Chicago Mortgage Rate Quotes - Currently Shopping Around?

                                               Conforming:                       Jumbo:

30 yr                          6.375%                               7.500%

5/1 ARM                    5.875%                               5.625%

7/1 ARM                    6.125%                               5.875%     

SHOPPING CURRENT MORTGAGE RATES AND LENDERS

Whether buying their first home or tenth home, consumers have yet to be given clarity on when and why to lock a loan.  The following information will help provide guidance on this issue.

THE BASICS: WHAT TO EXPECT TO GET A RATE QUOTE - REAL TIME OR PAST TIME?

Be certain to acknowledge to yourself that obtaining a phone/email/fax quote should only be used to get a feel for where market average rates and prices at various lenders are within that given moment, and never a determining factor of when or with which lender to lock.  There are a couple of reasons for this.

  1. The inability to lock the quoted price.  Unless a lender has obtained a signed purchase agreement, a signed loan application and loan approval (pre-approval with supporting documentation from the borrower is fine), the ability to lock in is not possible due to property address and social security number identifiers needing input into any investor lock request (usually online or through some type of automated application).  This is an industry-wide requisite.
  2. If at any time supporting economic data (daily reports bond traders watch) comes in that effects the mortgage market positively OR negatively, pricing could change from the minute the rate quote was obtained...to the minute after...just that quick, literally.  Phone quotes or internet/print ads are good for getting a general idea of pricing according to when that pricing was published (usually 10:30 am) but could have sustained substantial loss or improvement, either way, since the initial pricing.  Further explanation of this is in the next section  "understanding the markets".

Lastly, professional Mortgage Planners, Attorneys, Tax Strategists, CFP's and the like, whom are at the top of their industry, will need to obtain a reasonable amount of information from any client to whom they will be quoting a price prior to the quote being given.  This is to ensure accuracy and avoid liability through misstatement from the professional's standpoint.  Many lending institutions will quote interest rates without having any information about a potential customer.  What this essentially equates to are numerous assumptions about the customer (usually best case scenarios) being made by the lender and inaccuracy, at best, can likely occur.  The borrower should always be prepared to supply general information and authorize a credit check to procure accurate quotes for progam eligibility, rates and fees.

UNDERSTANDING THE INTEREST RATE AND MORTGAGE MARKET - WHEN AND WHY TO LOCK OR FLOAT

Mortgage rates are affected by the the day to day trading of mortgage bonds (mortgage backed securities or "pass through" certificates) in the bond markets.  This activity of buying or selling MBS are based upon indicators and information driven by economic, inflationary and fiscal data coming out daily or weekly.  Since current mortgage rates are based on real-time MBS markets, the price typically shifts up and down all day long as with any other stock, commodity or security instrument on the exchanges.  Mortgage rates published in the morning can be 1/8th to 5/8ths different (either way) by the afternoon depending upon the level of volatility in mortgage bond trading.

Should you really try to time the markets yourself?  If you're a professional bond trader, have access to real-time market data and financial charts and can decipher current movement in those charts based on that data, expectations of that data, what the data came in at... and to what degree it will affect bond pricing, then give it a shot.  For most consumers, the closest they can come to timing when to lock would be to call 10-15 lenders per day, every 30 minutes at a minimum, and that could get relatively close to what a trusted mortgage professional with access to this key information could obtain without the strenuous effort involved on the consumer's part.

I and my team know xx bps in adjustment would lead to intraday repricing one way or the other... understanding the bearish or bullish reversal trend may be just temporary... what floor of support and ceiling of resistance impedes movment... and how to handle it without any risk of the consumer losing a good peak in rates when the time comes to lock in the interest rate.  Generally, only experienced mortgage planners and MBS traders can discern what is or is not risky in terms of locking.  Simply put, retain the professional so you never have to worry about mortgage interest rates moving out of favor and being guided to lock at the right. 

