Economy Has Added Jobs in 15 Straight Months

This week, once more, we find mortgage rates are on a downward trajectory. Conforming mortgage rates have returned to near all-time lows. After Friday morning’s Non-Farm Payrolls report, however, those low rates may come to an end.

It’s a risky time for Iowa home buyers and would-be refinancers to be without a locked rate.

Each month, on the first Friday, the Bureau of Labor Statistics releases its Non-Farm Payrolls report for the month prior. More commonly called the “jobs report”, Non-Farm Payrolls provides a sector-by-sector employment breakdown, and the nation’s Unemployment Rate.

In December 2011, the government reported 200,000 net new jobs created, and an Unemployment Rate of 8.5%.

For January 2012, economists project 135,000 net new jobs with no change in the Unemployment Rate and, depending on how accurate those predictions are proved, FHA and conforming mortgage rates for homes in Downtown are subject to change. The monthly jobs reports tends to have an out-sized influence on the direction of daily mortgage rates.

Connection Between Jobs & Mortgage Rates is Fairly Direct

Job growth is a key cog in the economic growth engine and mortgage rates change daily based on short- and long-term economic expectation. As more people join the workforce, economic expectations change; the economy tends to expand, breeding optimism among investment. When this occurs, it often spurs investment in the stock market, which tends to leads mortgage rates up.

In short, in a recovering economy, when job growth is strong, all things equal, mortgage rates rise. Home affordability suffers.

So, for today’s rate shoppers, Friday’s job report represents a risk. The economy has added jobs over 15 straight months, a streak that’s added 2.1 million people to the workforce. Although the jobs market remains weak and well off its peaks from last decade, a 15-month streak is worth watching. More jobs means more more income earned nationwide, more money spent by households, and more taxes collected by governments.

If tomorrow’s Non-Farm Payrolls shows more jobs created than the estimated 135,000, mortgage rates are expected to rise. If the jobs figures falls short, mortgage rates should fall.

As Economy Grows, So do Rates

Consumer spending continues to rise nationwide, fueled by jobs growth and a rosier outlook for the U.S. economy. Unfortunately for mortgage rate shoppers Iowa, it may also lead to higher mortgage rates later this week.

Thursday morning, the Census Bureau will release its U.S. Retail Sales data for December. The report is expected to show an 18th consecutive monthly increase, with analysts projecting sales volume higher by 0.4 percent from November.

This would be double the increase from last month, which saw a 0.2 percent increase in Retail Sales.

The Retail Sales report tallies receipts collected by retail and food-service stores nationwide. When the sum of these receipts rise, it puts pressure on mortgage rates to do the same. The connection is straight-forward.

Retail Sales are the largest part of “consumer spending” and consumer spending accounts for the majority of the U.S. economy — up to 70 percent, by some estimates.

As the economy goes, so go mortgage rates.

Expect Higher Rates by Tomorrow

Remember: today’s ultra-low mortgage rates have been partially fueled by weak economies — both domestic and abroad — going back 4 years. Stock markets have sold off as economies have faltered worldwide, leading investors to seek refuge in the relative safety of U.S.-backed mortgage bond market. The new-found demand for mortgage-backed bonds has helped drop mortgage rates to levels never seen in history.

When economic recovery is apparent, therefore, we should expect a mortgage rate reversal, and should expect for it to happen quickly. Stock markets should rise; bond markets should fall. Mortgage rates will climb. Rate shoppers will lose.

Last week’s strong jobs report sparked hope for the U.S. economy. If Thursday Retail Sales data reveals similar strength, the risk in “floating” your mortgage rate may be too great. The safer play is to lock your rate today.

Mortgage Payments Have Dropped by 12% Since February

It’s a good time to consider refinancing your home, or making an offer on a new one. Mortgage payment affordability has never been so high in history.

According to Freddie Mac, the average 30-year fixed rate mortgage rate is now 3.94 percent – an all-time low — with an accompanying 0.8 discount points. This means that in order to get access to the 3.94 percent rate, Urbandale  homeowners and home buyers should expect to pay a loan fee equal to 0.8% of the borrowed amount, plus “normal” closing costs.

Last week, the average 30-year fixed rate mortgage rate was 3.99 percent with an accompanying 0.7 discount points.

Mortgage rates in Iowa have been in decline for most of the year. Since peaking in early-February, the average home owner’s principal + interest payment on a 30-year fixed rate mortgage had now dropped by 12.2 percent.

