But we be refinancing, locking in a rate Should we be waiting and just kind of get behind what's causing it all?

Now, this is definitely not or it's definitely a little bit out of my wheelhouse.

So I brought in John Burnham, who is my personal lender.

Kind of my go to guy in these situations.

So, John, thanks for coming on.

What?

Where to live in Austin.

I appreciate it.

Thanks.

Right.

Always a pleasure.

You bet, man.

So we were just talking before we started recording.

By the way, John and folks out there, I don't know what I'm gonna call this video yet.

I'll come up with, like, a clever title, but I just wanna kind of dig into the issue.

So, John, we were just talking about this is one of the craziest day is you've had in a long time, right?

Yes, it is. 00:00:56.390 --> 00:01:4.150 Oh, well, first of all, the stock market has been right around 2000 point loss today. 00:01:4.150 --> 00:01:6.480 Of course, it's Fitz Teeter and and moved around. 00:01:6.480 --> 00:01:8.400 But let's just let's just call it 2000 points. 00:01:8.400 --> 00:01:11.050 About seven or 8% drop today.

What that's done is this really made the bond market act in a strong manner.

So a lot of money coming out of stocks, a lot of money going into Bonds when bonds are being purchased that makes mortgage rates come down.

So we were already at record levels before today, and now we're seeing some numbers up, quite honestly, never seen before in my 19 year career.

So wow.

Okay, so, yeah, I think a lot of folks have the impression, you know, when they see the Fed lowering rates.

And while there everything is somewhat connected.

But they think when the feds lowering rates, that translates directly into mortgages.

But that's not really the case, is it?

No, it's not all fact that the Fed cutting rates they're cutting the short term rates they're cutting the overnight lending rate, which can also have effect on prime it can have effect on home equity lines of credit, it can have an effect on car loans, shorter term loans, construction, lending things of that nature.

It does actually does not directly impact mortgage rates at all.

However, cutting the short term rates can make the markets react differently.

Make the stock market react well.

There's a lot of global things going on that it affected the stock market.

But it can stimulate the economy in many cases when the Fed cuts rates, which could actually make the stock market do well, which could take money out of bonds.

And it can actually cause mortgage rates to go up.

We have not seen that recently.

We've still seen more than Drake's come down, even though the Fed cut rates again.

That direct relation isn't there.

It's just all the different global factors that are happening right now.

Has his cap mortgage rates down?

Yeah, so I'm watching just briefly, but I'm looking and I'm seeing oil tanking. 00:02:59.440 --> 00:03:4.560 I'm seeing, you know, I'm sure that that's connected to the virus and travel, and it kind of all connects. 00:03:4.560 --> 00:03:15.080 But, you know, for folks who are out there who who are like, you know, one of a couple categories either saying, Gosh, you know, I thought I had a good rate, But should I refinance?

I know there's gonna be some cost.

I just I just bought my home last year or something like that and then also the folks who are maybe thinking about buying, but maybe a few months down the road.

You know, let's talk about these different scenarios or people who are under contract trying to figure out when the lock.

So let's just take these one by one.

You're kind of a dress like How would you play this?

Obviously, you know, neither of us has a crystal ball when it comes to what's coming.

But, you know, talk to me about where rates are today and what that means for folks refinancing.

What would you do?

Would you wait a little bit with your trigger?

Well, I think he comes down to appetite for risk. 00:03:54.510 --> 00:04:2.000 So if if you're watching this and your ah, lower risk person Miller risk averse, I would say you grab the rate. 00:04:2.010 --> 00:04:3.620 They're all time lows. 00:04:4.570 --> 00:04:11.450 Be just incredibly thankful that you're getting this incredibly, no matter who you're financing with locked in your interest rate.

Yes, I understand rates could go lower.

They could.

We'll talk about that in second.

However, if you want to check that box and really not have to worry about floating what we call floating in the business where you're not locked outside of lox flow, Um, then you walk.

If you're a little more risk, you are.

I guess you won't take on a little risk.

Then you could take on a float position right now, which I'm just gauging when I'm talking to my clients.

I'm being very, very transparent with them.

I want the lock conversation to be a two way conversation.

Hey, here's what we are.

We're it.

Let's just say 2.5% on a 15 year today or 3.1 on the 30 year, whatever the numbers are, which those numbers are out there, depending on your financial situation. 00:04:59.380 --> 00:05:5.810 And so let's just say we're two and 1/2 percent on a 15 year fixed that is historically low. 00:05:5.810 --> 00:05:12.420 I've actually in my 19 year career, never done an interest rate lock interest rate that low ever.

