Fixed Rate Mortgages
So is it true 30 year fixed rate mortgages are at 3.25%? Well that depends on how you look at. The answer is yes if you willing to invest discount points to purchase your interest rate down, so long as your financial profile is completely flawless. Otherwise for the 99.9% us, 30 year mortgages are trailing between 3.5% to 4.25%. That’s been the reality of the mortgage bond market over the last few weeks since the 30 year fixed rate mortgage hit an all-time record of 3.53% on July 19, 2012.
30 year mortgage rates you see on television and the internet are not the best barometer of where rates truly are…
Here’s why: the bond market is moving all day long in multiple different directions based on how trades are being executed on Wall Street. Once the news hits the media, the information is immediately outdated and new information is regurgitated through the system, making such commodities as a 30 year mortgage rates, yesterday’s information. Yesterday’s information does not help you lock in an interest rate. That said, 30 year fixed-rate mortgages are still quite low and it’s a matter of locking a rate based on a favorable lock day.
For example a good time to lock in on a 30 year fixed rate mortgage is any day when the bond market is improving or just before rates begin to rise based on any economic event. A good loan officer will have access to the trading mortgage bonds so they can pinpoint the best time to lock in the interest rate. Usually, the stock market has to be in liquidation mode in order for it to be a favorable lock day. Another good time to lock in a mortgage rate, is when the appraisal on your mortgage loan comes back so you know what loan-to-value you’re dealing with and you don’t risk the integrity of the loan-to-value which impacts the interest rate. Independent of these mortgage tips, is the constant reinforcement by the media of the possibility to always get a lower mortgage rate. Confused by Mortgage Jargon? See Jargon Buster.
So let’s get real about a couple of things:
- the media provides yesterday’s information
- the media does not have any influence on your ability to qualify for, let alone select what you’re mortgage rate will ultimately receive
- because the media operates on outdated information, you would be better served getting the real snapshot on mortgage rates from a mortgage professional who actually has access to the trading of mortgage bonds which control rates
All these mortgage tips make sense, but…
I still keep hearing that I can get a 30 year fixed rate mortgage without points, even a no cost 30 year fixed rate mortgage at 3.25%, what gives?
*Know This: 30 year fixed rate mortgages that are advertised usually reference a loan scenario depicting a primary residence, 780 middle credit score, 60% loan to value, high cash assets, loan under $417,000, a conventional loan and an impeccable credit report. This automatically eliminates almost all potential borrowers but, nonetheless, the loan program is a huge characteristic of the interest rate you will qualify for.
*Know This: your credit score, debt to income ratio, and the occupancy of the property and the property type will also influence your mortgage rate.
So let’s look at the loan programs!
Following is a list of programs and the common interest rates associated with them, remember the rate ranges when comparing to “advertised mortgage rates.”
Standard conventional 30 year fixed rate mortgage loan: even for the best credit situation like depicted above, the interest rate is going to be at least somewhere between 3.5% and 3.75%. If you’re looking interest rates at 3.25% advertised in a media outlet, you can assume that real rates can be upwards of .5% off in rate due to the ebb and flow of money in the mortgage bond market.
HARP 2 Refinance 30 year fixed rate mortgage loan: if the loan to value is anything up to 120% loan to value you can assume an interest rate of at least 3.875% or more. If your loan to value is above 120%, you can expect interest rate between 4.0-4.125%. Real rates on this program can be upwards of .75% off in rate
Government Loans such as FHA loans, VA loans and USDA Loans: These programs all contain some form of mortgage insurance which inherently makes these loans costlier anyway when compared to a standard conventional 30 year fixed rate mortgage without mortgage insurance. So government loans, while the interest rates are quite low, the loans are actually a bit higher in terms of long-term investment. Real rates on these programs can be upwards of 3.625%-3.75% off from an advertised interest rate.
Consider interest rates relative to the mortgage loan program you qualify for. Generally, real rates are typically .5% different than rates you’ll see or hear about in the media. We hear borrowers say after after locking in an interest rate, “I heard rates went down again can we do any better?” This depends on your mortgage lender’s ability to do what’s called an interest rate renegotiation for the lower rate of interest. Some mortgage companies offer them, some mortgage companies do not. Check with your mortgage lender when you’re talking about loan programs and interest rates in deciding whether or not to move forward with that particular mortgage company.
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