crazy low interest rates

[brymoore]

Market is pricing in 50-75bps next week. Fed doesn't change Prime rate directly, just the short term fed funds rate. As you mentioned, mortgage rates are all priced off the 10yr Treasury and it is already at all time lows. The Fed funds rate is going back to zero, but you have to look at the 10yr to determine the mortgage rate. The market is pushing the action at this point and the Fed is reacting.

We’re only at the beginning of the rate game. German and Japanese 10 yr bonds are negative rates, UK is at 0.23. Banks are forecasting a possible negative rate trend.

 

[RobG]

Mortgage guy I know said 3.125% for 30 yr yesterday. We are at 4.25%, might hold off another couple weeks.
Have an rental property at 5.125%, not as many refinance options for that. But thinking I need to look a little harder now.

I'd be interested in what you find out. A few months ago I looked into a refi on my rental and they weren't much better than 5%, which surprised me because I refinanced several years ago and got a much lower rate even though the 10 year tsy was higher. Maybe the lenders are predicting a rough investment market ahead.

 

[BlakeA]

I’ve seen on multiple sites that the bank has to drop PMI when you’ve gotten down to 78% of your loan. Am I reading this wrong? We paid off the first 20% way ahead of schedule but they wouldn’t remove it because home values have dropped since we took out the loan.

Once your loan amount is at 80% of your appraised value, you can request to have it removed. You may have to pay for an appraisal if they think the market has changed. Unless you request to remove it, it will stay on until the original date it was agreed upon which is the 78% even if you have paid it down.

 

[SAJ-99]

We’re only at the beginning of the rate game. German and Japanese 10 yr bonds are negative rates, UK is at 0.23. Banks are forecasting a possible negative rate trend.

German 30yr fixed is at about 1.65%. I guess my point is, just because the government can borrow at 0% - or negative- doesn't mean we can. And the Fed has fought for the last 10yrs to not become Japan. If we do, your US equity investments will be cut in half. Be careful what you wish for.

Side note : This article from last year shows a Danish Bank that issued the first negative mortgage. The reasons for that are complicated (regulatory arbitrage and such). You have to hope we don't get there because I suspect a lot of people will be looking for jobs and refi'ing the mortgage will be low on the priority list.

Danish bank launches world’s first negative interest rate mortgage

Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan

www.theguardian.com

 

[smw110136]

Market is pricing in 50-75bps next week. Fed doesn't change Prime rate directly, just the short term fed funds rate. As you mentioned, mortgage rates are all priced off the 10yr Treasury and it is already at all time lows. The Fed funds rate is going back to zero, but you have to look at the 10yr to determine the mortgage rate. The market is pushing the action at this point and the Fed is reacting.

True. Good perspective.

 

[ignorethefringes]

I'd be interested in what you find out. A few months ago I looked into a refi on my rental and they weren't much better than 5%, which surprised me because I refinanced several years ago and got a much lower rate even though the 10 year tsy was higher. Maybe the lenders are predicting a rough investment market ahead.

Might be worth checking out a credit union. One of credit unions that we underwrite for us sub 4% all day long on residential investment properties, but it's in TN.

 

[brymoore]

German 30yr fixed is at about 1.65%. I guess my point is, just because the government can borrow at 0% - or negative- doesn't mean we can. And the Fed has fought for the last 10yrs to not become Japan. If we do, your US equity investments will be cut in half. Be careful what you wish for.

Side note : This article from last year shows a Danish Bank that issued the first negative mortgage. The reasons for that are complicated (regulatory arbitrage and such). You have to hope we don't get there because I suspect a lot of people will be looking for jobs and refi'ing the mortgage will be low on the priority list.

Danish bank launches world’s first negative interest rate mortgage

Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan

www.theguardian.com

The Feds can fight all they want but they don’t have enough dry powder to fight a recession. The average recession take 5 percent in rate reductions before a turn around. The Feds have 1% before they are ay zero. The only hope they have is Quarantine Easing.

 

[westbranch]

I'd be interested in what you find out. A few months ago I looked into a refi on my rental and they weren't much better than 5%, which surprised me because I refinanced several years ago and got a much lower rate even though the 10 year tsy was higher. Maybe the lenders are predicting a rough investment market ahead.

Just did an online "quick quote" at a local credit union and they had 4.125%, 4.25% APR for 30 yr investment property.

30 yr primary residence dropped to 2.875%, 3% APR.

 

[d-edward]

The Feds can fight all they want but they don’t have enough dry powder to fight a recession. The average recession take 5 percent in rate reductions before a turn around. The Feds have 1% before they are ay zero. The only hope they have is Quarantine Easing.

I can't tell if this is a COVID-19 economics joke or an intuitive auto-correct from Quantitative Easing...