So if you're risk averse and you're seeing these all time low rates, you gotta grab it I think you grab it.

You check the box.

You just breathe easy If they continue to go lower, One question to ask your lender is do they have a real lot policy, or do they have a rate renegotiation policy?

Because if you have a rare renegotiation policy and we do, depending on the movement, the market, if we lock and the rates continue to improve, then we'll re lock you lower.

Maybe not at the absolute floor, but you're gonna get some great improvement.

Okay, But if we lock in the rates go up there, we're all gonna be excited and happy and breathe easy that we have a lot.

So that's one strategy is Hey, I'm more of a risk of Earth person.

Let's lock it. 00:05:58.380 --> 00:06:5.130 Okay, um, if you really are trying to catch it at the bottom, which again, nobody knows where that is until it's behind us. 00:06:5.260 --> 00:06:12.350 But if you're trying to catch it at the bottom, then I'm having the conversation with my clients about cautiously floating with loan.

Okay, here's how that works.

You're gonna do everything that you normally would do on your application.

Submit your financials, submit your pay stubs W two tax returns.

Get the appraisal done if one is necessary.

Have an understanding with your lender.

What is your ceiling that you want for your rate?

Okay, let's say it's 3.25 on a 30 year fixed.

That's what's being quoted.

And you don't want to do anything higher than that.

Then be on a two way understanding with your lender so that when the raid is ready to lock and it actually is better than that, the lender can lock it if rates start to turn.

And believe me, when they go, they go quickly.

Like the oil prices today, going down raise can go up that fast.

It's it's really remarkable help how quickly it can shift. 00:06:59.240 --> 00:07:0.230 So be ready. 00:07:0.310 --> 00:07:4.180 And then we can lock our entire pipeline and 45 minutes on dhe. 00:07:4.180 --> 00:07:11.650 That's basically how you have to be positioned so this cautiously floating policy might work well.

However, if lenders get too busy and they can't pay attention to your loan, that's something.

And considering you might get left in the cold if rates go back up right?

Okay.

Okay.

So let me throw us on a different you hear?

Sorry, There we go.

Gallery of you.

So let me ask you about this because, you know, I I think that Ah, a lot of people are kind of looking at these rates thinking, Oh, you know, I bought it 3.9 about it.

3.73 point two.

Now, whatever it is, what's that really mean to me in terms of a payment?

How what is there some some quick math, A quick formula you can give folks to give it given I get an idea of what this means in real dollars and cents.

Yeah, I mean the median home price in Austin's just over 300,000.

So let's just use 300,000 as a loan amount for, For example, a lot of folks are over that summer under, but as a general rule, if you're at 4% now and you're gonna lower your rate to 3% of course that's a 1% variance.

It's basically $3000 a year in interest, right 1% of 300,000 so roughly 2 250 bucks a month.

So if it's gonna cost you $3000 to refinance and you're going to say a few $1000 in the first year, then it's a one year break.

Even I would say, Do that loan right.

That's a pretty good, pretty good makes sense loan due to cost you 8000 refinance and you're gonna save 100 bucks a month.

That's 80 months to break even write.

That might be a little harder to justify it, so the interest rates look really great.

But I have some clients that were in that mid to high threes.

And if their loan amount is fairly low and I'll just say under 200,000 it's Sometimes it's hard to justify the costs because a lot of the costs are fixed costs, so you've got processing fees. 00:08:59.670 --> 00:09:3.060 Underwriting Appraisal Title may have a survey. 00:09:3.070 --> 00:09:16.180 You've got these fixed 34 $5000 for the closing costs, and sometimes it's hard to justify refinancing for maybe just 1/2 a point lower 3/4 of a point lower, but the quick math is.

Take your loan amount, take your current rate and do the delta between your current rate and let's just say three and 1/4 to 3 and 1/2.

That's kind of where rates.

All right now, today, um, that difference and spread.

You can multiply times your your loan, amount the percentage and get a savings, and do a quick, quick calculation.

Okay, now this is This is really tied into the stock market, so it's a it's an eye or equities in general.

But if we're if one's looking at, if one wants to kind of understand what's pushing and pulling this thing, it's a pretty safe assumption to say, You know what?

