Ways to Manage Mortgage Rates
Even though there is a lot that you cannot control about mortgage
rates, you can choose how you handle the changing rates and what
kind of mortgage you will use to your advantage.
It is a well known fact that mortgage rates waver. Like the weather,
they will always keep you guessing. Although you cannot do anything
about the randomness of the rates, you can educate yourself in
order to respond to the changing rates in ways that benefit your
One strategy that many homeowners use is to pay more up front!
If you have an adjustable rate mortgage that is susceptible to
higher interest rates in the future, perhaps you should pre-pay
in the beginning to bring down the later payments. All you have
to do is pay a little more each month for the first few years
and you will thank yourself in a decade!
Remember that there are all kinds of loan products with numerous
different features and options. You can do a fixed rate mortgage
and rely on paying the same amount for the entire duration of
the loan, or you can get a “hybrid” ARM (adjustable
rate mortgage), which means you have a fixed rate for a few years
and then you begin paying the rate that coincides with the market.
Be aware, though, that the longer the fixed rate the less the
Many people find buydowns alluring. It is kind of like a sign
in the supermarket that tells you that you can get four boxes
of pasta for a special price, or if you buy two you get half off
of the second. These kinds of advertisements make you think that
you found such a deal and are saving so much, when in reality
you are spending much more than you would have on products that
you may not even want. With buydowns, there is a similar effect.
You start with a lower interest rate and slowly it creeps up higher.
What people need to realize is that you are starting low to end
high. You will be paying more than the market rate in the end
since you are paying less than the average rate in the beginning.
You do have the option of paying points to lower your interest
rate. This can be costly, as one point costs 1 percent of the
loan, but each point will lower your interest rate around 1/8
A commitment period is the time it takes a loan to close. Like
when someone puts an offer on a house and both parties must wait
until everything goes through and the contract is official, the
same holds true with a mortgage purchase. The average commitment
period is 45 days, but it can range from 30 to 60. If you have
good credit and are well prepared and organized when applying
for the loan, you are likely to close sooner and save money!
Don’t forget that the more you put for a down payment,
the less you have to pay in monthly fees along the way and the
less you will have to worry about rising interest rates!
Mortgage Market Trends
Finding a perfect mortgage is like finding a perfect life mate:
No matter how long you search or wait for the right mortgage quote,
there is a good chance that there will be a better rate and a
worse rate in the future. The fact is that mortgage rates have
always been erratic, and while some causes of the change in rates
is known, there is no way to predict tomorrow’s rates with
very much certainty. Still, looking at graphs of historical trends
and analyzing some patterns in the past can help give you a better
idea of possible mortgage trends in the future. Like with anything,
what goes up must come down (and vice versa). The hard part is
hypothesizing how quickly rates will start to reverse again, and
by how much.
One measure of mortgage market trends is the Fannie Mae Primary
Mortgage Market Survey, given to 125 mortgage lenders across the
country on a weekly basis. This is considered one of the most
valid and reliable sources for mortgage trends. The survey tracks
30 and 15-year fixed rate mortgages and one-year adjustable rate
mortgages. The results only apply to traditional financing on
mortgages calculated by loan to value percent or less, and do
not include any discount points or other fees that would vary
or alter the results.
According to the FMMS, mortgage rates in the last decade were
highest around the end of 1994 and early 1995. At this time, interest
was around nine percent for 30-year and 15-year fixed rate mortgages,
and one-year adjustable rate mortgages were just under seven percent.
Rates were high in early ’92 when they decreased until February
of ’94 when they started creeping up again. After the peak
in late ‘94/early ’95, rates bottomed out again around
5.25 percent for one-year adjustable and 6.5 and seven for 15-year
and 30-year fixed rates in February of 1996. Up and down slightly
in 1997, and then slightly decreasing at a steady rate until mid
’99, rates shot up again in mid 2000 to around 8.5 for both
15-year and 30-year fixed rate mortgages and a little over seven
percent for one-year adjustables. For the most part, rates have
been steadily declining since 2000, with a slight increase for
a short time in 2002.