Example for thought:  If the closing is not for a month or so out... and the mortgage planning team knows virtually for certain pricing will improve prior to closing... why would a borrower lock now?  He or she probably should not.  Or vise-versa; should mortgage rates likely worsen, we would advise not to float.  Experts would watch closely and lock in at the best possible time for the client.  The following chart illustrates this. copyright MMG, 2007.

candlestick chart

FINAL ADVICE FOR RATE SHOPPING

Advice and quality does have its price.  Money, itself, is the commodity.  However, the individual whom supplies the money to you after a thorough solution-providing analysis, is not.  The question you have to ask yourself in making your decision to work with someone is: Who has taken the time to educate you, prepare you, answer your questions, is certified and demonstrated a way to help you save 5 to 6 figures over the course of the relationship and your life?  Haggling over a quarter (.25) percent in rate could keep you from finding and working with some of the most elite professionals in mortgage banking; the kind who really can make a difference in your life.

Think of it this way:

Your current bank, Bank A, pays you 2% on your savings account funds.  Bank B wants your money to invest and promises to pay you 2.25% on your money in their savings account.  Clearly, this is not enough of a difference to move funds from your current bank to the new one, close the account, go through the due process opening a new account only to capitalize on .25% (a quarter of one percent) growth on your money.  The same holds true in BORROWED funds and debt.  Finding a competent professional to handle all aspects of home acquisition and closing process certainly is much more valuable than attempting to secure .125-.250% better in borrowed cost (your interest rate), restart a process, subject yourself to timing the market to lock in, spend more fees etc.  Certainly, a lender could not be 1-2% over the average market interest rates and be competitive.  .375% or less in difference of note rate from one scenario to another is a minimal cost.

RESEARCH

This is an important component of any large financial transaction.  The home is one of, if not the largest, financial investments a person will make in their lifetime.  Given the importance of the home investment and loan obligation, working with a professional that knows his or her industry is paramount to success in debt accretion, taxation control and equity management.

When shopping, the following questions should be asked of potential mortgage professionals to assure the consumer that the mortgage professional answering these question indeed has a handle on his or her industry and, directly, the consumer's best interests.

  • What are interest rates based on?  Mortgage interest rates are based on the yields of Mortgage Backed Securities (pass through certificates) or Mortgage Bonds.  These bonds are bought and sold daily by large investors.  Bond prices, just like stocks, fluctuate by the minute.  Mortgage professionals like to see bond prices rising.  If your mortgage lender states that rates are based on Fed Funds rates, the Prime Rate or Treasury rates (10 yr note), they are mistaken and this should be a cause for concern.  (While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.  DO NOT work with a lender who has their eyes on the wrong indicators.  How can you be certain to lock in at precisely the right time?)

  • What’s the next economic report or event that may cause interest rates to move?  Bond Markets are concerned with the pace of economic growth and inflation.  Generally speaking, mortgage bonds move opposite the stock market.  So as the stock market improves, mortgage bonds generally drop in price (bad for interest rates).  The markets move according to various data and reports coming out on a daily or weekly basis.  Stronger or weaker than expected data can instantly shift the markets for better or worse.  We have the ability to know which data to lookout for and what action to take according to the outcome of that data.

  • When Bernanke and the Fed “change rates”, what does this mean... and what impact does this have on mortgage interest rates?  The Federal Reserve Bank only controls the Discount Rate and influences the Fed Funds Rate, components of short term rates and the Prime Interest Rate.  This is very different from mortgage rates.  A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.  Again, the mortgage bond market controls mortgage interest rates.  In fact, very often mortgage rates travel in the opposite direction of the Prime Rate. (On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to commodities, stocks and bonds competing for the same dollars.

  • What’s happening in the market now and should I lock or float?  There is more than sufficient market information on a daily basis that allows a mortgage professional to recognize trends and to act accordingly.  For instance, as noted above, if the employment numbers are to be released tomorrow and you are not locked in on your interest rate for your new mortgage loan, it would be imperative that the proper research be done to analyze potential market direction and determine whether to lock or float your interest rate.  A response such as “Gosh, if I could predict the future I wouldn’t have to work for a living” would be a red flag that your mortgage professional is not engaged in their industry.  Again, I am an expert at mortgage market conditions and can lock in when the time is exactly right.
CALL
JON MILLER
DIRECTLY AT:
312.738.6013 jmiller@chicagobancorp.com