If the stock market starts recovering for an extended period of time, we could see rates start going back up pretty quickly. 00:09:59.690 --> 00:10:4.250 No question, no question, because what you're the correlation you're going to see there is. 00:10:4.740 --> 00:10:10.950 The money flowing back into the stock market is most likely getting gonna take money out of the bond market.

Stocks and bonds typically move in opposite directions, although in recent months they moved in more of an alignment stock market going down.

The bond markets also have been strong, which is brought razed down, Um, but what you'll see a typically is money flow into stocks.

You'll see the money coming out of bonds if investors were selling bonds than the prices are coming down.

The yields are going up and the rains will come back up.

So stock market's going up interest rates.

My, our rates, right?

Mortgage rates would typically come back up and again.

It can happen quickly.

So if someone's out looking, you are thinking about buying in the near future.

You know, depending on their price point, uh, rates can They can obviously go lower.

They can.

They can stay the same.

They could go higher. 00:10:58.470 --> 00:11:3.950 But there, you know, I think for some people, I think we're seeing this in our market. 00:11:4.100 --> 00:11:21.270 I think it's causing people to take action now rather than wait simply because, you know, sometimes you know, if you're in that 4 $500,000 range just this the difference alone might you might be able to buy a larger house closer in whatever it is you're after.

You could kind of bump up a notch or two and of the same payment, right?

That's right.

Yeah.

Typically, the quick math equation you could do is a 10% increase in price and what percent lower interest rate will be about the same payment.

So give me example, if you're looking at a 300,000 house ah, year ago at four and 1/2 percent, and now that price is 330,000 10% higher.

And the rates at three and 1/2 instead of four and 1/2 basically gonna be give or take about the same payment so it increases your purchase power.

If you have been waiting and maybe you can buy a little stretch your budget a little bit. 00:11:58.280 --> 00:12:2.170 Our sales price search, I should say, to keep the same budget. 00:12:2.300 --> 00:12:3.050 Same payment. 00:12:4.040 --> 00:12:5.300 Got it, Got it. 00:12:5.300 --> 00:12:8.230 So let me go back to the refinance. 00:12:8.540 --> 00:12:14.010 If someone's looking at this, trying to make a decision, what in your mind and I know this is all opinion.

What is the amount of time to break even because you know you're out late?

Closing costs When you do this, what's the amount of time to break even that you say thumbs up, Where does it break and you go thumbs down?

In terms of that, well, some of the loan programs actually set the parameter for us like, for instance, a V a loan.

It's a 36 month break even or less so for veteran clients out there.

If you're gonna refinance, you have to be in a 36 month break, even for us to do what's called a streamlined refinance.

So let's just use that as a tool.

Maybe it's three years, but if you know you're gonna sell in two or three years, I wouldn't know that.

Take on a refinance right now, unless you can structured in a way with lender pager closing costs. 00:12:57.140 --> 00:13:0.900 And there are loans like that and you'll see no closing costs refinances out there. 00:13:1.040 --> 00:13:2.510 They do exist. 00:13:2.610 --> 00:13:17.210 What is happening on that is the lender is basically giving you a slightly above market rate, and they're creating some profit through that above market rate, taking that profit and paying your closing costs because the closing guys don't go away.

There's always title fees.

There may or may not be an appraisal fee, but there's always some transaction costs that have to get accounted for.

But I like to see breaking is between one and two years.

I think three is on the high side, but then again, I had a client recently that it was five years, but they they said they're never gonna move again.

And they don't really want to touch the loan again.

So they're gonna do it, you know, check the boss and move on down the road.

Hopefully never in finance again s so it doesn't, uh depends on how long you gonna be in the home.

But I'd say generally speaking, you know, 123 years.

Okay, so let me ask you to get your crystal ball out real quick.

Let's talk about the coming weeks. 00:13:59.510 --> 00:14:1.050 Obviously, we don't know. 00:14:2.080 --> 00:14:6.750 I don't think anyone understands the extent that the virus is gonna affect the economy. 00:14:7.470 --> 00:14:9.170 There's a bit of a domino effect. 00:14:9.510 --> 00:14:11.330 Some people say this is just gonna blow over.

It's nothing.

Other said this is just the beginning.

But you've been doing this a while.

What would you guess?

In terms of, you know, um obviously there's gonna be volatility in markets, but rate wise, Do you think as this year plays out, we're going to continue to see pretty low rates?

Ah, I think that I think that it's tied to this kind of pandemic and all that goes on with it, and as that recovers, rates will recover.

But at some point if travel's been down long enough and companies are laying off people as a result, and all these things, that's domino effect.