Dangers of shopping mortgage rates online
You’ve seen those ads touting some crazy low number like 2.125% home loans! The first thing I usually notice is there is no APR advertised on the same line and in the same font – federal violation. This is often my first hint this is a lead generation company and not an actual lender. Lead generations companies, so it seems, can advertise just about anything they like since they are not actually providing home loans. In my opinion those who buy leads from companies who advertise should be held equally accountable – not likely to make me popular among “the liars club”.
Some months ago I wrote a post about this subject and even received a couple of phone calls from mortgage brokers, mostly out west, who would like to have done me bodily harm. We all know people in the industry who make outrageous claims they can very rarely deliver and weasel their way around the law by publishing a mult-paragraph disclaimer secreted away on some difficult to find asterisk centric page.
Even with the rates you see published by Zillow and BankRate, both reputable companies, you will often find the brokers and lenders who feed those companies the rates pushing it to the very lowest number possible to be achieved under the best circumstance on the best of days. Those rates never take into consideration anything except the best of circumstances and to really see the full picture one would need access to the qualifying factors – which are will hidden if published at all.
Understanding mortgage pricing is like understanding pricing for any other service: the higher the risk the higher the cost. Lenders base mortgage rate factors on credit score, loan amount, property type, and other factors due to the risk provided from those types of loans over the years. It’s no secret that the pool of borrowers of people with 720 or higher credit scores, 20% or more down payment and purchasing a single family home in the $200,000 range are less likely to miss a payment or default on the loan than the pool of borrowers with credit scores around 630 and 3.5% down on the same home. It’s just a fact of numbers.
So when you see interest rates advertised your first response should be doubt – and that will serve you well. If you have a middle credit score of 740 or higher, are paying at least 20% down on a home within the conventional mortgage limits for your area, you have a good income and ample assets then it is possible you will qualify for the rates you see advertised online.
BIG WARNING: There is a, an I use the term very loosely, “mortgage company” which advertises regularly on one of these type websites and their rates always seem about a full 1% lower than everyone else’s. Every day they take thousands of phone calls of people who do not qualify for those rates. Do yourself a favor – find a reputable lender who doesn’t use parlor tricks and flashy numbers to steal your trust. Hang up, call someone local and trustworthy, and give them your business.
ABOUT ONLINE LEAD COMPANIES: Most online lead companies will sell your information to 3 to 5 (or more) people. Even though the lead company may have advertised some obnoxiously low interest rate the company who purchases your lead is under no obligation to offer it. These mortgage brokers will pay as much as $50 or more for your phone number and you bet they are going to do whatever they can to get their money back. Don’t get me wrong, some of these lead buyers are the most honest and ethical people you will meet. Unfortunately many of the lead companies have neither honesty nor ethics.
Related articles
- Mortgages: Preventing Credit Score Dings (nytimes.com)
- Benefit of higher credit score dwindles at top end (sfgate.com)
- U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)
Low rates, excess inventory, great time to buy?
- Image via Wikipedia
Blog posts are generally best when timeless but this one should serve as a reminder to those who waited … and waited too long. For several months it has been told, reported and spread that interest rates would approach or hit another all time low while housing prices continued to be low and inventory continued to be high.
That time is now.
The truth is it is always a “good time to buy” especially when you are moving to a new city, upsizing, downsizing, or simply upgrading. The deeper truth is some times are better times to buy than others. Take the strawberry for example.
A few days ago I stopped in the local market to pick up some bread and meat and in the entrance there was a large display of bright red strawberries. It looked to be quite literally millions of them. They were loose and prepackaged in containers of various sizes all the way up to a “banana box” carton. This is the first time I have ever seen that many strawberries in that particular market.
Not only were there so many strawberries but the people were all over them. It was like a fire sale at the dollar store with bags and buggies and moms, dads and others looking over the display and taking them away swiftly. In fact there was a stock cart also filled with them sitting just a few feet away presumably to restock as needed. It looked as if it would be needed soon!
Most interesting was the price – 3 pints for $4. Now I’m not sure if that is a good price in your area but in our area it’s normally $5 for 1 pint. Obviously, even if you are really bad with the math, this is a tremendous bargain. In fact so tremendous one would imagine a lot of those packages going home will not be consumed in time and some will even go to waste.
