Conforming Loan Costs Are Rising, Says Freddie Mac

Mortgage rates may be dropping, but mortgage costs are not.

According to Freddie Mac, the average required discount points on a conforming mortgage rate are higher by 0.1 percent since early-May.

A "discount point" is prepaid mortgage interest; an up-front fee paid by a borrower in exchange for a lower mortgage rate. In most cases, discount points are tax-deductible.

Tax-deductible or not, though, rising costs are rising costs and Freddie Mac glosses over it.  In its weekly press release, the government group offers mortgage rate comparisons to weeks prior, but doesn't do the same for required points.

The press fails to mention discount points entirely.

An increase of 1/10 percent in discount points costs homebuyers and refinancing households in Winters an extra $100 per $100,000 borrowed.

The hike reminds us that there's more to a mortgage than just its rate -- costs matter, too.  And if you've only been watching the headlines, you would have missed how costs are rising.

Should You Refinance Your Mortgage?

Because of strife in Greece, Spain and North Korea, conforming mortgage rates are back to all-time lows. They're at levels not seen in 50 years.  For homeowners that missed the Refi Boom of November 2009, it's a second chance.

In this well-presented, 3-minute video from NBC's The Today Show, you'll get tips getting low rates and choosing the best time to lock in.

Some of the topics covered include:

• Why were the experts wrong about rates moving higher this summer?
• How much money can you save with a 1 point drop in your interest rate?
• Should you buy a bigger home now that rates have fallen?

The advice in the piece is matter-of-fact and centered.  There is no cheerleading and the message is honest. Mortgage rates are low and they likely won't stay that way.  If you've been thinking about a refinance, talk to your loan officer as soon as possible.

Shopping For Mortgage Rates Is Part Research Skills, Part Luck

Shopping multiple lenders for a "good mortgage rate" can sometimes save you 1/8 percent on your rate and/or a few hundred dollars in fees. However, when it comes to getting the best mortgage rate, you're going to more than good research skills.

You're going to need some luck.

Mortgage rates for people in California or anywhere else, for that matter, are unpredictable, ever-changing, and rarely change as expected.

For example, when the Federal Reserve left the mortgage market March 31, 2010, analysts said that mortgage rates would rise by a half-percent or more. It was practically stated as fact on TV.  When April 1 came around, though, rates didn't rise.

Instead, a volcano erupted and mortgage rates dropped on safe haven buying.

Then, a week later, as  the volcano ash cleared, mortgage rates were supposed to resume their rise. Only they didn't. Instead, a debt crisis emerged in the Eurozone and mortgage rates dropped.

Since March 31, conforming mortgage rates are lower by roughly 0.125 percent, according to Freddie Mac's weekly mortgage rate survey.  At today's rates, the savings are roughly $20 per month per $200,000 borrowed -- or $100 per month based on their original, post-March 31 forecast.

It brings us to one of the most important axioms in rate shopping: You can't shop for good luck.

• On some days, rates go higher
• On some days, rates go lower
• On some days, rates stay the same

Occasionally, there are days when rates do all three.

As a home buyer or would-be refinancer, what rate you get depends on at what time of day you do your shopping.

You can't predict what will happen next in mortgage markets -- even just an hour from now. Therefore, the smartest move, sometimes, is just lock your rate now.  At least that way, you've got a guarantee.

Markets Ignore The April Jobs Report And It's Good News For Mortgage Rates

On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls report. 

More commonly called "the jobs report", Non-Farm Payrolls is a major market mover. The number of working Americans is directly tied to the health of the economy which, in turn, drives the stock and bond markets.

In general, when jobs numbers improve, it's good for stocks and bad for mortgage bonds. It follows, therefore, that conforming mortgage rates in California rise because rates always move opposite of mortgage bond prices.

Conversely, when jobs numbers worsen, it tends to be bad for stocks and good for mortgage bonds.  Mortgage rates fall.

Today, markets are behaving a bit differently.

Despite 290,000 jobs created in April 2010 -- nearly twice the expected amount -- and a 40 percent upward revision of March's numbers, mortgage rates are essentially unchanged. 

In a normal environment, rates would be higher.  Today is not normal.

Today is a departure because, for all of the jobs report's import to Wall Street, it's less important to markets than what's happening in Greece right now.

Greece is struggling to meet its debt obligations and its citizens are rioting.

Until a debt solution for Greece is made that sticks, unrest in the region will drive safe haven buying both domestically and abroad. U.S. mortgage bonds will gain on that movement because mortgage bonds are "safe", and mortgage rates will fall.

Indeed, this is exactly what's been happening since the start of April. Mortgage markets have been rallying for 5 weeks.

So, today's jobs news is terrific for the economy and mortgage rates should be rising because of it.  But, they're not. Consider taking advantage -- lock in a rate.

The Fed Adjourns From A 2-Day Meeting Today And What It Means For Mortgage Rates

The Federal Reserve adjourns from a scheduled, 2-day meeting today.  It's one of 8 scheduled Fed meetings for 2010.

Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce "no change" in the Fed Funds Rate.

The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.

The Fed Funds Rate is an inter-bank lending rate. It's also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans.  Prime Rate is equal to the Fed Funds Rate + 3 percent.  Credit card rates, therefore, will likely stay flat today, too.

Mortgage rates, however, should change.  Possibly by a lot.  The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).

The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight vrious parts of the economy, identifying strengths, weaknesses and probable threats to growth. 

These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now -- unsure of whether recent economic growth is a longer-term trend or a short-lived blip --  mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.

It's a difficult time to be shopping mortgages in California.

Further complicating matters is Greece's recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.

Therefore, if you're actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed's announcement and any major market reversal. Mortgage rates may fall today, but there's very little room for them to fall.  This is, however, a lot of room for them to rise.

The Fed adjourns at 2:15 PM ET.  Call your loan officer to lock your rate.

How Iceland's Volcanoes Are Helping Mortgage Rates Fall

Mortgage rates and home affordability have improved lately, thanks to an unlikely ally -- Mother Nature.

In the 7 days since Iceland's Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.

It's a drag on commerce that's spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table. 

In trading circles, it's called "safe haven buying". When the market gets cloudy, investors often move their cash into relatively safe assets.  This includes government-backed securities -- mortgage-bonds among them.

Demand for bonds rise, pushing up prices and driving down rates.

Conforming and FHA mortgage rates in California touched a 3-week low earlier this week.

Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There's literally thousands of influences on the U.S. mortgage market.

If you've been shopping for a home or floating a mortgage rate, luck's been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.

When that happens, mortgage rates will rise.

Therefore, use the seismic uncertainty to your advantage.  Consider locking your mortgage rate sooner rather than later -- while rates are still low.

A Rate-Locking Strategy Ahead Of The Fed's Meeting Today

The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It's the first of 8 scheduled meetings for the policy-setting group in 2010.

The group adjourns at 2:15 PM ET.

As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country's current economic condition, and the outlook for the near-term future.

The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up.  Every word, sentence and phrase is carefully dissected in the hope of gaining an investment edge over other active traders.

It's for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically re-balancing its bets.

Today should be no different.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it's been in history.  However, it's what the Fed says Wednesday that will matter more than what it does.

After the Fed's last meeting in December, it made several observations:

1. The jobs market is getting "less worse"
2. The housing sector is making improvements
3. Financial markets are stabilizing further

The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead.  Furthermore, inflation remains in check.

As compared to December's press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates to rise as Wall Street moves its money from bonds to stocks.

Conversely, reference to slower growth in 2010 should lead rates lower.

We can't know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone's guess.