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Record low rates could be lower

By Holden Lewis ·
Thursday, September 23, 2010
Posted: 10 am ET

Bankrate's weekly mortgage rate survey is a snapshot. For the weekly survey, our researchers query the same 100 lenders every week -- 10 lenders in 10 large markets. It takes just a few hours, and most of the work is done in the morning. The result is a snapshot of a brief moment. Maybe a better metaphor is that we emerge with a single frame in a motion picture.

In yesterday's survey, mortgage rates fell to modern-day record lows. The 30-year fixed fell to 4.5 percent. This week happens to be the 25th anniversary of Bankrate's weekly survey of the 30-year fixed, and it happens to be the record low.

Meanwhile, mortgage rates were dropping through the morning. We snapped a shot of the 30-year fixed at 4.5 percent, but if we were making a movie, we most likely would have shown mortgage rates descending below that mark, before hitting a floor around mid-day.

Different surveys use different methodologies, occasionally ending with conflicting results. For example, began doing a weekly survey this year, and this week's survey shows a slight increase in the average mortgage rate offered.

When you look at the yields on mortgage-backed securities, it's apparent that mortgage rates could be lower. Essentially, banks' wholesale cost of money has gone down a lot, and they have passed on only some, not all, of the savings to consumers. (Note to bankers and brokers: Yeah, I know what wholesale lending is. I'm talking to consumers, not to you, in terms that consumers can easily understand.)

Cameron Findlay,'s chief economist, explains: "Spreads have widened, meaning rates -- although currently low -- could afford to go lower, but remain relatively high due to the volume of applications hitting the market. This translates to rates being disproportionate between lenders, for example, lender (A) offering a rate of 4.25 percent and lender (B) 5 percent."

When lenders have as many applications as they can handle, they can stop the flow of new applications by raising rates. That's what Findlay is saying. This is why, at a time of high loan volume like today's, it pays to shop around.

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October 01, 2010 at 9:30 am

I have Wells Fargo. They offered me this free "3 Step program" to refi. It is locked at 4.6. Why did I not get a lower rate like 4.3 or even 4.5?
They told me I can't unlock it.

September 26, 2010 at 5:09 pm

Is there any good place to learn how to calculate the break even period?

Holden Lewis
September 24, 2010 at 4:10 pm

I want to split the difference. I think today's increase is a mark of volatility. Traders are wrapping up for the weekend, and so mortgage bond yields went up today (Friday). And you didn't ask this, but yes, rates have gone up since Wednesday. Your loan officer didn't give you a line of BS.

When rates are this low, I'm always an advocate for locking as soon as you can. If you do -- let's say you lock early next week -- and then rates fall slightly, it's not the end of the world. Kind of frustrating, but not a disaster.

September 24, 2010 at 4:08 pm

I made an offer to a unit in a new duplex in the Boston area and it got accepted on Sep 15th. I am putting 20% down and the loan in slightly above the conforming loan threshold. In the middle of the week, I was offered 30yr fixed loans as low as 4.375% but even when I wanted to lock, I could not because of logistic/ timing issues. I learned today that the rate went up to 4.5% for the same loan.

I am just wondering if I should lock soon or see how this plays out next week. I have about 6 weeks to closing. Basically, is today's slight increase in the rates just volatility or is this a trend.


September 23, 2010 at 1:40 pm

I'm looking to lock in on a 30 yr Fixed mortgage rate, as I'm moving out of state for my work. The seller won't pay closing costs (it's new construction) but will roll the closing costs into the price of the house. Is this a good option? Should I include the escrowed items as well?

Holden Lewis
September 23, 2010 at 1:39 pm

You'll end up paying interest on the closing costs, which makes them very expensive in the long run. If you can comfortably pay them out of pocket, that's probably the way to go. Same with escrow items.

It sounds like the seller believes you're already getting a good deal, because the seller seems to believe that the purchase price, plus closing costs, would fall within the appraised value.

Debra James
September 23, 2010 at 1:02 pm

I have refinanced my home a couple of times, and the main thing that I learned is that closing costs are negotiable. First, you are not required to use the escrow agency selected by your mortgage company. Often times they are owned by the same parent company, and do not offer the best rates for the service they are providing. If you shop around, you will probably find that there are some escrow companies that have flat rates for loans under a certain amount, and are usually cheaper that the bank's selection. Second, question every fee that is listed in your HUD-1, especially the calculation of the prepaid interest. They always give themselves a buffer, because they don't know the exact date the loan will close, but make sure they refund you the correct amount when the loan actually finalizes.

This may sound like adding more work to an exhausting process, but it helped me to save almost $500 on my last refinancing.

Holden Lewis
September 23, 2010 at 12:42 pm

It's impossible to answer that question definitively, because it depends on the property and the loan. In the context of today's mortgage lending, it's a small loan, and therefore there's not much profit to be made from selling it on the secondary market. So, to make the loan profitable, you'll end up giving those profits in the form of the fees you pay. Your lowest closing costs will probably come from refinancing with the current lender.

There's another possibility to consider. If the condo is worth at least twice as much as the $65,000 mortgage balance, you could consider getting a home equity line of credit (or home equity loan), and using that money to pay off the mortgage. The closing costs would be low. With a HELOC, the initial interest rate would be low, but of course it will rise a lot in future years.

September 23, 2010 at 12:29 pm

I'm trying to refinance my condo, I live in Hollywood Fl. I find the process to be quite frustrating as far as the quotes for closing costs. I want to refi 65,000 from a 30 year to a 15 year, what is the most I should be paying for closing cost?