You’ll see them advertised everywhere. 3%! 2.875! But you’ll have to pay for that. Watch your APR’s.
I am going to walk the line here between information and advertisement, and I don’t want to confuse the two. Everything above should hold true as objective fact, no matter with whom you speak. Below is about us.
A quick introduction to who I am: 10 year mortgage industry insider, originally licensed as a Financial Advisor, moved into mortgages in 2006 around the time I finished my Master's in Business Administration with an emphasis in Finance. As we say in my family, we covered all of our bases. I went to Grad school, and all three of my brothers joined the Army—one as an Officer, one in the Honor Guard (though later reenlisted and saw combat), and one Infantryman in the 101st Airborne. I run an online blog that seeks to help military families improve their financial lives by sharing my experience. My business partner, who is a loan officer and a good one, has specialized in VA Loans for a decade.
When you browse our site, VAFinances.com, you’ll see that I do most of the writing, and I encourage you to call him for the lending. We have a newsletter that has info you won’t always find on the blog, and we’d love to have you join. Like many bloggers do, I offer a book that I made as an incentive for signing up. It’s a good one, or so I hear: 5 Most Common VA Loan Mistakes (some good insight in what not to do). If you can’t tell, you get fairly straight talk from me. No one has time for anything else.
If you have questions, feel free to email them directly to me at firstname.lastname@example.org or if you would like us to help you with figuring out if this is the right time for you to pull the trigger, you can call my partner Joel @ 314-956-1580.
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