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Tuesday, June 3, 2014

This Week In Your Wallet: Mortgages, Marriage and Moolah, Oh My by Jean Chatzky

Jean Chazky

If you’ve been reading the same papers I have this week, then you’ve likely noticed the headlines swirling about falling mortgage rates. The average rate on the 30-year fell to 4.12% according to Fannie Mae, the average on the 15-year to 3.25%. This is one-third of a point lower than the highs that hit late last summer, but also about a point higher than the lows of recent years.

What’s driving rates down? Not dismal economic news. Rates tend to fall when data is released showing that the economy is slowing – and rise when we get reports that it’s improving.  We got the latter this week. Consumer confidence is up according to The Conference Board. Durable goods orders are rising.  And, according to a recent Gallup Survey, the amount consumers are spending on a daily basis – at $98 -- is at a six-year high and $10 over the April average.

The take from Bankrate.com: The markets don’t seem to believe the economy is headed for a roar -- more like a “slow growth, low inflation” period of the sort that supports bond prices (yields on 10-year Treasuries are akin to 30-year-mortgage rates). There’s also some sense that the housing market, while improving, has a decent amount of ground to make up before it’s fully recovered.

So what does this mean for you going forward? I was asked that question this week on Twitter: @natehyde wrote: Do you foresee the rates for the 30 yr getting into the 3’s?

I don’t, and neither do the forecasters at HSH.com. According to their most recent weekly post: “Will mortgage rates continue their slow downward drift next week? Probably. Are they confounding expectations, including ours? Yes….For our part, we think the [upcoming] news will be pretty solid, and both stocks and interest rates may firm a little bit.”

If you’re shopping for a loan, take a look at hybrid products that can lower your rate, while not dramatically increasing the amount of risk you’re taking. Last week, The Wall Street Journal wrote about a 15/15 adjustable rate loan from PenFed Credit Union. Like other ARMs (5/1s, 7/1s, etc.), it’s fixed for the first part of the term, then adjusts a single time. Right now, the starting interest rate is 3.65%. If you think (or even know) that you’ll be out of your house by then, that can be a smart move. Likewise, Bankrate Senior Financial Analyst Greg McBride has seen 5/5/20 adjustables, which are fixed for the first five years, then adjust and hold for another five, then adjust once again. “These are products that warrant consideration for people who are not using them as a crutch of affordability,” he says, noting that using an adjustable to buy more home than you could really afford was a big problem when the housing market collapsed. “They’re for people who have plenty of cash flow to make the payments, but are disciplined enough to put the savings into other investments.” 

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