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I have been watching mortgage rates for a good time to refi a 7.75% 30 yr. Despite all the Feds rate cuts, home mortgage rates haven't followed.

What are the home mortgage rates based on. Should we expect them to come down any time soon? (sound: polishing crystal ball)
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The Fed rate cuts apply to the target rate for the short-term rates that banks use when they loan each other money.

They are not related to mortgage rates (except indirectly as all elements of the economy tend to affect each other). If anything, *I believe*, mortgage rates tend to be a leading indicator of what the Fed will do, not the other way around.

Mortgage rates can be based on different factors (and to a certain extent are based on the market demand - i.e. what people are willing to pay), but 15-year and 30-year mortgages are usually tied to 10-year and 30-year treasury bills. ARMs are often tied to 1-year treasury bills, and sometimes to other market indices (if you ever get an ARM, it's important to know what it's tied to because this will affect your rate in the future).
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Should we expect them to come down any time soon? (sound: polishing crystal ball)

They're at 6.75% - 6.875% for 30year conforming.
All-time lows for a long long time... (at least 15 years - I didn't find data/graphs for before 1985)

I don't think they'll get much lower. (as I gaze through the crystal ball. ;)

IMO Now is the time to refi...
Maybe you could catch 6.75% or 6.625%, but I just can't see things getting much cheaper...

And I believe this strongly enough that I am looking to refi.
(for me the break-even point for costs vs. interest savings on a 7.875% loan is only 12 months out.)
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Hi moussecatcher,

I have been watching mortgage rates for a good time to refi a 7.75% 30 yr. Despite all the Feds rate cuts, home mortgage rates haven't followed.

Actually, fixed rates have indeed been settling downward gradually the whole time. ARMs have dropped incredibly also.

What are the home mortgage rates based on.

30, 20, and 15 year Fixed Programs are based on the 30-year U.S. Bonds. The bond market is a free-moving, openly traded, liquid market... so the fixed rates go along with the random whim of the public's pressure on the bond-trading companies (influenced by YOUR pension funds, mutual funds, and retirement management companies.)

ARMs are primarily indexed on either the 1 year Treasury Bills, the 11th District Cost-Of-Funds-Index (COFI), or the LIBOR index. These fluctuate according to varying influences... much more according to the Fed's adjustments than the long Bonds.

Should we expect them to come down any time soon? (sound: polishing crystal ball)

Who knows!?!

I can say this;
We are now clearly at the lowest rates in over 30 years. What happens tomorrow is a 50-50 POSSIBILITY... but weighting the likelihood of price action reflecting historical data makes an interest RISE soon a much higher PROBABILITY!

You'd have a hard time going wrong locking in your financing now.

BTW... for those seriously considering the Mortgage Freedom Account strategies, the conforming 5/1 ARM for the perfect scenario is BELOW 6%! THAT'S AWESOME!!!

The savings you could stash away, and the compounding returns on those funds over the next 5 years could do some major wealth building.

(Found my September issue of Money Magazine);
"Historically, investments made in midrecession have returned 34 percent over the next 18 months"

There's blood in the streets in the markets, the common man is terrified of investments, AND mortgage capital hasn't been cheaper in most of our adult lifetimes...

(Not to mention the indexes are at or just above long-term technical support areas...)

COULD BE TIME TO STRIKE HARD!

Cheers,
Dave Donhoff
Foolish Mortgage Broker & Financial Freedom Zealot!
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ARMs are primarily indexed on either the 1 year Treasury Bills, the 11th District Cost-Of-Funds-Index (COFI), or the LIBOR index. These fluctuate according to varying influences... much more according to the Fed's adjustments than the long Bonds.

Which one of these indices tends to be the lowest? In other words, which one is the best one from the perspective of the borrower?
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>>ARMs are primarily indexed on either the 1 year Treasury Bills, the 11th District Cost-Of-Funds-Index (COFI), or the LIBOR index. These fluctuate according to varying influences... much more according to the Fed's adjustments than the long Bonds.<<

Which one of these indices tends to be the lowest? In other words, which one is the best one from the perspective of the borrower?

It all depends on what your purpose is, and how lucky you feel... comes down to the technical voodoo you do, or your funny-mental analysis.

If you're using an ARM with any intentions of hanging on for more than maybe 1 to 1 1/2 years into the adjustable part, then each index acts differently at different times. Kinda a monkey waltz... you just never really know.

The LIBOR is currently the lowest, with the Treasuries just behind. The COFI is a "lagger" and the slowest and most conservative of them all, and has only been above the 30 year fixed something like 3 years out of the last 30 (!!!!!)

Because the COFI is such a slow trudger, the lenders pretty much only write loans on it in the Negative Ammortization products... which are what I've identified as the MFA solution to cyclical high-interest rate periods (were one to find themselves in need of a refi at the highwater mark.) Using a COFI based Option-ARM/NegAm loan would allow an MFA strategist to "tread water" with a relatively low rate "interest-only" payment for several years if necessary until the rates dipped back into advantageous territories.

Of course, if you're taking an ARM with no intention of hanging out through the adjustable years, then the index matters none at all... you simply want whatever loan program has today's lowest initial fixed period rates.

Cheers,
Dave Donhoff
Foolish Mortgage Broker
(& Monkey Voodoo Master)
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BTW... for those seriously considering the Mortgage Freedom Account strategies, the conforming 5/1 ARM for the perfect scenario is BELOW 6%! THAT'S AWESOME!!!


Where are you finding 5/1 ARMs below 6%? Around here they are more like 6 5/8 - that's with zero points.
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Where are you finding 5/1 ARMs below 6%? Around here they are more like 6 5/8 - that's with zero points.

www.indymacmortgage.com (prob. not best place for 5/1 ARMs) has
6 1/8 at 0 points, right now, for $275k loan.


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<<BTW... for those seriously considering the Mortgage Freedom Account strategies, the conforming 5/1 ARM for the perfect scenario is BELOW 6%! THAT'S AWESOME!!!


Where are you finding 5/1 ARMs below 6%? Around here they are more like 6 5/8 - that's with zero points. >>

FWIW, my mortgage lady called me today.
The rate for a 30 year fixed JUMBO 0/0 pts is 6.875%.
For a 5/1 ARM it's 6.25%.

She said that she's never seen rates that low for a jumbo in 20 years.

Now if my builder would just start cracking the whip on the tradesmen. ;-)

Ray
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Hi drosophilosopher,

Where are you finding 5/1 ARMs below 6%? Around here they are more like 6 5/8 - that's with zero points.

Who have you been talking to?

You have GOT to get off the web and talk to a real Mortgage Broker! I've got conforming 5/1 ARMS at 80 LTV at that level and lower with no discount points ALL DAY LONG! Slightly higher when combined as an 80-15-5 combo (or tricky credit, or assets, or condos, etc.)... but NOT 5/8 higher!!!

Seriously, expand your conversations... rates HAVE settled lately!

Cheers,
Dave Donhoff
Foolish Mortgage Broker
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www.indymacmortgage.com (prob. not best place for 5/1 ARMs) has
6 1/8 at 0 points, right now, for $275k loan.


I just checked with bankrate.com and they sez a conforming 5-1 ARM costs about 5.63.
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