Don’t Freak Out About the Recent Mortgage Rate ‘Spike’

Queue the panic. Mortgage rates have officially spiked and the media is all over it. Yep, the average rate on a 30-year fixed mortgage increased from 2.65% to 2.79% this week, per Freddie Mac’s weekly survey. Freddie Mac Chief Economist Sam Khater noted in the weekly news release that mortgage rates have been under pressure [&hellip

The post Don’t Freak Out About the Recent Mortgage Rate ‘Spike’ first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

10 Mortgage Lenders to Consider for the Best Mortgage Rates (and Fees!)

Everyone likes a discount, right, even if it’s on a small one-time purchase that equates to a nominal amount. For one reason or another, it just feels like a win. It’s obviously even sweeter if you get a discount on a big-ticket item, as the savings will be much larger. Better yet, how about a [&hellip

The post 10 Mortgage Lenders to Consider for the Best Mortgage Rates (and Fees!) first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Mortgage Rate vs. APR: What to Watch For

It’s time for another mortgage match-up: “Mortgage rate vs. APR.” If you’re shopping for real estate or looking to refinance, and you’ve seen a certain mortgage rate advertised, you may have noticed a second, similar percentage adjacent to or below that interest rate, possibly in smaller, fine print. But why? Well, one is the mortgage [&hellip

The post Mortgage Rate vs. APR: What to Watch For first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Why Are Refinance Rates Higher?

Mortgage Q&A: “Why are refinance rates higher?” If you’ve been comparing mortgage rates lately in an effort to save some money on your home loan, you may have noticed that refinance rates are higher than purchase loan rates. This seems to be the case for a lot of big banks out there, including Chase, Citi, [&hellip

The post Why Are Refinance Rates Higher? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

It’s Taking a Really Long Time to Get a Mortgage Right Now

Similar to the increased waiting times to get a COVID-19 test these days, it’s taking an extended amount of time to get a mortgage to the finish line. The reason is simply unprecedented demand, just like those COVID-19 tests. The more people that need one, the longer the wait, period. This is the downside to [&hellip

The post It’s Taking a Really Long Time to Get a Mortgage Right Now first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

2021 Mortgage Rate Predictions: Mostly Flat But More Record Lows Possible

Yet another year is about to come to an end, and that means it’s time to look ahead to what next year has in store. I think just about everyone wants to see the back of 2020, though it wasn’t all bad news. The housing market actually held up surprisingly well, and mortgage lenders enjoyed [&hellip

The post 2021 Mortgage Rate Predictions: Mostly Flat But More Record Lows Possible first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Mortgage Rates vs. the Stock Market

Mortgage Rates vs. the Stock Market

Last updated on August 7th, 2019

Mortgage match-ups: “Mortgage rates vs. the stock market.”

With all the recent stock market volatility, you may be wondering what effect such events have on mortgage rates.

Do mortgage rates go up if stocks go down and vice versa? Or do they move in relative lockstep? Let’s find out!

Stocks and Mortgage Rates Follow the Economy

stocks vs. bonds

  • Both stocks and mortgage rates take cues from the economy
  • And they react to news in mostly the same way
  • Whether it’s good news or bad news
  • Because what’s going on economically matters to the underlying security

Simply put, when economic fears rise, as they commonly do, whether justified or not, investors flee the stock market and head toward safer U.S. Treasury bonds, such as the benchmark 10-year bond.

So stocks and bonds have an inverse relationship. Imagine a scale that is constantly rising and falling as investors jump from one side to the other.

This phenomenon is known as the “flight-to-quality,” whereby investors ditch the risk and head to safe havens like gold and U.S. Treasuries when fear is in the air.

They do this because Treasuries have an explicit government guarantee, whereas anything can happen with individual stocks. In fact, a stock could go to zero and that would be that. Investment lost.

Anyway, when demand for Treasuries and bonds increases, prices go up and yields drop because demand is so strong that a higher yield is no longer necessary to lure in investors.

And because the 30-year fixed tends to follow the direction of the 10-year bond yield, both up and down, mortgage rates tend to decline when stocks fall. And mortgage rates generally rise when stocks go up.

