30 year mortgage rates hit 5%

[sdrealtor]

[quote=DataAgent]We bought out current home in 2007. Interest rates were high for the time so we went with a 3/1 ARM. 3 years after we bought, interest rates were much lower. A few years later, we locked into a much lower rate. Although we are not gamblers, sometime it pays to take a little risk.

A few months ago (same house), we re-fi’d into a 10 year IO loan with cash out @ 2.6% rate. It’s hard to qualify for low-rate IO loans but we met all the requirements. We now have 9.5 years with a decent rate and a very low mortgage payment. A lot can happen in 9.5 years so we have lots of options.[/quote]

I bought mine in 99 with a 5/1 ARM at 7.125%. Over the years as rates went down I got into 30 year loans at ever lower rates until grabbing one near the bottom in December 2020.

I have a friend that bought around the same time and got a straight adjustable he never refinanced. He always had the lowest rate until he sold it about 5 years ago.

My best friend for years did I/O 5/1 arms until I convinced to lock into a 30 yr fixed.

This is all well and nice with rates going down all that time but it works in other cases also. Rates have risen quickly but in the next 5 to 10 years there should be opportunities to refi around the same or lower either in fixed or in another adjustable. Combine that with a lower loan balance then and higher income and there is a good case to be made for adjustable hybrid fixed loans like 5, 7 and 10/1 arms.

[JPJones]

[quote=sdrealtor]Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables![/quote]
Damn…I didn’t think you’d be wrong, but I didn’t want you to be right.

“Oh no, not again.”

[Coronita]

[quote=JPJones][quote=sdrealtor]Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables![/quote]
Damn…I didn’t think you’d be wrong, but I didn’t want you to be right.

“Oh no, not again.”[/quote]

Well, adjustable rate mortgages are probably not bad by themselves, so that probably isn’t alone enough to cause alarm…

It’s when the banks stop dropping lending standards and anyone that can qualify for a loan that is barely breathing, then that’s a problem.

But we aren’t there….yet…..

I look at it another way….ARMs probably are a short to mid term way to allow some buyers to keep buying. It’s not an end all be all for everyone, but probably away to get around it. 7/1 or 5/1….. not deal with it for another 5-7 years. A lot of things can happen 5-7 years later. Maybe good, maybe bad. dont’ know. most people probably don’t think that far in advance.

And if banks are stupid enough to bring back liar loans, well then we have an entire new generation of stupid buyers that pay way above their means that will end up in a short sales/ REO for the rest of us buy at a discount, just like before…

Not that I wish that to happen… But if it were to happen, it is what it is.

[sdrealtor]

[quote=JPJones][quote=sdrealtor]Didn’t someone predict this here two months ago? I wonder who?

Adjustable-rate mortgage demand doubles
https://www.cnbc.com/2022/04/27/adjustable-rate-mortgage-demand-doubles-as-interest-rates-hit-the-highest-since-2009.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Message

It’s only just the beginning! Bring on the adjustables![/quote]
Damn…I didn’t think you’d be wrong, but I didn’t want you to be right.

“Oh no, not again.”[/quote]

lol and only just the beginning

[sdrealtor]

Rates

Mission Federal 10/1 ARM fixed for 10 years at 2.75%

Operators are standing by

[gzz]

Wow that 10-year 2.75 sounds a ton better than 5% 30 year.

Maybe my plan for a cashout refi isn’t as dead as I thought.

[Coronita]

[quote=gzz]Wow that 10-year 2.75 sounds a ton better than 5% 30 year.

Maybe my plan for a cashout refi isn’t as dead as I thought.[/quote]

I don’t know. Personally, I wouldn’t do a 10/1 cash out for a rental that I’d be planning to keep indefinitely.

Call me conservative who likes to play it safe(r).

[gzz]

I’d buy California PIMCO muni bond funds that yield 5.4% tax free. Not much risk holding both to maturity. For $200k worth that’s about an arbitrage gain of 4800 a year tax free for 10 years.

Now that was my plan last year that fell through because the overwhelmed IRS couldn’t find my corporate tax return that had been filed months prior. (The IRS is an understaffed mess, I filed my personal taxes and Cal corporate taxes the same day and they all arrived fine).

If I had done it then, I’d have cash locked in at 1.8 or 2% for 15 years invested at more like 4%, but would have suffered an unrealized loss as the funds dropped.

So certainly there is risk. But it seems pretty small overall. I think the muni tax adjusted yield spread over federal bonds is just insanely high and will eventually drop, especially as supply comes down, which is rapidly happening. The unleveraged and conservative vanguard long muni fund yields 2.8% free of state and federal taxes!

[Escoguy]

[quote=gzz]Wow that 10-year 2.75 sounds a ton better than 5% 30 year.

Maybe my plan for a cash-out refi isn’t as dead as I thought.[/quote]

A colleague recently got a 30 yr fixed at 3.6% (April).
I think he has over 50% equity.
The loan isn’t being sold and is kept on the banks books.

First Republic is the bank. They can be picky but I’ve found it’s often worth jumping through their hoops.

[sdrealtor]

That’s called a portfolio loan. They hold onto it. The big brokerage banks also do pledged asset loans for customers with good size accounts. Basically your investment account is a backstop that lowers lenders risk

[sdrealtor]

FWIW I looked at what would happen if instead of taking a 30 year rate around 5% someone took the 10/1arm at 2.75% and added the difference in the payment amount each month to the payment. On a $600,000 loan in 10 years the balance is about $150,000 lower. That sure seems to make a lot more sense than taking the higher rate for a 30 year fixed if one is able to

[sdrealtor]

Ran into an old friend yesterday who bought in 2014 but couldnt refi because his ratios were out of line due to support payments. His oldest just turned 18 putting him back into compliance to refi.

He was stuck at 4.125% and thought he had missed the boat. His LTV is around only 30% and he figured he’d just ride it out. I told him about Mission Fed. He went over this morning and was able to lock into a 10/1 ARM at 2.625%.

Between the lower rate and his recently improved cash flow he’ll have it paid off in less than 10 years.

[gzz]

3.5 months later, rates are at 5% again on the way down.

Zillow shows several 4.5% rates for LTV>50%.

So the punchbowl’s restocked with Red Bull and Captain Morgan, party’s back on! Risk on! BTFD!

[spdrun]

Up 0.25% *day-over-day* today.

DOW down 400+ points.

[gzz]

1. Talking about dow points rather than sp500 percentage change is a bad look.

2. Conventional mortgage rates are behaving strangely lately. They did indeed rise 0.5 even while jumbo and treasuries only went up 0.10 and .15 from recent lows. Their blowout way above jumbo rates is back to about 0.9.

3. I predict conventional rates will trend back towards normal spreads soon.

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