Confused

[angerona]

Mortgage quotes like these (These are from http://www.mortgage101.com/Articles/DailyRateSurvey.asp but I've seen similar ones elsewhere) make me feel that I know nothing about the way mortgage industry operates.

Comments

[pro_sha]

I don't know why 15 year is higher than 30 year but the fixed is lower because of ARM because investors don't want to buy ARMs right now. From what I have heard is that the only mortgages that are getting sold on the market are the ones that are esentially backed up by the government, which means non-jumbo fixed loans. This is how I understand it.

[angerona]

ok, that sort of makes sense wrt ARMs (although 5/1 seems pretty safe to me), but still why is 15 higher than 30?

[spogreb]

same reason - it's easier to sell a 30-year-fixed mortgage - it's the most standard loan that the investor knows can be resold to Fannie Mae and Freddie Mac. A 15-year is slightly less standard - and people don't want to touch anything but plain vanilla (i.e., "conforming") right now.

[pro_sha]

I think you are right. Plus the Fed is intervening in the mortgage market. They might be concentrating on 30-year mortgages and not on 15-year mortgages since 30-year are more standard. This would also push rates down on 30-year.

[angerona]

I see. Sucks for those of us shopping for a 15yr mortgage. Although I suppose it just means that our rate is good enough as is.

Can't the 15yr one be resold as easily to Freddie/Fannie?

[pro_sha]

Just get the 30-year and prepay every month.

[angerona]

No point in doing it if our rate is better than the current 30yr rates :). I was just hoping that 15yr ones would drop as well -- to lower than what we have.

[pro_sha]

Then, of course, there is no point.

[meshko]

Prepaying is difficult :) I never figured out how to prepay with my online banking system. By default the extra payment is just deducted from your next bill, not from the principal.

[pro_sha]

I know that my parents pre-pay every month so it is certaintly doable.

[meshko]

Yes, but you have to actually write a check, fill out a form, put it in an envelope and mail it.
Just saying there is a real benefit to having a 15 if you can afford one. On the other hand 30 and prepaying is better -- you are doing the same exact thing but always have a choice to slash your payments always in half if something happens. So there is absolutely no reason for 15 year mortgages to exist, unless they have a better rate.

[angerona]

Right, which is why the current rates on the market make no sense to me. But I guess it's explained by the supply-side drive on the mortgage-buying side.

[meshko]

So if I understand it correctly it's yet another example of market destroying a product and hurting the consumer: they worry about resale value and end up making the product useless as a result.

[angerona]

yes, it seems.

[meshko]

Unfortunately with my current income thinking too much about pre-payment is somewhat wasteful ;)

But since I don't have a good enough understanding of what is going on to predict the future, I'm operating under the assumption that the things will pretty much go on as they are now (i.e. no hyperinflation). So yeah, I would pre-pay if I could.