Stock Market Fear = Lower Mortgage Rates

  • Fear is good if you want a lower mortgage rate
  • Because if things are looking gloomy in the economy
  • It means investors will likely ditch stocks and flock to bonds
  • Thereby pushing the price of the bond up and the yield (interest rate) down

Yesterday, the stock market plummeted thanks to an ongoing trade war with China that just ratcheted higher.

At the same time, the yield on the 10-year bond fell to its lowest point since late 2016.

Mortgage rates also moved lower on the news, and they may even improve further thanks to the general uncertainty in the air.

This is great news for prospective homeowners, as mortgage rates were expected to climb throughout 2019 while the economy supposedly improved.

But it is a bit of a catch-22, as lower mortgage rates mean more economic unrest, which can translate to flat or even lower home prices for those looking to sell.

After all, there might be fewer prospective home buyers if people are losing their jobs, getting paid less, or simply feeling less positive about their finances. And that could lead to price cuts.

[Home prices vs. mortgage rates]

Mortgage Rates Follow the Stock Market

  • Mortgage rates and the stock market aren’t directly related
  • But rates do tend to follow stock market moves
  • So if stocks go up, mortgage rates may follow, and vice versa
  • Just note that there might be a time tag with regard to mortgage lenders adjusting rates

As a rule of thumb, bad economic news sends mortgage rates lower, while good economic news pushes mortgage rates higher.

Stocks move in much the same way, except of course higher stock prices are seen as a positive and higher mortgage rates are viewed quite unfavorably, rightly so.

So when stocks rise, mortgage rates often climb as well. And when stocks fall, mortgage rates typically decrease too.

This could lead to disappointment if you’re keeping one eye on your stock portfolio and another on mortgage rates, assuming you’re in the market to refinance your mortgage.

Your stocks may be up, but mortgage rates won’t be as low.  Conversely, your stock portfolio could be in the dumps while mortgage rates inch lower. Think of this as a bittersweet, but often unavoidable situation.

Of course, a lower fixed mortgage rate may mean a lot more long term than a temporary blip in stock prices. If you’re in it for the long-haul, the lower rate can be much more meaningful.

Experts will probably tell you that you shouldn’t be watching your stock portfolio on a daily or even monthly basis, as any losses are simply paper ones until you’re ready to cash out much later in the future.

Also keep in mind that there are many factors that determine mortgage rates, and a change in stock prices may not always translate to a similar change in rates thanks to the complexities involved.

It should just give you a general indication of the direction rates may go if they even move at all.

Tip: What mortgage rate can I expect?

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

An Alternative to Paying Mortgage Points

An Alternative to Paying Mortgage Points

If and when you take out a mortgage, you’ll be faced with an important choice. To pay or not pay mortgage points.

In short, those who pay points should hypothetically secure a lower interest rate than those who do not pay points, all else being equal.

That’s because mortgage points, at least the ones that are bona fide discount points, are just a form of prepaid interest.

So you’re essentially paying a portion of the interest on the underlying loan upfront, as opposed to monthly over the life of the loan term.

The caveat is that it is possible for a home buyer or refinancer to obtain a lower mortgage rate than another borrower without paying any points, assuming they shop around and use a mortgage lender with lower rates.

Now back to whether you should pay points or not, especially at a time when mortgage rates continue to hit new all-time lows.

Mortgage Rates Have Hit Record Lows 12 Times This Year

In an environment where mortgage rates are declining over a long period of time, paying mortgage points can be a mug’s game.

After all, you paid money upfront for a lower mortgage rate, only to find yourself back at the refinancing table. No bueno.

Indeed, many homeowners these days are asking the question, how soon can I refinance again?

Those who went the no cost refinance route have basically nothing to lose, other than maybe resetting the mortgage clock.

While those who paid several thousand dollars in closing costs, of which points made up the lion’s share, potentially have a lot to lose if they take out a new home loan right away.

Paying Points vs. Paying a Little Extra Monthly

$400,000 Loan Amount Pay Points Pay Extra Monthly
Upfront Cost of Points $4,000 $0
Mortgage Rate 2.5% 2.75%
Monthly Payment $1,580 $1,680
Extra Payment $0 $47
Loan Balance After 48 Months $362,324 $361,316
Total Paid After 48 Months $79,840 $80,640
Net Savings $208

Let’s consider a $400,000 loan amount where a borrower pays one discount point to obtain a rate of 2.5% on a 30-year fixed mortgage.

And an alternative where the homeowner decides not to pay any points and settles for a rate of 2.75% instead.