Here is how mortgage payments compare, then and now, not accounting for your individual tax-and-insurance escrow :

• February 10, 2011 : Payment of $539.88 per $100,000 borrowed
• December 15, 2011 : Payment of $473.96 per $100,000 borrowed

Save Thousands in Interest by Refinancing

For existing homeowners, the dramatic drop in payments is reason to reach out to your loan officer. A refinance could save you tens of thousands of dollars over the life of your loan — especially if you chose to refinance your mortgage into a 15-year program.

The 15-year mortgage, says Freddie Mac, is also at an all-time low, registering 3.21 percent with 0.8 discount points, on average.

For home buyers, today’s low rates present an interesting opportunity.

Mortgage rates are the key factor in determining your monthly housing payment so, with average mortgage rates below 4 percent, it’s no wonder home affordability is cresting. However, the housing market is showing signs of recovery. Home supplies are dwindling, buyer demand is rising, and the economy appears to be mending.

Home prices are expected to rise in 2012 and, as they do, they’ll take housing payments with them. The best time to buy a home may be now; before the recovery completes.

15 Year Offers Lower Interest but Comes with a Higher Payment

For as low as 30-year fixed rate mortgage rates are in Iowa today, 15-year fixed rate mortgage rates are even lower.

According to Freddie Mac’s weekly mortgage rate survey, the average 15-year fixed rate mortgage rate is now 3.27% nationwide with an accompanying 0.8 discount points. 1 discount point is a closing cost equal to 1 percent of your loan size.

The current 15-year fixed rate reading is just one tick above the all-time, 15-year fixed rate mortgage low of 3.26% set in October 2011.

If you’ve ever thought of “going 15″, it’s a terrific time to talk to your lender.

The primary benefit of using a 15-year fixed rate mortgage as opposed to a 30-year fixed rate one is that a 15-year fixed rate mortgage dramatically cuts the long-term interest costs of your loan. The downside is that monthly payments are relatively large.

At today’s mortgage rates, per $100,000 borrowed :

• 15-year fixed rate mortgage : $704 principal + interest monthly
• 30-year fixed rate mortgage : $477 principal + interest monthly

Both Options Have Their Perks

So, for homeowners opting for a 15-year fixed rate mortgage, the monthly principal + interest payments will be 48% higher as compared to a 30-year fixed rate mortgage of the same loan size. Long-term, however, because the 15-year fixed rate mortgage interest rate is lower and because it pays off in half the time of a 30-year loan, a homeowner will save $45,000 in interest costs per $100,000 borrowed.

$45,000 per $100,000 borrowed is a huge amount of savings. It’s monies that can be used for college tuition, home improvement projects, retirement savings, or anything else.

That said, the 15-year fixed rate mortgage is not ideal for everyone.

Because it requires higher monthly payments, a 15-year fixed rate mortgage may add stress to your household budget. Furthermore, once you commit to a 15-year loan term with your lender, you can’t revert back to a 30-year loan term without a refinance and refinances can be costly.

Therefore, be sure of yourself when selecting a 15-year fixed rate loan. The rewards are great, but the risks can be, too.

Points & Rates Vary Based on Where you Live

According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage is 4.00 percent nationwide — roughly the same rate as it’s been for 5 weeks.

During that times, rates have ranged between 3.97 and 4.02 percent with an accompanying 0.7 discount points, plus “typical” closing costs. Closing costs vary by state and 1 discount point is equal to 1 percent of your loan size.

In other words, to get the weekly, published Freddie Mac rate, borrowers in Iowa should expect to pay a complete set of fees to their respective lenders. The larger the loan, the higher the costs. “Low-fee” and “no-fee” loans are available, too — typically in exchange for a slightly higher rate.

A breakdown of the Freddie Mac survey shows that interest rates and discount points vary by region. Typically, states in the West Region offer the lowest rates but with the highest costs. East Region states work in reverse; rates are often highest but the accompanying points are fewest.

Mortgage Rates by Region :

• Northeast Region : 4.00% with 0.7 discount points
• West Region : 3.96% with 0.8 discount points
• Southeast Region : 4.06% with 0.9 discount points
• North Central Region : 3.97% with 0.7 discount points
• Southwest Region : 4.04% with 0.7 discount points

What’s most notable, though, is that in all 4 regions, rates are well below their 2011 highs. Since mid-April, mortgage rates have been in descent, dropping for 5 consecutive months before reaching to their current, “rock-bottom” levels in early-November.

