Welcome to Illinois Mortgage Rates and News week in review for the week ending December 19th, my take on the week’s financial news and how it affected Illinois mortgage rates.

The Fed added some more stimulus to the economy this week by lowering the Fed Funds rate to an all time low range of 0 to .25%. This is the rate the big banks get when they borrow money from the Fed. Most people expected that they would cut rates to a half point, leaving some powder dry for another cut later. Instead, they cut to the bone in order to break the credit log jam. The Fed also announced that they will step up their purchases of mortgage backed securities and other bundled loans including car loans and student loans. The idea here is that the big banks, getting money for free and having a market to sell their loans in, will now be anxious to lend it out and make a nice tidy profit on the spread. But with the economy still slipping, this might not be enough incentive for them to take the risk of lending it out, at least not on the best terms. The activity in the mortgage market bears this out.

After the Fed announced the rate cut and buy back plan, the mortgage bond market surged 130 basis points higher, an amazing rally. Wednesday morning, mortgage rates dropped to a 40 year low, hitting 4.75% – for about an hour. At rates this low, just about anyone who has a mortgage and can qualify would benefit from lowering their rate. The rush was on to lock in these rates, and lender’s websites were unequipped to handle the volume. It was a frustrating morning as one website after another crashed. Think of the Woodstock rock concert. You have an area where the roads are all working quite nicely with the normal flow of traffic, but when an extra million or so people want to get there, all at the same time, it’s not going to work. The very first people on the road will be fine, but everyone else is stuck in a big mess. So it was with mortgage locks Wednesday. The lenders quickly figured out that demand was exceeding supply, and the best rates were soon gone. Think of the 4.75% rate that everyone is talking about as a door buster special at Walmart. It was there, but only a lucky few were able to take advantage of it. So even as the big lenders are borrowing short term money for free (or close to it), they are at capacity and lending it out at a higher spread.

Over the last few days the mortgage bond market slipped back as traders took profits from the big runoff. So as word filtered out that rates were at an all time low, the rates that were available had already ticked up. Still great, but not as phenomenal as before. This could still be the mother of all refi booms, but it isn’t going to happen all at once. Mortgage bonds, which mortgage rates are based on, have been extremely volatile and I expect that will continue. But I also expect that we will have opportunities where the rates dip down, and the key will be to be ready to lock in when the rates do dip. This means preparing for your refinance, getting your documentation to your loan officer beforehand, so when the rates are available you can take advantage of them.

To get the most out of your refinance, you should also look at the process realistically. In past refinance booms it is almost a bragging right to be able to say that you locked into the lowest rate. The reality is the very lowest rates are usually only there for a short period, and not everyone can take advantage of them. If the refinance will lower your payment, improve your financial situation and is cost effective, it is worth doing. You might be better served going for the good rate rather than holding out for the very best rate. Also, when you are shopping for a mortgage, don’t just concentrate on the rate, look at the over all costs, too. Every time the rates dip there are people and companies who quote outrageously low rates, but extra points and closing costs to get you there. With the extra fees it takes longer to pay back the upfront costs with the savings from the lower payment. Most borrowers will be better served with a lo cost or no-closing cost refinance (at a slightly higher rate than you could get if you paid the closing costs yourself). If you are in an FHA mortgage, you can do an FHA streamlined appraisal with no credit qualifying and often no appraisal needed.

Even though rates dipped to the best level in the last 40 years, we ended the week just about where we started. Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc purchase on a 30 day rate lock, with 0 points, and no origination fee. The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or Contact me (Illinois mortgage company) and I’ll take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

30 year fixed rate      5.00%      5.176% APR

15 Year fixed Rate     5.00%     5.159% APR

5-1 A.R.M.                 5.00%      5.237% APR

For Jumbo loans over $417,000

30 year fixed rate  * 6.625%      6.725% APR *

Special pricing requires 20% down payment or equity –

7-1 A.R.M.                 5.375%       5.598% APR

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate      5.25%      6.034% APR

With no origination fee – 60 day lock

30 year fixed rate      5.50%      6.147% APR

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

With Christmas next week, the mortgage bond market will be thinly traded which can exaggerate price swings. This means rates may improve or get worse more than they would in a normal week. If there is anything I can do to help, let me know.

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