Following weak economic news, lagging consumer confidence and a worsening employment picture, mortgage rates dropped an eighth of a percent last week.
The Federal Home Loan Mortgage Corp. reported that for the week ending Sept. 10, the average interest rate on a 30-year fixed mortgage hit a record 25-year low of 6.82 percent.
In the first week of every month, a number of important economic reports are released that affect the financial markets. Interest and mortgage rates usually fall on poor economic news over the belief that the Federal Reserve will ease credit policy in order to stimulate the economy.
The first of September’s major economic reports, the National Purchasing Manager’s Business Survey Index, showed manufacturing activity dropping for the third consecutive month. The index dipped to 49.3 percent (numbers below 50 percent indicate a contracting economy).
Also released was the Index of Leading Economic Indicators, which looks at future economic activity six months into the future. It edged lower by a tenth of a percent.
The Commerce Department reported signs of sluggishness in the housing market as sales of new homes declined by 5 percent. All regions of the country saw drops in sales with the Midwest down by 1.6 percent to 121,000 units (annually adjusted).
The median price of a home rose to $124,900. Supplies or backlog of new homes on the market continued to remain low at a 5 1/2 month pace.
Lenders eased mortgage rates on Sept. 3 following the release of August Employment Data. Economists generally view the employment report as the month’s most important economic news.
August payrolls lost 39,000 nonfarm jobs despite predictions of increases over 150,000.
However, a second survey did indicate that the unemployment rate edged slightly lower to 6.7 from 6.8 percent.
In response to the report, lenders dropped the average 30-year program by an eighth of a percent to 6.875 with no points. The 15-year fixed program hit 6.375 percent and no points.
A private matter
Q-Why do we need private mortgage insurance?
A-Private mortgage insurance, or PMI, is a form of insurance that protects a lender from loss on loans with low downpayments. The consumer pays the premium.
The advantage of PMI is that it allows a consumer to purchase a house with a down payment of as little as 5 or 10 percent, giving buyers with little cash upfront a chance at homeownership.
The cost of PMI varies according to the down payment-5, 10, or 15 percent.
Here’s a typical scenario with a 5 percent down payment mortgage: The borrower at time of closing pays an initial fee of 1 percent of the loan with an annual renewal premium of .49 percent until the loan falls below 80 percent of the mortgage amount.
For example, on a $100,000 purchase with 5 percent down and a 30-year mortgage of $95,000 at 7.5 percent interest, the cost of mortgage insurance at the closing is $950. The monthly payment of principal, interest and PMI on the loan would be $703.04.
Within the last few months, a couple of the nation’s largest mortgage insurers-Mortgage Guaranty Insurance Corp. and GE Capital Mortgage Insurance Corp.-have come out with significant changes in the way private mortgage insurance has been handled.
Basically, their new programs offset the initial closing costs payment with higher monthly premiums.The advantage of this program is that it reduces overall closing costs by 9 to 22 percent.