The housing market right now is like those strawberries.
There is a huge amount of inventory and many professionals speak regularly of “shadow inventory”. It is said there are as many as a million or more homes which are simply not on the market right now because it may be more profitable to wait until the market recovers to list and sell. Maybe so. If that is accurate it only means the inventory levels will be high a little longer.
Top the overstock inventory with the very real fact that interest rates are the lowest they have been and you have a win win situation for any buyer.
I can say this about every commodity: the best time to buy is when others are having a difficult time selling. Overstocks (harvest time) and cheap money could absolutely make this the best time to buy in our lifetimes.
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Interest Rate and Annual Percentage Rate (APR) – What you need to know.
Every loan officer who has done their job for more than a week or so has heard the question. Some loan officers avoid it altogether by simply not sending the Truth In Lending (TIL) until they absolutely are required by law to do so. Why? Because in the top left corner in prominent font is a number that confuses almost every borrower and non-financial insider – the Annual Percentage Rate (APR).
The APR disclosure requirement was sort of a good idea when it came out back in 1968 when there was pretty much just one type of home loan: a 30 year fixed interest mortgage. With time and exotic mortgage solutions the APR became highly obfuscated and even a tool of obfuscation.
FHA and VA Rates Down at Month's End
With FHA and VA mortgage interest rates down here at the end of August it really could be one of the best times to refinance or buy in modern American history. There is still an abundance of available homes to be purchased and the First Time Home Buyer’s Tax Credit ends in just a little over 3 months.
I encourage all first time buyers to be very active about finding a new home and getting approved for the loan now because November will be too late. Seriously, if you think you can wait until November to find a home you will be sadly mistaken and, in Georgia at least, miss out on a possible $9,800 tax credit including both the Federal and State home buyer’s tax credit.
What You Must Know NOW About Getting a Low Interest Rate
If this short post in any way sounds condescending it is by no means intentional. There is, however, a good cause for expedience in delivering this information in today’s volatile market. Two weeks ago I could easily offer a 4.75% interest rate on a thirty year fixed rate FHA home loan. Last week that rate was as high as 5.675% and today it started out at 5.375% but has now dropped to around 5.25% (this is not an advertisement for a rate so I am not posting an APR but I will give you the APR if you email me or call me).
Rates are going to go back up. They have been much lower for much longer than almost every professional expected and it has little to do with what the government does as to whether they stay low for much longer. In part today’s rates are artificially low because of the massive trillions of dollars they have dumped into the market but they could go higher in spite of that fact and almost certainly will go higher quickly once that investment ceases.
Here is what you must know now in order to get the good interest rates:
FHA loan rates are not going to stay low forever. Waiting for them to get back into the fours is like waiting for a volcano to erupt. Most volcanologists will tell you they rarely do.
Once they start back up if you do not have your FHA loan application already submitted you may completely lose the opportunity to get the lowest rates. It costs the lender money to lock a loan and that’s why many charge lock fees (Novation has not charged them in the past).
If you drag your feet and miss the lower lock you may actually not qualify for the same FHA loan once the rates go up because your debt-to-income ratio will increase based on the monthly mortgage incrase as a result of the higher interst rate.
The urgency is for you to get pre-qualified instead of just sitting around watching the tube hoping to save a couple more dollars. In fact play around with the calculator to the left to see how much your payment will change based on a .125% interest rate. You want to wait to see if you “may” be able to save $9 a month then by all means do so. Remember, they go up just as fast as they go down and one day soon they are going up.
Will Interest Rates Go Up? Yes!
Nobody knows when but interest rates will go up. Seriously, nobody knows when. Rates have been at a historical low for months and months. You, your friends, your family, and your co-workers keep reading little articles like this one saying, “refinance now or buy now if you need to because rates are going up.” Still, you have not done so. No, you’ll wait until rates are up and say, “man I can’t believe I missed that opportunity!”
This past week we saw rates jump from 4.75% to 5.25% in less than 4 hours. We saw people who had not yet locked in their rate have their payments jump as much as $50 or more per month just by waiting a few more days.
