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DiamondEye

Given the upcoming Fed cuts, when will mortgage rates bottom out?

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I'm definitely going to refi out of my mortgage which has PMI now that I have the equity.  I currently have 3.99% 30yr but I want to refi to both lower the rate and get rid of the PMI.  Pretty sure another 25 basis point reduction in September but I have also heard there will be several more cuts all the way up to April 2020.  I'm trying to determine when the mortgage rates are likely to bottom out, so I can jump at that time.  When do you all think they will bottom out, and how long after a rate cut announcement before they reflect in the commensurately lowered mortgage rates?

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predictions are very difficult especially about the future.

 

if you refi, please don't get another 30 as that extends the length of time you will not own your house.

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Paying PMI is dead money.  You should be trying to re-fi out of that ASAP.  The savings you may get from an additional 25bps reduction may be mostly eroded by paying PMI for another year, plus you are making a bet that rates go down.  

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53 minutes ago, CTSoxFan said:

Paying PMI is dead money.  You should be trying to re-fi out of that ASAP.  The savings you may get from an additional 25bps reduction may be mostly eroded by paying PMI for another year, plus you are making a bet that rates go down.  

I'm making a bet, but a pretty solid one, at least about September, which is pretty much a lock.  While $200/mo is painful, it is worth waiting to see where the rates go over the next few months given how the reduction in percentage point would reduce the overall interest paid over the life of the loan.

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3 hours ago, cv91915 said:

You will know the exact point at which rates have hit the bottom after they've gone up and then refuse to go back down.

Thanks, I'm aware of that.  Can you also answer how long after the fed rate cut until it is reflected in reduced mortgage rates?

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4 hours ago, hegemony said:

predictions are very difficult especially about the future.

 

if you refi, please don't get another 30 as that extends the length of time you will not own your house.

Predictions aren't that difficult when it's all over the business press.  I'm not holding the property for 30 years so re-extension is a non-issue.

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8 hours ago, DiamondEye said:

Thanks, I'm aware of that.  Can you also answer how long after the fed rate cut until it is reflected in reduced mortgage rates?

No, and you are making assumptions about the sequence of events.

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10 hours ago, DiamondEye said:

Predictions aren't that difficult when it's all over the business press.  I'm not holding the property for 30 years so re-extension is a non-issue.

you're assuming that a .50 reduction in feds funds rate will equal .50 reduction in the mortgage APR you will qualify for. There are many other variable and factors.

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On 8/22/2019 at 9:14 AM, hegemony said:

you're assuming that a .50 reduction in feds funds rate will equal .50 reduction in the mortgage APR you will qualify for. There are many other variable and factors.

Exactly.  Especially with the yield curves on treasuries acting weird, you are seeing some abnormal trends, like fixed rate mortgages having lower rates than ARMs.  When the fed made the last cut the rates came down but right now they are actually higher (at my lender, others may be different) than what they were at before the cut.

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On 8/22/2019 at 8:36 AM, cv91915 said:

No, and you are making assumptions about the sequence of events.

No, actually I'm not.

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On 8/21/2019 at 6:58 PM, DiamondEye said:

how long after a rate cut announcement before they reflect in the commensurately lowered mortgage rates?

 

On 8/22/2019 at 8:36 AM, cv91915 said:

 you are making assumptions about the sequence of events.

 

4 minutes ago, DiamondEye said:

No, actually I'm not.

 

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No the entire premise is not an assumption in any way.  This is an established course of events over many years.

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Posted (edited)
25 minutes ago, DiamondEye said:

No the entire premise is not an assumption in any way.  This is an established course of events over many years.

If true, you would have already found the answer to your question with the Google Machine.

 

The Fed rate is for overnight loans among banks.  The drivers for setting unsecured overnight commercial loan rates among member banks and setting the rates for a 30-year installment loan secured by a consumer's home are very different.  

 

Rates for 30/fixed go up and down even when the Fed does nothing with the overnight rate.

 

Your questions incorrectly assume all of the following:

 

1) The 30/fixed mortgage rate moves as a direct result of changes to the fed funds rate;

2) The 30/fixed mortgage rate moves in the same direction as the fed funds rate;

3) The 30/fixed mortgage rate changes AFTER the fed funds rate changes;

4) A cut in the 30/fixed mortgage rate is somehow "commensurate" with a fed funds rate cut.