The homeowner who paid $4,000 upfront would enjoy a monthly payment of about $1,580 versus the higher payment of $1,633 for the no-points borrower.

That’s a difference of about $53 per month, which would take around four years to recoup when you consider the lower-rate mortgage reduces the outstanding principal balance faster.

Now if you didn’t want to pay that extra $4,000 at closing, you could simply go with the higher mortgage rate but still wind up with a similar mortgage balance after four years.

Simply pay $47 extra each month ($1,680 total) and your remaining loan balance would be around $361,316 after 48 months.

Meanwhile, the cheaper mortgage would be roughly $362,324 at that time with regular monthly payments.

That’s about a $1,000 difference for an extra $4,800 in payments over that time ($100 x 48). So the net cost is $3,800 over that time, slightly lower than the $4,000 paid upfront.

In the end, both borrowers are in a similar spot after four years, but the borrower who didn’t pay points had the option to refinance if rates moved even lower.

And they could pay extra each month to stay on track or just pay the minimum and invest the money elsewhere at hopefully a higher return.

Now, after those first four years are up, the math will start to benefit the homeowner who opted for the lower-rate mortgage in exchange for upfront points.

But how many homeowners are actually keeping their mortgage (or house) that long? Lately, not many.

In summary, this is just an inverse way of looking at buying mortgage points, which illustrates how those who don’t stick around for a long time can actually benefit from not paying points.

The counterargument is that rates are at record lows and will likely only go up from here, so if you can lock an even lower one in today, why not?

But we thought they had hit rock bottom years ago, only for them to defy the odds over and over again.

And as I mentioned, a borrower who actually takes the time to comparison shop could enjoy the best of both worlds.

[Watch out for low mortgage rates you have to pay for!]

Benefits of Not Paying Mortgage Points

  • You basically get flexibility versus a non-refundable upfront payment
  • Can refinance to a lower rate without worry at any time
  • Can sell your property whenever you want without leaving money on the table
  • Can still save on interest and reduce the loan term simply by paying extra each month
  • Gives you the option either way if you stay with the mortgage/property longer than planned
Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

Why Are Mortgage Rates Different?

Why Are Mortgage Rates Different?

Mortgage rate Q&A: “Why are mortgage rates different?”

Why is the sky blue? Why are clouds white? Why won’t your neighbor trim their tree branches?

These are all good questions, and ones that often puzzle even the most savvy of human beings.

First things first, take a look at how mortgage rates are determined to better understand how banks and mortgage lenders come up with interest rates to begin with.

From there, you’ll need to consider why mortgage rates are different for consumer A vs. consumer B.

No One Size Fits All for Mortgage Rates

why mortgage rates different

  • Mortgages are kind of like snowflakes in that no two are exactly the same (not really)
  • The subject property and the borrower will always have unique characteristics
  • As such risk on the underlying loan will vary and so too will the interest rate received
  • Lenders also price their mortgages differently so even identical scenarios can result in variable pricing

Mortgages are complicated business, and there certainly isn’t a one-size-fits-all approach in this industry.

First off, there are thousands of different banks, lenders, and credit unions that offer home loans, some of them entirely unique and proprietary.

These companies compete with one another to offer the lowest rate and/or the best customer service.

The well-known names might offer higher rates in exchange for their perceived trust and familiarity.

Meanwhile, the smaller guys might offer rock-bottom rates to simply stay in contention with the big players.

Along with that, every loan scenario is different (just like a snowflake), and must be priced accordingly to factor in mortgage default risk (risk-based pricing).

Simply put, the higher the risk of default, the higher the mortgage rate. But that’s just the tip of the iceberg.

There also promotional rates, such as mortgage rates that end in .99%, and innovative marketing products like UWM’s Exact Rate that lets brokers offer strange rate combinations, including 2.541% or 2.873%.

So the possibilities truly are endless these days when it comes to different mortgage rates.

Mortgage Rates Vary Based on the Loan Criteria

  • Mortgage lenders make a lot of assumptions when advertising rates
  • Your particular loan scenario may be quite different than their hypothetical loan
  • You have to take into account the many pricing adjustments applicable to your mortgage if it doesn’t fit inside that box
  • These adjustments have the potential to greatly increase or decrease your interest rate

Mortgage rates don’t exist in a bubble – the parts affect the whole.