Now we do expect rates to decrease slightly in the coming week but not one person knows when or how much. You can rest assured thousands of bloggers will be guessing and some will be right but not because they necessarily knew anything special – even though it does take knowledge and understanding to “get close”.
Do yourself a favor and call a LOCAL MORTGAGE BROKER or lender like Novation Mortgage if you are in Georgia or Florida and get the facts today. The chances of rates going higher are vastly greater than them going lower or even staying level.
Georgia and Florida FHA loans for purchase or refinance including the 203(k) and streamlined.
What is a Par Rate in Mortgages?
If you know golf, you know par. From the dictionary at AudioEnglish.net par is “a state of being essentially equal or equivalent; equally balanced”. In golf it’s essentially zero (no more, no less). In mortgages it is applied to mortgage brokers who have access to “wholesale rates” who pass along those wholesale rates at no yield (no profit) in order to beat the bank in interest rate.
The “par rate” is generally about .25 to .5 percent lower than the average rate you can get at your local bank or big national lender.
Lenders don’t actually have a “par rate” because they are not required to disclose their profit like brokers are. Brokers are required to disclose the amount of “Yield Spread” they earn which is the profit between the par rate and the rate they are charging the borrower. Banks and lenders receive much higher profits often called Service Release Premium but they are not required to disclose even though they are making as much as several thousand more dollars in immediate profits.
Waiting on a Lower Mortgage Rate?
I heard it again today after quoting a mortgage interest rate in the lowest 5′s with no discount points “We heard the government is going to offer rates at 4% and we think we’ll just wait”. (Okay, at your own peril.)
* A. The government does not set mortgage rates – at least not until the country is completely Socialized and made into an absolute Welfare State. Mortgage rates are set by supply and demand just like any other commodity, good or service.
* B. Rates are at almost the lowest point in history and hundreds of thousands of people have already taken advantage of these rates and lowered their payments by thousands of dollars per year. Meanwhile you, your friend, or your customer continue to wait on a pipe dream.
* C. Rates are holding low but it won’t last forever. Eventually the demand and supply will become imbalanced again and the rates will either slowly increase or rocket almost overnight like they did in the early eighties.
* D. Underwriting guidelines are steadily tightening. Minimum credit scores for FHA used to be non-existent and now almost every lender requires a middle score of 620 or higher.
* E. Loan to value numbers are being cut meaning even with FHA you will have to have a minimum of 15% equity to do a cash out refinance instead of the 5% it has been. Forget about Fannie Mae because even if you can get the required mortgage insurance it costs big time.
THE BOTTOM LINE IS THIS: If you need to lower your rate, purchase a new home, get some cash out for college, bills or other and you are waiting for any reason you are very likely letting your chances slip by. This is not some concocted scare tactic like you may be used to but actual facts from the daily news. I encourage you to call me directly today with no obligation and no pressure from me at all.
Refinance examples of savings based on interest and term
My good friend, in fact probably the closest thing to a brother I have ever had, telephoned me yesterday and asked if I thought he should refinance. His existing rate is 6.25% and par yesterday was 4.875% both on fixed 30 mortgages. His payoff is only $130,000 and his home is worth about $200,000 so there is plenty of room. Since he has already paid 8 years down I suggested we look at both a 20 year and a 30 year solution.
Because I am always very careful to over-estimate on closing costs he will actually end up bringing less to closing or having a slightly lower payment than I have indicated. On the 20 year to get that rate he is required to pay some discount and that is included in the amount to bring to closing or the loan amount. On the 30 year there would have been no discount if we had locked it yesterday.
His current P&I is 796.75 and his goal is not necessarily to lower his payment. In fact, if we go with the 20 year he actually shaves 2 years worth of payments off his total and at 796.75 x 24 = 19,122 that is a significant savings!
