There’s so much financial news to absorb, what’s fact or fiction, it’s almost overwhelming. The media picked up the news of the Fed’s recent purchases of Mortgage Backed Securities. BUT, the news that rates should continue to drop into the summer due to these purchases is in error!
Yes, the Fed has been buying Mortgage Bonds. Note: what is being purchased is many 30 year 5.0% and 5.5% FNMA Bonds. These pools consist of numerous home loans with 6.0% and 6.5% rates. The coupon rate given to an investor is different than the rate the home borrower pays, and that difference is the profit Wall Street and government agencies gain. These loans are more than likely to be refinanced and paid as current rates make it very attractive to refinance a loan over 6% . In turn, the Fed gets a quick return on some of their investment.
These higher rate coupons purchased by the Feds does not necessarily affect rates to move lower as their actions do not impact the loans originated at today’s low rates.
The Problem …
Many homeowners could save hundreds of dollars a month on their mortgage payments if they would refinance now. But with the media throwing out “what if’s” and “maybe this summer” without factual basis, many homeowners are deciding to delay making the decision to save now, with the HOPE of gaining a few mere dollars of savings per month IF a lower rate MAY come their way! And, while these consumers wait, rates could turn higher. In turn, they could miss the window of opportunity entirely.
Another Thought
Suppose a homeowner was able to time the market perfectly and save a few dollars a month, it’s possible to still lose in the end. Because, while Mr.& Ms. Homeowner delayed on their refinance, they ended up losing the savings each month they could have made by acting sooner. They may have lost hundreds of dollars for every month they waited for the “perfect” rate.
So, even have gotten the rate they were looking for, it could take a few years to make up what they lost by waiting.
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