November 11th, 2015 10:59 AM by Jackie A. Graves, President
out to buy or refinance a home this month should be delighted to find that
mortgages are cheaper than they were last November.
That's surprising because a year's past since the Federal
Reserve ended a campaign to drive down long-term interest — a move that was
widely expected to push mortgage rates higher.
But weak demand for home loans and all sorts of foreign crises
that have investors rushing to the relative safety of U.S. mortgage debt
trumped the Fed's policy change and held rates down.
The average cost of a conventional 30-year fixed-rate home loan
— the most popular way to finance a home — costs more than a tenth-of-a-point
less than this time last year.
That decline reduces payments by about $10 a month for every
This month the average cost of
a 30-year jumbo mortgage plunged to a new record low that's actually below than
that of smaller conventional fixed-rate mortgages.
And remember, that's the average cost of
financing a home. Savvy borrowers with decent credit can almost always pay a
quarter to half of a point less.
Spend a few minutes searching
our extensive database for the best current mortgage rates from dozens of lenders in your area.
You'll see what we mean.
Type of loan
30-year fixed rate
Dec. 5, 2012
15-year fixed rate
May 1, 2013
30-year fixed jumbo
Nov. 4, 2015
Jumbo loans are mortgages that are too large to be purchased by
Fannie Mae and Freddie Mac, the two government-owned companies that buy or
guarantee most of the mortgages issued by banks and other lenders.
The largest loans they can buy depend on where the home is
located but range from $417,000 in most places to $625,000 in the nation’s most
Jumbo mortgages are most needed by affluent buyers whose savings
and earnings have rebounded from the recession more quickly and fully than
those of middle-income families.
They've driven a surge in the sales of high-end homes that has
jumbo lending accounting for about one-fifth of all new mortgages, up from
about 5% of the market in 2009.
The nation's largest banks, including J.P. Morgan Chase, Bank of
America and Wells Fargo, are vying for that business by not only lowering rates
but by reducing the minimum credit score and down payment required for
J.P. Morgan, for example, recently announced it was lowing the
minimum acceptable FICO score from 740 to 680 and accepting down payments of as
little as 15% on homes up to $3 million.
The sale of such pricey property has helped to push median home
costs and average loan values to all-time highs this summer, eclipsing previous
records set at the peak of the housing bubble in 2006 and 2007.
Despite that, a report from the Consumer Financial Protection
Bureau says nearly half of Americans seriously consider only one lender or
broker before applying for a mortgage. And about 75% fill out an application
with only one lender.
Why are so many of us failing to comparison shop?
"It is a surprising
finding, and it suggests that they're still fairly intimidated by the mortgage
transaction," Richard Cordray, head of the government bureau, told NPR. "Or they're a little distracted because, at the same
time, they're picking out a house."
Possibly, But rates are so low that some modest shopping around
can land home buyers a once-in-a-lifetime mortgage.
It wasn't supposed to be like this after the Federal Reserve
stopped flooding the mortgage market with money last year.
Back in the fall of 2012, the nation's bank-for-banks began
buying $85 billion worth of debt a month, a fairly even split between Treasury
bills and bonds backed by thousands of home loans.
That pushed mortgage rates to record lows in an attempt to boost
real estate sales and property values.
With the housing market improving, the Fed gradually reduced
those bond purchases last year and ended them altogether in November.
Experts expected mortgage rates to rise by anywhere from a half
point to as much as a full point.
But the demand for home loans fell precipitously in 2014.
Refinancings were off by 60%, and new loans to buy properties
fell 15%. All in all, Americans took on less new mortgage debt than in any year
A never-ending run of foreign crises — everything from the Greek
debt crisis and weak economic growth in Europe to a crashing Chinese stock
market — has lots of investors willing to buy bonds containing thousands of
American home loans.
As a result, there's still plenty of money to fund all of the
mortgages being written, and that's been reflected in lower interest rates.
The Fed's exit from the market just hasn't mattered — at least
The Mortgage Bankers Association now projects the average cost
of a 30-year fixed-rate loan will rise to 4.8% by the end of 2016 and 5.4% by
But mortgage lending (as measured by the amount borrowed, not
the number of loans) grew by a third during the first half of the year, driven
by the resurgent demand for jumbo loans.
That was more than anyone expected and could help to push rates
higher than projected for next year.
For now, however, home loans are not only cheaper, they're also
easier to get, even for buyers not in the jumbo market.
Home buyers who qualified for conventional loans had an average
FICO credit score of 763 in 2012, according to Ellie Mae.
By last year, that had fallen to 755, and that's about where
it's remained for the first nine months of this year, according to the most
The average FICO score for homeowners who refinanced through a
conventional loan fell from 747 in 2013 to 733 last year and 728 in September.
FHA loans clearly helped borrowers with too much debt and lower
The average FICO score for those home buyers fell 700 in 2012 to
684 last year before rising slightly to 689 in September.
Those are exactly the kinds of trends that help borrowers land
the loans they need.
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