Since then, however, rates have idled and the forces that combined to make rates low throughout Ankeny are subsiding. The U.S. economy is showing signs of a rebirth; the Eurozone is edging closer to solvency; and the housing market is recovering.

Low Rates in Jeopardy

At 8:30 AM ET Friday, the government’s Bureau of Labor Statistics will release its November Non-Farm Payrolls report. Better known as “the jobs report”, the monthly Non-Farm Payrolls figures provide sector-by-sector employment data, and tally the size of the current U.S. workforce size.

From these two elements, the national Unemployment Rate is derived.

Since topping out at 10.2% in October 2009, the Unemployment Rate has dropped to 9.0%. More than 2.3 million net new jobs have been made in the last 24 months.

Wall Street expect to see 125,000 more jobs added in November.

Depending on how closely the actual Non-Farm Payrolls data meets Wall Street expectations, Ankeny rate shoppers could find that the mortgage market landscape has shifted beneath them. The jobs report is a mortgage-market catalyst and when its reported value differs from Wall Street expectations, the impact on mortgage rates can be palpable — especially in a recovering economy.

The connection between the jobs market and the mortgage market is straight-forward — as the jobs market goes, so goes the economy.

1. When more people work, consumer spending increases
2. When consumer spending rises, businesses expand and invest
3. When businesses expand and invest, more people are put to work

Rates Rise/Fall with Jobs Figures

Employees and employers both pay taxes to governments. With more tax revenue, governments embark upon new projects which (1) require the hiring of additional workers, and (2) require the purchase and/or repair of additional equipment and supplies.

Employment can be a self-reinforcing cycle for the economy and that’s why Friday’s jobs report will be so closely watched. If the number of jobs created exceeds the 125,000 expected, mortgage rates will rise on the expectation for a stronger U.S. economy in 2012.

Conversely, if the jobs figures fall short, mortgage rates may fall.

Mortgage rates continue to hover near all-time lows according to Freddie Mac’s weekly Primary Mortgage Market Survey. The average 30-year fixed rate mortgage is sub-4.000 percent nationwide, with an accompanying fee of 0.7 discount points. 1 discount point is equal to 1 percent of your loan size.

If you’re under contract for a home or looking to refinance, minimize your interest rate risk. Lock ahead of Friday’s Non-Farm Payrolls release.

Get your rate lock in today.

Lower the Rate, Higher the Cost

With mortgage rates at all-time lows, you may be asking “Is now a good time to refinance?”. This short interview from NBC’s The Today Show offers good insight.

Refinancing a mortgage is about more than just “low rates”. For example, there are costs associated with giving a new mortgage and even with the average, 30-year fixed rate mortgage near 4 percent, the costs of a such a move can outweigh the benefits — both in the short- and long-term.

The video originally ran in September when mortgage rates averaged 4.09%. Rates are different today, but the offered advice remains relevant.

Some of the key points raised include :

• The lowest rates come with the highest costs. Consider a slightly higher-rate option from your bank.
• Falling home values may make it harder to qualify for a refinance in the future. Your best time to act may be now.
• If you’re many years into a 30-year loan, you can consider switching to a 15-year mortgage to avoid “resetting” your term.

And, lastly, the interviewee makes a strong point that your refinance should save you enough money to make paying the closing costs “worth it”. Make sure the break-even point on your closing costs versus your monthly savings occurs within a reasonable time frame.

At 4 minutes, the The Today Show video is short, but dense with quality information. For follow-up on whether a refinance makes sense for your situation, be sure to talk with your loan officer.

Mortgage Rates Have Dropped Below 4%

For the first time in more than 40 years, data from Freddie Mac’s weekly Primary Mortgage Market Survey shows the average 30-year fixed rate mortgage falling below 4 percent, dropping to 3.94 percent nationwide. It’s the lowest average 30-year fixed reading in the survey’s history.

In addition, Freddie Mac shows the 15-year fixed and 5-year ARM making new all-time lows, too, falling to 3.26% and 2.96%, respectively.

It’s a great time to be shopping for a mortgage or buying a home in Ankeny. Because mortgage rates are dropping, housing payments are dropping, too. As compared to 8 months ago, for every $100,000 borrowed, homeowners now pay $66 less principal + interest each month.

