Published November 10, 2011
Mortgage rates barely changed this week, remaining near record lows as investors seem to have given up hopes on Greece and now are panicking over Italy's debt woes.
The benchmark 30-year fixed-rate mortgage rose 2 basis points this week, to 4.25, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 4.46; four weeks ago, it was 4.37.
The benchmark 15-year fixed-rate mortgage rose 2 basis points, to 3.5. The benchmark 5/1 adjustable-rate mortgage fell 2 basis points, to 3.16.
If the Italians don't find a solution to their debt crisis quickly, mortgage rates could drop in coming days, says Scott Eggen, senior vice president of capital markets at PrimeLending in Dallas.
Results of Bankrate.com's Nov. 9, 2011, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
|30-year fixed||15-year fixed||5-year ARM|
|This week's rate:||4.25%||3.5%||3.16%|
|Change from last week:||+0.02||+0.02||-0.02|
|Change from last week:||+$1.93||+$1.62||-$1.80|
"This is a historical type of crisis that could blow up at any moment," he says. "It's a contagion. Greece is a pretty small country, but now you move to a much bigger country, Italy, and what's next? It could be Portugal, Spain. … That's the sentiment right now."
One factor that fueled concerns over Italy is that the yield on Italian bonds increased to a point analysts say is unsustainable. The yield is the return investors get for lending money to the country through the purchase of bonds. On Wednesday, the yield on the 10-year note in Italy was 7.4, the highest level in 10 years. By comparison, the yield on the 10-year note in the United States was below 2. That's because the American debt is perceived as a much safer investment.
And as long as investors continue to view the United States as the safest place in the world to park their money, mortgage rates should remain low, says Brett Sinnott, director of secondary marketing for CMG Mortgage in San Ramon, Calif.
"A lot will be determined by where investors feel the true safe haven is," Sinnott says.
The United States has its own debt issues, but they are far from being as bad as Europe's.
Members of a congressional panel known as the supercommittee have until the day before Thanksgiving to agree on a plan to cut $1.2 trillion in federal deficits over the next 10 years.
So far, it doesn't seem they are even close to getting there. If they don't reach a deal by the deadline, investors may not feel as safe investing in a country that can't deal with its deficit problems.
"If they feel that sovereign debt is not the way to go, then you could see a rise in rates as the United States will need to address the deficit outside of proposed spending cuts and tax increases," Sinnott says. "There is a strong chance that many will attempt to find a safe haven outside of sovereign debt. This could lead to a rally in commodities, as they still remain a long-term store of value (gold and silver)."
With so much economic uncertainty at home and abroad, mortgage advisers say borrowers who are on the fence -- asking themselves whether they should refinance now or wait -- should not take a chance.
David Kuiper, a mortgage planner at First Place Bank in Holland, Mich., agrees borrowers should grab the opportunity to refinance as soon as it makes sense for them, but for those who qualify for the Home Affordable Refinance Program, it may pay off to wait.
Kuiper says the revised version of HARP, which regulators announced a few weeks ago, could allow underwater borrowers to refinance at lower costs. The details of the revamped HARP are set to be released by Nov. 15. Kuiper has been telling his HARP-eligible clients to wait until then to refinance.
"They say they are going to be reducing costs with the new HARP," he says. "If you are eligible for HARP, I see no harm in waiting. At the same time, be in touch with your loan officer. We need to continually monitor things because they change quickly."