Banks and lenders start with a base interest rate (par rate) and then either raise it or lower it (rarely) based on the home loan’s criteria.

There are loan pricing adjustments for all types of stuff, including:

· Loan amount (conforming or jumbo)
· Documentation (full, stated, etc.)
· Credit score
· Occupancy (primary, vacation, investment)
· Loan Purpose (purchase or refinance)
· Debt-to-Income Ratio
· Property Type (single-family home, condo, multi-unit)
· Loan-to-value / Combined loan-to-value

The more you’ve “got going on,” the higher your mortgage rate will be. And vice versa.

In short, an individual purchasing a single-family home with a conforming loan amount, 20% down payment, and a 800 FICO score will likely qualify for the lowest rates available.

Conversely, the individual requesting cash out on a four-unit investment property with a 640 FICO score will likely be subject to a much higher rate, assuming they even qualify.

And again, rates will vary from lender to lender, so it’s a multi-layered situation.

I’ve already covered a few related topics, including why mortgage rates rates are higher for condos and investment properties.

Mortgage rates also tend to be higher on jumbo loans and refinance transactions, especially those involving cash-out.

Advertised Mortgage Rates Are Best Case Scenario

  • Mortgage rates on TV and online are usually best-case scenario
  • They are intended to be super attractive to lure you in and snag your business
  • When the dust settles your interest rate might look nothing like what you saw advertised
  • This is why it’s important to shop around and better understand how risky your particular loan is

You know those mortgage rates you see on TV or on the Internet?

Those assume you’ve got an owner-occupied single family home, a perfect credit score, a huge down payment, and a conforming loan amount.

Not to mention a newborn golden retriever with an unmatched pedigree.

Most people don’t have all those things, and as a result, they’ll see different mortgage rates. And by “different,” I mean higher.

How much higher depends on all the factors listed above.  So take the advertised rates you see with a huge grain of salt.

Also, take the time to shop your home loan with different lenders, and in the process, get to better understand your risk.

Find out what lenders are docking you for and take steps to fix those things if you want the lowest rates available.

Do Mortgage Rates Vary By State?

  • Yes, they sure can! You might get a lower rate in California vs. Nebraska
  • Depending on lender appetite for a certain geographic region
  • Rates may vary from state to state, or even in certain counties
  • Make sure the lender you use offers the best pricing for the state in which you reside

One last thing. I’ve been asked if mortgage rates can vary from state to state, and the answer is actually YES. In fact, they can even vary by county in some cases.

As you can see from the image below, some states tend to have lower average mortgage rates for one reason or another.

States Lowest Average Mortgage Rates

This list is from February 2019, when the average rate for the 30-year fixed was 4.84% nationwide, per LendingTree.

While no state offered an average rate below 4.74% or above 4.96% (pretty narrow range), there was some divergence by locality.

California led the nation with an average rate of 4.74%, followed closely by the 4.75% average seen in New Jersey and the 4.76% average found in both Washington and Massachusetts.

Nothing earth-shattering, but still different nonetheless.

But it might not be for any one reason, such as a higher default rate in state X or fewer natural disasters in state Y. Or more regulations in another state.

It could be more to do with the fact that lenders want to increase their business in a certain part of the country, and thus they’ll offer some sort of pricing special or incentive to drive rates down in say California.

So you might see a rate sheet that says .50% rebate state adjustment for loans in CA and FL, for example. This will give them a competitive advantage in those regions.

How about states where mortgage rates tend to be slightly higher, such as New York, Iowa, and Arkansas, which averaged 4.96%, 4.93%, and 4.92%, respectively?

States Highest Average Mortgage Rates

It’s possible you might see a pricing adjustment of say .25% for one of these states that may drive the interest rate up somewhat.

In other words, rates can be priced both higher or lower depending on the state where the property is located.

Of course, if this results in unfavorable pricing you can just move on to a different lender that doesn’t charge more for the state in question.

All the more reason to shop around, compare mortgage rates online, and speak with a mortgage broker or two.

Once you’ve done that, check mortgage rates with your local bank or credit union as well.

Don’t be one of the many who obtain just one mortgage quote because you may wind up paying too much.

Read more: What mortgage rate can I expect?

