Timing may not be EVERYTHING, but a missed opportunity isn't ANYTHING. Ignoring timing is costly. Most borrowers are clueless about this, to their peril.
The chart below is a graph of the yield on the 10-Year Treasury Bond which correlates highly with mortgage rates. It doesn't take much study to see that there have been only four short periods this year when the rates were a lot lower than average.
IMPORTANTLY, we may be headed for a fifth.
To translate these numbers into mortgage rates, you need to add a spread of 2.25%. In other words if the bond yield was 3.3%, the mortgage rate at that time would have been about 5.55%. At the top, 4.25% plus 2.25% yields 6.5%.
You can also see that those people who didn't lock at the best time paid as much as 1% more than those who paid attention to timing as a factor. Let's say it was an average of only one-half percent. On a $300,000 loan, those who locked when the rates were one-half percent higher than the people who locked in at the lows paid more than $40,000 over ten years than did their smarter neighbors.
You can see how important this is. It's HUGE, which is why I update charts like this on a daily basis. I can use it to help my clients save that $40,000. We also had people who came in when rates were higher and we waited months until they came down. When rates came down a month ago, we locked them in and have now closed them.
It's also one of the things that drives me crazy about rate shoppers. They call and want to know what "my rates" are today. In fact, as you can see, unless you are in one of those two or three day periods, it's irrelevant. What is important is that I have the capability of helping them lock at a better time. My competitor is some twenty-something kid at an 800 number who, if we showed him this chart, wouldn't even know what was going on.
Their job is lock their clients in today and close them. But we wait until the next propitious time because I want to save my clients that $40,000.
Yet I have never figured out a way of giving this message to the clueless. They just don’t get it. They stumble off down the road and get a loan somewhere else totally oblivious to what they COULD have had.
As you can see from the chart, it LOOKS as if we are in the process of a rate break to the downside. Rates are firmly back below 6% again and, frankly, if I were interested in refinancing, I would apply immediately. If you are in a purchase transaction and not yet locked, check these data continuously with your lender.
If you aren't actually in the market for a new loan but will be some time in the future, print this out and keep it handy. You are talking about big savings, maybe not $40,000. But how about $20,000? How about $10,000? You can see that it is possible if you are aware of the opportunity and are committed to taking advantage of it.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower
articles. Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.
Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.
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