As anticipated in yesterday’s market update, the US stock market hit the bottom of the upward trading channel and then bounced higher. This has pulled money out of the mortgage bond market in early morning trading. Stocks are currently trading just beneath a very critical ceiling of resistance. If stocks are able to muster the strength to break above this level, we will see mortgage interest rates take a step higher. If mortgage bonds fall beneath their 200 day moving average, this would likely lead to a strong move higher in the near term for mortgage rates. Generally speaking, a break from the 200 DMA in either direction is generally followed by a more dramatic move. In this case, that would not be welcomed news for potential homebuyers.
Since we are anticipating a recession within the next 12-24 months, I want to reiterate our suggestions on how to best structure a mortgage so you can take advantage of the lower interest rates that we generally see during recessionary times. First of all, consider structuring your home loan with a no-fee mortgage. Although the rate will be higher than if you pay closing costs, you will not have anything to lose when you refinance if rates come down. Also, if you are in a position where you will have mortgage insurance, we favor paying monthly mortgage insurance vs doing an MI buyout. If rates fall to a point to where you can refinance to save interest, you will not have kept your loan long enough to recoup the cost of the up-front MI buyout. Talk to your mortgage professional before making a decision.
Given the short term pressures on the bond market, we will suggest a locking bias.