Either way, rates were sub-three percent when I called my existing mortgage consultant today to inquire about refinancing.

 

[jeremys4]

My bank sent me a letter in the mail a couple months back asking if we wanted our pmi dropped just had to sign it and mail it back. My payment dropped 85 bucks.

 

[Pucky Freak]

Overrated for you in your situation, yes, that rate difference is not that big. But, for most people it's worth it. I'm in the process of a refi now, probably going 4.87 to 3.2, we're only 18 months into our loan and I can reduce my payment by $500 per month and just roll that straight back into the principal instead of interest.

Could not disagree more. I’ve personally known a whole lot of people who’ve done refi’s, and not a single one of them was done wisely. Here’s a list of foolish things homeowners do, as influenced by the profitable lending industry:
-extend payoff date
-finance the appraisal or the loan issue fee
-float rate and gamble on further rate dip
-agree to less favorable terms such as balloon, early payment penalty, variable rate
-increase amount owed by taking out more money against the property equity
-watch your tax base jump with higher appraised value
-let the bank dictate more aggressive payment terms (such as shortening loan term) when you could do the same yourself without a new loan.

All of these things make you more broke and someone else more rich.

Yes, I’ll concede that there are a small percentage of unique scenarios where locking a new rate today, lowest in 50 years in the US is a wise choice. But this is a very far cry than your claim of “for most people it’s worth it”, which there is no way is correct.

A possible good scenario:
-150k or higher current balance, and rate 2.0% higher than what you could change it to.
-new loan payoff date earlier than current one
-pay cash for appraisal and loan fee
-calculate how much extra property tax you’ll have to pay based on new appraisal, which needs to be significantly offset the $ saved in interest over the life of the loan.

While this all looks fine on paper, I’d be surprised if more than 2% of refi’s are done for the true financial benefit of the owner.

The industry preys on our instincts and lack of knowledge and is extremely profitable. I’ll play their game, but I also make damn sure I’m not getting screwed in the process.

 

[RobG]

Just did an online "quick quote" at a local credit union and they had 4.125%, 4.25% APR for 30 yr investment property.

30 yr primary residence dropped to 2.875%, 3% APR.

I got 4.6% (no points) in Nov 2016 when the ten year tsy was 2.4%. You would think it would be even lower now, but maybe there is a low bound lenders will accept.

 

[stealthy_bowman]

If you guys are refinancing float until either the 10 year treasury note turns around or you are ready to close. Rates are lagging behind the 10 year and should continue to improve until something forces them up.

This nails it.

 

[Irrelevant]

Could not disagree more. I’ve personally known a whole lot of people who’ve done refi’s, and not a single one of them was done wisely. Here’s a list of foolish things homeowners do, as influenced by the profitable lending industry:
-extend payoff date
-finance the appraisal or the loan issue fee
-float rate and gamble on further rate dip
-agree to less favorable terms such as balloon, early payment penalty, variable rate
-increase amount owed by taking out more money against the property equity
-watch your tax base jump with higher appraised value
-let the bank dictate more aggressive payment terms (such as shortening loan term) when you could do the same yourself without a new loan.

All of these things make you more broke and someone else more rich.

Yes, I’ll concede that there are a small percentage of unique scenarios where locking a new rate today, lowest in 50 years in the US is a wise choice. But this is a very far cry than your claim of “for most people it’s worth it”, which there is no way is correct.

A possible good scenario:
-150k or higher current balance, and rate 2.0% higher than what you could change it to.
-new loan payoff date earlier than current one
-pay cash for appraisal and loan fee
-calculate how much extra property tax you’ll have to pay based on new appraisal, which needs to be significantly offset the $ saved in interest over the life of the loan.

While this all looks fine on paper, I’d be surprised if more than 2% of refi’s are done for the true financial benefit of the owner.

The industry preys on our instincts and lack of knowledge and is extremely profitable. I’ll play their game, but I also make damn sure I’m not getting screwed in the process.

WOW that's a lot of apples and oranges.
If you are only making min payments and are just trading 30-yr for 30-yr, then you can save quite a bit over the length of your loan by dropping your rate. I'd like to attach a spreadsheet but the forum won't allow it.

If the short term, at least for us, we have to stay in the house for 2 years before our monthly savings = cost of the refi.

 

[Trial153]

It doesn't pay to make generalizations on either end.

Sometimes a refi is the right move and sometime it isnt , it's all circumstantial.

 

[kenton]

Is it a profit if you have to put your money into a similar house?

tomato, tomato

 

[Deleted member 28227]

It doesn't pay to make generalizations on either end.

Sometimes a refi is the right move and sometime it isnt , it's all circumstantial.