 

 

Edited by cv91915

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No they don't incorrectly assume any of the points you listed, at all, and Google would in no way have this answer anyway.

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So if you don’t think mortgage rates move with the fed rates why do you think mortgage rates will go down of the Fed cuts it’s rate?

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4 hours ago, cv91915 said:

Your entire premise is an assumption.  

what's the airspeed velocity of an unladen swallow?

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Diamond, it's poor etiquette to ask for advice and then argue with the response.  It's fine to probe a little to better understand the rationale for the response you get, and even to ultimately disagree with the input (to yourself, but hopefully expressing appreciation for the input).  Just saying ...

 

Whether you realize it or not, you've gotten some very spot on advice here.  The entire reason things are a bit topsy turvy in the financial markets, and why the Fed has suddenly reversed course, is that NO ONE has any idea what's going to drive the markets in the next 60 days, much less the next 6 mo. 

 

You can listen to the speculation all you want about an upcoming series of rate cuts, but there's no confidence in them at all right now ... the Fed is playing things pretty much minute by minute.  There should be no mistake:  In the longer scheme, the Fed is definitely biased to pushing rates into a historically "normal" range.  But uncertainties like the ongoing weakness in the European economy, fall out of whatever Brexit materializes, and the burgeoning trade war are going to keep EVERYONE guessing.

 

So, yeah, an additional rate cut in September is very likely (but I wouldn't call even that a sure thing, depending on what transpires in the interim).  Whether that translates into further mortgage rate drops is much less sure -- though at this time likely a safe call.

 

As alluded in this thread, there's a disconnect between short-term rates and longer-term rates.  Under normal circumstances, longer term investments offer a higher yield to induce investors to lock up their money for a longer period.  However, most recently, there's been an influx of money into longer term treasuries, driving up their price and, consequently, lowering the effective yield to investors. 

 

A related impact is that an increased supply of money locked into longer terms results in lower mortgage rates (mortgage investments are a substitute for treasury investments).  There's good reason to believe this flow into longer US Treasuries is a reflection of uncertainties elsewhere in the world (particularly the economic outlook of Europe, where isolated instances of very low rates currently prevail).

 

Most recently, yields on 2-year treasuries have risen above those of 10-year treasuries, an otherwise abnormal relationship referred to as an "inverted yield curve".

 

Your speculation in this thread suggests that you're confident that a reduction in short term rates will result in a drop in longer term security rates, and consequently mortgage rates.  That confidence could be misplaced:  If the uncertainties that are currently driving the market defuse a bit, the same inflows into longer-term Treasuries that are responsible for mortgage rates dropping could easily reverse themselves ... the yield curve could normalize, and mortgage rates be on the rise again.

 

It's anyone's guess right now.  (And googling forecasts isn't a wasted exercise, but should reinforce the uncertainties in play at the moment.)

 

That's some long-winded background that I hope is helpful.  (FWIW, just to suggest that if I'm blowing smoke here, it's of some quality, I have an Economics degree from a fairly reputable university).

 

I'll echo the advice of others:  Wait out the September Fed decision and then get your app in to refi and drop your PMI.  Be advised, that as in any other period where rates have dropped, there's a good line forming up and you're looking at a possible 30-60 day period to close.  It may be worth paying up around 1/8% to lock your rate for 60-days.  (Your call.)

 

If rates drop by 1%+ over the next 6 mo, re-investigate whether it's worthwhile to look at a refinance.  But in the interim, be satisfied that you acted in time to avoid a possible 1% hike in rates.

 

A September rate cut will likely have an immediate impact of dropping all rates.  However, predicting what happens to longer-term rates thereafter is a crap shoot.

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17 hours ago, DiamondEye said:

No they don't incorrectly assume any of the points you listed, at all, and Google would in no way have this answer anyway.

:lol:

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Predictions aren't that difficult when it's all over the business press.  I'm not holding the property for 30 years so re-extension is a non-issue.



How long are you staying? Definitely figure-out the break even point. Refis cost money so it takes a few years for the savings to be realized.

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17 hours ago, hegemony said:

what's the airspeed velocity of an unladen swallow?

African or European?

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