Economists say that borrowers should get in now while the “getting is still good.” According to the Mortgage Bankers Association, applications rose 8.2% ending the week of May 6. The group reports that refinances increased 9%, which is the largest gain in nine weeks.
Why the boost? Falling rates. Michael Fratantoni, MBA's VP/Research says, "Rates dropped again last week as the Federal Reserve continued its asset purchase program.”
"Over this four-week span, the refinance index has increased by about 18%. Despite the recent increases however, refinance application volumes remain more than 50 percent below levels seen last fall."
Rates seem to keep falling as 30-year mortgage rates averaged 4.67%, which is down from 4.76% the prior week.
How Long Can Mortgage Rates Stay Low?
Americans may have gotten slightly disenchanted to killer rates after hearing about “historically low” mortgage rates for the last few years. Six years ago, if a borrower were to be extended a rate of 5% or less he would have gone out and painted the town red. Instead, today borrowers are holding back thinking, “If I hold out even longer, I bet they’ll knock another quarter of a percent off the rate.”
In addition to hearing about low rates for years, consumers may have also become desensitized to hearing economists warn that rates will rise as the economy recovers. In fact we experienced a slight increase a few months ago when rates tipped the 5% mark. Mortgage loan application rates decreased and many borrowers believed that they missed the last low rate hurray.
Although borrowers haven’t missed the low rate boat, it’s only a matter of time before they will. The ebb and flow of rate fluctuation is one way the economy is trying to tell consumers that we’re back in business. All signs point to a slow recovery, but make no mistake--recovery is on the way:
• Four of the last six monthly employment reports point to a more than 100,000 new jobs--something we haven’t seen in over five years
• When 30-year mortgage rates dropped below 5% for the first time in 2009 inflation was in the negative. However, today its at 2.1% and slowly increasing, which means mortgage companies will need to protect their margins by hiking rates
• March is the 11th consecutive month rates have been below 5%--the longest time for a rate to be this low on record (the second longest ran seven months). This low streak may be coming to an end.
Although economists don't expect rates to suddenly jump from 4.8% to 6%, a slow increase may be in the near future.
Taking Advantage of Low Mortgage Rates Today
If you are like many homeowners or house hunters, you feel the sting of hearing about low, low rates. With numerous homeowners underwater in their mortgage and property values down borrowers feel like dieters at an all-you-can-eat buffet.
Sure, rates are low, but who can qualify? Only those with credit scores of 700 or above are likely recipients of the low rates, leaving the rest of Americans (which equates to many) in the dust.
Luckily, you have alternatives to traditional financing. Of course your first step to home mortgages or refinance is the traditional route. Although stringent lending standards continue to plague the industry, many lenders have relaxed slightly.
However, if you simply are unable to qualify for a traditional mortgage loan, your mortgage broker may recommend you investigate one of the numerous government-backed programs such as FHA, HARP and VA lending.
- FHA mortgage loans: the most popular FHA back loan is the 203(b) fixed product. This is ideal for first time homebuyers because it allows for up to 97% LTV, requires a low down payment and closing costs. The FHA also offers special programs for energy efficient homes, adjustable rate mortgages and a graduated payment mortgage
- HARP: the Home Affordable Refinance Program was introduced to provide refinance opportunities to those underwater in their mortgage loan. Homeowners must be current on their payments and demonstrate the ability to repay the loan
- VA: special mortgage loans are available to current and retired veterans who don’t qualify for traditional mortgages
Each program is designed to provide mortgage loan insurance for those who don’t qualify for a traditional loan. An insightful mortgage lender will review you options and identify a program to best fit your needs.
All government programs have specific requirements and your mortgage broker will urge you to explore the benefits and possible drawbacks of each program.