I think that applies to pretty much all financial instruments. If an instrument didn’t benefit both parties sometimes they wouldn’t exist.

Mortgages, credit cards, 401k, life insurance (term and whole), savings accounts, etc etc etc.

Just because sometime doesn’t work for your specific set of circumstances doesn’t mean it a great tool for someone else.

 

[nontyp]

The Feds can fight all they want but they don’t have enough dry powder to fight a recession. The average recession take 5 percent in rate reductions before a turn around. The Feds have 1% before they are ay zero. The only hope they have is Quarantine Easing.

The Federal Reserve is stuck in quantitative-easing hell

The central bank’s short-term buying of securities could morph into long-term easing.

www.marketwatch.com

We’re already doing QE. Just not technically calling it QE yet.

 

[Elkmagnet]

Could not disagree more. I’ve personally known a whole lot of people who’ve done refi’s, and not a single one of them was done wisely. Here’s a list of foolish things homeowners do, as influenced by the profitable lending industry:
-extend payoff date
-finance the appraisal or the loan issue fee
-float rate and gamble on further rate dip
-agree to less favorable terms such as balloon, early payment penalty, variable rate
-increase amount owed by taking out more money against the property equity
-watch your tax base jump with higher appraised value
-let the bank dictate more aggressive payment terms (such as shortening loan term) when you could do the same yourself without a new loan.

All of these things make you more broke and someone else more rich.

Yes, I’ll concede that there are a small percentage of unique scenarios where locking a new rate today, lowest in 50 years in the US is a wise choice. But this is a very far cry than your claim of “for most people it’s worth it”, which there is no way is correct.

A possible good scenario:
-150k or higher current balance, and rate 2.0% higher than what you could change it to.
-new loan payoff date earlier than current one
-pay cash for appraisal and loan fee
-calculate how much extra property tax you’ll have to pay based on new appraisal, which needs to be significantly offset the $ saved in interest over the life of the loan.

While this all looks fine on paper, I’d be surprised if more than 2% of refi’s are done for the true financial benefit of the owner.

The industry preys on our instincts and lack of knowledge and is extremely profitable. I’ll play their game, but I also make damn sure I’m not getting screwed in the process.

I agree that this happens, its not the majority.
Use this conversation from this very thread

"So I bought mine in the low 05/11 for 130 have paid extra every month I’ve had it for almost 9 years about 96000 owe now locked in at 4.75 is it worth refi now? And it’s worth 360,000 now?"

How long do you plan to stay?
Most consider a 1% change worthwhile but it depends how long you are staying.
Google an amortization calculator and compare rates and time frames.
If i were you assuming 760 + credit
Look at a 15 year loan at about 2.75% would be a win win scenario.
I just roughed the numbers It looks like you will have a very similar payment but would pay the home off 7 years earlier.

Option A
130k at 4.75% for 30 years has a principal and interest of $678 month.
He has now got it down to
96k after 9 years of payments roll 4k worth of fees we are at 100k for refinancing that for 15 years at 2.75% he will have a payment of $678
He will pay off 6-7 years earlier.
Avoiding around 50k in interest!!!!
Option B
To do the same by over paying he would have to pay about $750 you are throwing away $70 a month for 180 months thats 12600 in waisted money.
Both options are better than making the minimum payment but option A is by far the best.
He could refi and pay $750 and be paid of in around 13 years.
You would say he is letting the bank "dictate a shorter term" I say he is kicking ass at paying off his home the smart way.

 

[LuketheDog]

Could not disagree more. I’ve personally known a whole lot of people who’ve done refi’s, and not a single one of them was done wisely.
...
All of these things make you more broke and someone else more rich.

Yes, I’ll concede that there are a small percentage of unique scenarios where locking a new rate today, lowest in 50 years in the US is a wise choice. But this is a very far cry than your claim of “for most people it’s worth it”, which there is no way is correct.
...
While this all looks fine on paper, I’d be surprised if more than 2% of refi’s are done for the true financial benefit of the owner.

The industry preys on our instincts and lack of knowledge and is extremely profitable. I’ll play their game, but I also make damn sure I’m not getting screwed in the process.

Those are HUGE generalizations. I sold real estate for a number of years, have been a licensed broker in two states, I also have "personally known a whole lot of people who’ve done refi’s" like you, only they were done wisely. The folks you speak of were most likely getting bad advice. Yes, banks want to make money because that's their industry, but they're not looking to just screw you whenever they get the chance, but it IS wise to know what you're signing and know the math. After I refinance, I will save approximately $50K over the life of my loan, versus my previous rate, even if all i do is make the new lower payment every month. But since I'll take my interest savings and roll it right back into the house payment, I'll save one heck of a lot more than that...