On a $300,000 mortgage, that’s $71,280 saved in 30 years.

Mortgage Rates Have Gone Down for Several Reasons:

• U.S. economic growth has been slower-than-expected
• Uncertainty surrounds Greece and the Eurozone
• The Federal Reserve’s “Operation Twist“

In general, demand for mortgage bonds has been high and that’s caused mortgage rates to fall. It should be noted, however, that although the 30-year fixed rate mortgage fell below 4 percent this week, the amount of discount points required to lock that rate rose by 10 basis points, or $100 per $100,000 borrowed.

Homeowners in Iowa are paying bigger fees for these lower rates. If you plan to move within a few years, these fees may wipe out your low-rate savings.

As you shop for a mortgage, pay attention to more than just rates. Low rates are great, but not when they come with high costs. Talk to your loan officer for help with making a plan than works for you.

Both Option’s Rates are Sitting at all Time Lows

It’s not just 30-year fixed rate mortgages that are posting all-time lows these days. The 15-year mortgage has been plunging, too.

If you’ve ever considered a 15-year loan term, it’s a terrific time to talk to your lender. According to Freddie Mac’s weekly mortgage rate survey of roughly 125 U.S. lenders, at 3.30 percent, the 15-year fixed rate mortgage is at its lowest point in history.

The 3.30% rate doesn’t come for free, however. Based on average loan term nationwide, borrowers in Iowa choosing to “go 15″ should expect to pay 0.6 discount points at closing. 1 discount point is equal to 1 percent of your loan size.

With low rates, 15-year fixed rate mortgage can be enticing; a primary benefit is the huge reduction in the long-term interest costs of your loan. The downside, though, is that monthly mortgage payments can be relatively large.

Save on Interest with 15-Year Fixed Loans

At today’s mortgage rates, a 15-year fixed rate loan carries a principal + interest payment of $705.10 per $100,000 borrowed — a 46% increase over a comparable 30-year fixed rate loan. If you can manage the bigger payments, though, you’ll reap $47,000 in interest payments savings per $100,000 borrowed in paying off your loan in full.

$47,000 per $100,000 borrowed is a huge amount of savings and those saved monies can be used to fund items such as college, home improvement, and retirement, among others.

That said, the 15-year fixed rate mortgage is not for everyone.

Because it comes with higher monthly payments, the 15-year fixed rate mortgage may add financial stress to your household budget. And, once you have committed to a 15-year loan term and its payments, you’re can’t “go back”. Your lender won’t revert your loan to a 30-year schedule without a refinance, and a refinance could be costly.

What Does LIBOR Stand For?

For the first time in a year, homeowners with adjusting mortgages are facing rising mortgage rates. The interest rate by which many adjustable-rate mortgages adjust has climbed to its highest level since September 2010, and looks poised to reach higher.

This is because of the formula by which adjustable-rate mortgage adjust.

Each year, when due for a reset, an adjustable-rate mortgage’s rate changes to the sum of fixed number known as a “margin”, and a variable figure known as an “index”. For conforming mortgages, the margin is typically set to 2.250 percent; the index is often equal to the 12-month LIBOR.

LIBOR stands for the London Interbank Offered Rate. It’s a rate at which banks lend to each other overnight.

Expressed as a math formula, the adjusting ARM formula reads :

(New Mortgage Rate) = (2.250 percent) + (Current 1-Year LIBOR)

LIBOR Has Been Rising Lately

This explains why ARMs are adjusting higher as compared to earlier this year. There has been considerable stress on the financial sector and LIBOR reflects the uncertainty that bankers feel for the sector.

LIBOR last spiked after the collapse of Lehman Brothers in 2008 amid global financial fears. Analysts expect LIBOR to rise into 2012 because of bubbling concerns in the Eurozone.

Despite LIBOR’s rise, though, most adjusting, conforming ARMs are still resetting near 3 percent. For this reason, homeowners with ARMs in Iowa may want to consider letting their respective loans adjust with the market.

This is because an adjusting mortgage rate near 3 percent may be better than what’s available with a “fresh loan” — even as 5-year ARMs rates make new all-time lows. Unlike a straight refinance to lower rates, an adjusting loan requires no closing costs, requires no appraisal, and requires no verifications.

So, if you have an adjustable-rate mortgage that’s set to reset this season, don’t rush to refinance it. Talk to your lender and uncover your options. Your best course of action may be to stay the course.