Generally the 30 year fixed mortgage is priced first for conforming loans. These loans have a maximum of $417,000 and any loan over that limit is a jumbo loan. Jumbo's are generally 1/4% higher than conforming rates. The 15 year conforming is usually 1/4% lower in rate than the 30 year. When everything is in balance in the fixed rate mortgage market you will find that the 15 year conforming is 1/4% lower than the 30 year fixed and the 15 year jumbo and the 30 year jumbo is 1/4% higher than both the 30 year fixed conforming and the 15 year jumbo.
Why is that important to know? If you understand the relationship, you can act when these particular loans are out of sync. Last year the 15 year conforming was 1/2 to 5/8% lower than the 30 year. It was a sign to those looking for a well priced 15 year that the time had come to act. Many people felt that the 30 year was too high not that the 15 year was too low and lost out. Rates always tend to go up easier than they come down so it was evident that the 30 year wouldn't be coming down to meet the 15 year. As it turned out, it was as I suspected an anomaly that corrected itself rather quickly.
All of the rest of the mortgage loans, (anything considered a non fixed rate), are portfolio loans that are funded with investors money and sometimes kept as their portfolio of investmentsin mortgages. The lenders tend to check each other daily to see if any one is trying to buy business with lower rates and to see if their own rates are in the ball park.I will get into a discussion of variable and hybrid loans in another column.
For now, let the word go out to everyone that the traders, not traitors, rule. Watch the bond market and you will be able to ascertain when the right time comes to move when it pertains to the mortgage market. With knowledge, you can be sure of what you want or need to do with your mortgage and not have to rely on someone to tell you the time is right. Talk about turning the tables!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom. Roger is the President and founder of Manhattan West Mortgage.