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

Beware the New Mortgage Fee Fearmongering

Beware the New Mortgage Fee Fearmongering

You may have heard there’s a “new mortgage fee.” And you might have been told to hurry up and refinance NOW to avoid said fee.

While there is some truth to that, it is by no means a reason to panic, nor is it even applicable to all homeowners.

Additionally, it’s possible it may not save you money to refinance now versus a couple months from today, depending on what direction mortgage rates go.

So before we all get in a tizzy and give in to what some are clearly utilizing as a scare tactic, let’s set the record straight.

What the New Mortgage Fee Is and Is Not

  • A 50-basis point cost known as the Adverse Market Refinance Fee intended to offset COVID-19 related losses
  • It’s not a .50% higher mortgage rate
  • It’s an additional .50% of the loan amount via closing costs
  • Only applies to mortgage refinance loans backed by Fannie Mae or Freddie Mac
  • Home purchase loans are NOT affected by the new fee
  • Nor does it apply to FHA loans, USDA loans, or VA loans

Over the past week, I’ve been bombarded by articles warning of the new mortgage fee – most feature something to the effect of “refinance now” and “act fast!”

But in reality, you might not need to do anything different, nor hurry.

Sure, it’s an amazing time to refinance a mortgage, what with mortgage rates hovering at or record all-time lows. No one can argue that.

Still, it all seemed to come to a screeching halt two weeks ago when Fannie Mae and Freddie Mac surprised us with their Adverse Market Refinance Fee, which is designed to offset $6 billion in COVID-19 related losses.

Why would they do such a thing at a time when the economy (and homeowners) are already suffering due to COVID-19? Well, that’s a different story and not really worth getting into here.

The important thing to know is this new mortgage fee only applies to home loans backed by Fannie Mae and Freddie Mac, and only if you’re refinancing an existing mortgage.

It has nothing to do with FHA loans, USDA loans, VA loans, or home purchase loans. Or jumbo loans while we’re at it.

Additionally, they have since exempted Affordable refinance products, including HomeReady and Home Possible, and refinance loans with an original principal amount of less than $125,000.

Some single-close construction-to-permanent loans are also exempt.

In terms of cost, it’s .50% of the loan amount, not a .50% increase in mortgage rate. That could mean another $1,500 in closing costs on a $300,000 loan, which is nothing to sneeze at.

But mortgage rates don’t live in a vacuum, and can change daily, so how much more (or less) you’ll actually pay depends on what transpires between now and the implementation date.

When Does the New Mortgage Fee Go into Effect?

  • Applies to loans purchased or delivered to Fannie and Freddie on or after December 1st, 2020
  • This means you’d want to apply for a refinance 60 or so days before that cutoff
  • Since mortgages are sold and securitized once the loan actually funds
  • But remember there’s more to mortgage pricing than just this new fee

The fee was originally supposed to go into effect for loans purchased or delivered to Fannie and Freddie on or after September 1st, 2020, but after much uproar, they just delayed it to December 1st, 2020.

This doesn’t mean you have until December 1st to apply for a refinance in order to avoid the fee.

Since we’re talking purchase of your loan or delivery of your loan so it can be bundled into a mortgage-backed security, there needs to be a buffer.

We have to account for how long it takes to get a mortgage, plus the post-closing stuff that takes place before delivery or sale.

You’d really want to get your refinance in maybe 60+ days prior to December 1st to be safe, though it’s unclear if mortgage lenders will already start baking in the fee even earlier.

If not, you might be stuck paying an additional .50% of your loan amount, either via out-of-pocket closing costs or a slightly higher mortgage rate.

Assuming you don’t want to pay anything at the closing table, your interest rate might be .125% higher, all else being equal.

So if you qualified for a 30-year fixed mortgage rate of 2.5%, it might be 2.625% instead. On a $300,000 loan, it’s about $20 higher per month.

Sure, nobody wants to pay more, but it shouldn’t be a refinance deal breaker for most folks.

And here’s the other thing – mortgage rates might move lower over the next few months due to, I don’t know, COVID-19, the most contentious presidential election in recent history, a stock market that could collapse at any moment, and so on.

In other words, if mortgage rates drop another .25% or .375% by later this year, it’s possible to come out ahead, even with the new fee.

The counterpoint is not to look a gift horse in the mouth. Either way, don’t panic.

Don't let today's rates get away.

Source: thetruthaboutmortgage.com