Fixed for 20 years at 4.5%
Loan amount $138,500 (includes taxes, insurance, rate buy down and all fees)
Principal and Interest $876.22
Leaving closing with $565.38
Fixed for 20 years at 4.5%
Loan amount $130,000
Principal and Interest $822.44
Bringing to closing $7664.39 (includes rate buy down)
Fixed for 30 years at 4.8755%
Loan amount $138,500 (includes taxes, insurance and all fees)
Principal and Interest $725.02
Leaving closing with $201
Fixed for 30 years at 4.875%
Loan amount $130,000
Principal and Interest $687.97
Bringing to closing $6632.72 (includes taxes, insurance and all fees)
My questions if I were the borrower would be about all that money I am bringing to closing? If it’s not yours it should be. First you have to know nobody works for free. No bank, lender, broker, attorney, underwriter, appraiser, insurance agent, processor, title agent, inspector, or government agency work for free. That’s where those fees go. Since my friend is already in an escrwo program he will get quite a bit back from escrow from his existing lender.
So let’s say he decides to go with the 4.5% fixed 20 where he is bringing $7664 to the closing to pay all the costs and buy the rate down. Remember that $19,122 he was saving from not having those 24 months of payments he will be shaving off? So now he is saving $11,458 and his payment totals over the next 240 months are only $7,200 higher (because the P&I is a little higher on the 20 at the lower rate than the 30 at the existing rate.) This means over the full life of the loan he will spend $4,258 less and own his home outright 2 years earlier. Further, if he really wants to get it paid off more quickly he can reduce his principle more quickly by paying additional principal reduction or bi monthly payments.
Now let’s look at the fixed 20 where he rolls the closing costs into the loan.? So in this example his current pay-off is $130,000. Putting all of the costs including insurance, taxes and the rate buy down into the payoff would be less than I have indicated but let’s stick with that in total costs. (Just a hint – people like that guy who used to advertise all the time who has ex employees now working for me would make the rate higher to accomplish the same goals but cost you every month as much as 100′s of dollars a month. We can do that too but I would not let this friend, a super conservative guy, do it that way.)
Going this way makes his payoff $138,500 and his monthly P&I $876.22. So we’re saving 2 years at $796.74 which is $19,122 but we’re adding a little to the monthly P&I which, over the life of the loan, will be 19,075.20 which results in (a) owning the home 2 years sooner and (b) a net gain of $46.80 in hard cash. But here’s the clincher and well beyond the scope of this short article. I know he is going to make additional principle payments as soon as his son graduates from college which is this Summer. At the 20 year term and the 4.5% rate his additional principle reduction payments will have a much larger impact that if he were financed for 30 years.
I would do the 20 year term refinance personally in a drop of a hat and roll the costs back into the loan.
Are interest rates headed up? Today they are, yes. But …
Interest rates are never stable. In recent years people seemed to assume that if the rate was, for example, 4.875% today they would have a week or two to make up their mind. This is simply not the case. Rates could very easily be 4.875% today and 5.250% tomorrow … or even this afternoon. RATES CAN CHANGE SEVERAL TIMES PER DAY. There is no way to accurately and 100% predict when rates will go up or down. There is a way to be very sure rates cannot drop much lower than they have been during the last 5 days.
You can either take advantage of a great rate or you can gamble. The gamble? Several fold actually.
(a) You could be gambling that rates will come back down below 5% or just lock your rate today, before they go up again.
(b) You could be gambling that your Debt to Income ratio is acceptable – if rates go up your payment goes up and that may throw you into a different category on DTI
(c) You could be gambling that rates don’t steadily increase from now to multiple percentage points higher
Listen, I know what the media has said but you must understand this: most reporters know nothing about banking and finance or the economy and they simply parrot what they have heard from industry insiders like myself. The problem with that is they don’t understand what we are saying so they report bits and pieces out of context. To fully understand what an amazing opportunity you have to refinance or purchase today at these incredibly low rates you simply need to speak with an astute mortgage professional with at least 5 years in the business without a complaint.
Do yourself a huge favor and deal with a professional from your region. We only do Georgia and Florida for a good reason: this is where we live. I am from Georgia and my wife is from Florida.
Call us today while interest rates are still acheviable down into the high 4% range without discount points. Seriously, tomorrow may be too late and these rates could very easily disappear into the pages of history.
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Daily Rates for Qualified Buyers
Today |
Last Week |
|
| 30 Year Fixed | 3.56% | 3.61% |
| 15 Year Fixed | 2.87% | 2.92% |
| 5/1 ARM | 2.34% | 2.51% |
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