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The Sky is Falling: Rates to Spike to 4%

The headline seems absurd (Rates “spike” to 4%), but that is the truth. The 10-Year Treasury Note Yield [T-No (^TNX)] and the corresponding mortgage rates have taken a dastardly beating over the last 10 days, but the net result is that you can still get a conventional, 30-year fixed, no-cost loan at 4%.

As a broker, it is difficult to escape the myopia. This amazing 4% loan would have been roughly .5% cheaper just 10 days ago. In other words, your $400,000 loan will now cost $2,000 more to close as the same rate. That is not chump change, but if you remember, there was a time when throngs of people were clamoring for 6% adjustable loans. That considered, it seems like small potatoes.

In the last 45 days, rates have deteriorated pretty significantly. The price on a conforming jumbo loan has billowed by 1.5% to price (not rate) since the first week of February. On a $600,000 loan, that is a $9,000 difference in cost for the same loan. More practically, a person could have gotten a 3.875% APR loan (no cost) at that time while the current market no-cost loan would be closer to 4.25%. The difference in payment is about $85 per month.

So while it feels like the sky is falling, it’s important to remember that it’s a sunny, Southern California sky.


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