Mortgage rates up this past week... will they go back down? (condo, loans) - New Jersey (NJ) - Page 2 - City-Data Forum

Lusitan · 05-31-2009, 08:14 PM

Back when I bought my last property, I locked in over the phone via credit card -- I don't think they'll accept a check in the mail for the rate lock, but perhaps every bank does it differently.

Sergio's advice to get an ARM is probably the worst thing you can do at this point. All it takes is a passing attention to the news to see that people who locked in teaser ARM rates for 3 or 5 years and then found themselves unable to afford their mortgage payments when the rates adjusted upwards (and unable to refinance because they were underwater on their mortgage!) are a dime a dozen these days. Don't put yourself in that position -- my advice is not to buy anything now until the housing market stops sinking, but if you are financially secure and choose to buy anyway, definitely lock in a fixed rate for the life of the loan.

Good luck.

Lusitan · 05-31-2009, 08:17 PM

Quote:

Originally Posted by bababua

As this entire economic situation has taught us nothing is out of the question. Higher rates anytime in the near future would ruin the real estate market worse then it already is ruined. Rates will stay somewhere around 5 to 6 for the next year or so.

China may have something to say about that ...

elflord1973 · 05-31-2009, 08:18 PM

Quote:

Originally Posted by mtoneil

The $500 buys me a float-down option, which apparently can be payed at anytime. But only once the money clears can I actually lock the market rate in again, hence the benefit of pre-paying. Does this sound fishy to you? Like I should be able to just verbally lock in the new rate so long as the $500 is received within the next few days.

It doesn't sound fishy, but correctly pricing and valuing options is tricky. I can't make a blanket statement as to whether or not it's worth it without crunching the numbers carefully.

I am a little surprised that they market this to ordinary consumers. At my brokerage, you need to apply for special permission just to be able to buy stock options, but here they are selling interest rate derivatives to people without even a rudimentary grasp of finance or economics.

So my inclination would be to suggest that the bank probably know how to price the option, and won't sell it to you for less than its worth. You on the other hand probably don't know how to price the option correctly, so you are likely to end up paying too much for it.

elflord1973 · 05-31-2009, 08:26 PM

Quote:

Originally Posted by Sergio M

I just received a letter from my lender for the rate adjustment on my mortgage, the new rate will be 2.85. This is an ARM and overall have been way ahead of the rates. If you want a better rate, go ARM.

What are you going to do when teaser period expires, the rates come back up and the ARM resets ?

Sure, if you made a decent down payment, and/or the low rate allows you to take a chunk out of the principal, then you will be able to refinance. The problem is, you'll be refinancing at 8-10% whereas those who lock down fixed rates today get 5%.

mtoneil · 05-31-2009, 08:30 PM

Quote:

Originally Posted by Lusitan

Sergio's advice to get an ARM is probably the worst thing you can do at this point. All it takes is a passing attention to the news to see that people who locked in teaser ARM rates for 3 or 5 years and then found themselves unable to afford their mortgage payments when the rates adjusted upwards (and unable to refinance because they were underwater on their mortgage!) are a dime a dozen these days. Don't put yourself in that position -- my advice is not to buy anything now until the housing market stops sinking, but if you are financially secure and choose to buy anyway, definitely lock in a fixed rate for the life of the loan.

I do agree with this advice, which is why I've only pursued a fixed rate mortgage.

mtoneil · 05-31-2009, 08:32 PM

Quote:

Originally Posted by elflord1973

It doesn't sound fishy, but correctly pricing and valuing options is tricky. I can't make a blanket statement as to whether or not it's worth it without crunching the numbers carefully.

I am a little surprised that they market this to ordinary consumers. At my brokerage, you need to apply for special permission just to be able to buy stock options, but here they are selling interest rate derivatives to people without even a rudimentary grasp of finance or economics.

So my inclination would be to suggest that the bank probably know how to price the option, and won't sell it to you for less than its worth. You on the other hand probably don't know how to price the option correctly, so you are likely to end up paying too much for it.

Yes, what you're saying is perfectly logical. Essentially the bank must be betting that the rates will continue to go up, thereby earning a free $500 from me. However there is always that "what if" factor. If rates go down even a little bit, I would earn it back in a reasonably short amount of time. Everything in the economy is so volatile right now, it wouldn't surprise me if rates dip again, even if only for a short period of time.

millsan1 · 05-31-2009, 08:36 PM

If the $500 option is available to me, I will take it. Depending upon the size of the mortgage, your bet could be returnign something along the lines of 100s to 1. Meaning, for a $500 bet, on a $500K mortgage, if rates drop 1/2% you could save $200 to $300 a month 360 months of a mortgage, you make your money back many times over. If rates go up, you lose $500. Basically, in order for this fee to pay off, you would only have to lower your payments $2 per month to make it worthwhile over the life of a loan. But even if you only plan on being in a home for 5 years, that is 60 months. If you can get a rate change that saves you $10 per month, it pays off. So in my mind, this is a no-brainer.

Downside, waste $500
Upside, save hundreds, to tens of thousands over the life of the loan.

mtoneil · 05-31-2009, 08:37 PM

Quote:

Originally Posted by Lusitan

Back when I bought my last property, I locked in over the phone via credit card -- I don't think they'll accept a check in the mail for the rate lock, but perhaps every bank does it differently.

I was told to send in a check. But that's a good idea, I should ask if I could give a credit card over the phone.

Quote:

Good luck.

Thanks

mtoneil · 05-31-2009, 08:42 PM

Quote:

Originally Posted by millsan1

If the $500 option is available to me, I will take it. Depending upon the size of the mortgage, your bet could be returnign something along the lines of 100s to 1. Meaning, for a $500 bet, on a $500K mortgage, if rates drop 1/2% you could save $200 to $300 a month 360 months of a mortgage, you make your money back many times over. If rates go up, you lose $500. Basically, in order for this fee to pay off, you would only have to lower your payments $2 per month to make it worthwhile over the life of a loan. But even if you only plan on being in a home for 5 years, that is 60 months. If you can get a rate change that saves you $10 per month, it pays off. So in my mind, this is a no-brainer.

Downside, waste $500
Upside, save hundreds, to tens of thousands over the life of the loan.

Thanks. My reasoning was just the same. My mortgage is not that large (266k), but if rates approach 5% I will save ~$60 a month. Worst case scenario I lose $500 upfront. Losing a one-time fixed amount isn't too bad. The possibility of a recurring fee being cheaper though is obviously very tempting.

JG183 · 05-31-2009, 08:43 PM

Quote:

Originally Posted by bababua

As this entire economic situation has taught us nothing is out of the question. Higher rates anytime in the near future would ruin the real estate market worse then it already is ruined. Rates will stay somewhere around 5 to 6 for the next year or so.

for once, I agree with you