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Why Don’t I Have the Best Rate?
Why don’t I have the best rate? An amazing blog below from our team preferred lender, Dan Tharp. Enjoy, a very good read. — JaCi Wallace
Without fail, the number one question I get from first-time callers looking to refinance or purchase a new home is “what’s your rate?” I used to stumble a bit when asked this question because there is so much involved in getting an accurate interest rate and one that I can’t answer in a 30-second conversation. I wish it were that easy.
After years of experience, now I don’t hesitate to answer – I respond with, “What rate do you want? “This tactic usually serves to disarm them a bit and allow me to detail the components that go into an interest rate.
If you are not getting the rate you heard on the radio or the interest rate you read in the real estate section of the newspaper, it’s typically not because of some elaborate bait-and-switch scheme. In all probability, your rate is different because of Loan-Level Pricing Adjustments. Loan-level Pricing Adjustments are not discretionary fees, nor are they a profit source for me or my bank. These are federally mandated fees per Fannie Mae and Freddie Mac to compensate for loans with greater risk.
They work just like auto insurance. With greater risk come higher premiums. It’s an add-on to the base rates set by Wall Street. Here are just a few triggers that will increase your rate or fees:
- Having a second mortgage or line of credit that you would like to subordinate. (Keep in 2nd lien position)
- Doing a “cash-out” refinance with less than 40% equity in your home.
- Having a credit score of 740 will save you almost a full percent in rate relative to a 640 score.
- Investment property can add up to a full percent or more compared to the primary residence.
- If you like macaroni and cheese, it will cost you. Not really, just making sure you are paying attention.
You can research your scenario at Fannie’s site.
Why Getting the Lowest Rate Might Be a Bad Idea
I know it feels good to tell your friends that you have a lower rate than them, but you might just be spending more money over time to get that rate because you are paying points (aka extra fees to buy the rate down). And since many first-time homebuyers sell within 6 to 8 years, having that low rate was just for show. I know this might sound counterintuitive, but you may be paying more because of that lower rate.
The one constant in life is that life is continually changing. Folks can’t envision what will happen in years to come because life just happens, and maybe down the road, they need to a cash-out refinance to pay for required maintenance or repairs, or to help with their kids education, a wedding, or help with a new car, the list goes on and on.
The important thing is to work with a lender who will take a little bit of extra time to crunch some numbers and help you decide whether a buydown or lender credit is better for your long term and short term goals.
 Dan Tharp – Branch Manager – 916-257-14702250 Del Paso Rd. #A, Sacramento, CA 95834NMLS# 280913 | Company NMLS # 3274Equal Housing Lender, Guild Mortgage | ||
| To buy or sell your dream property, call Weintraub & Wallace Realtors, with RE/MAX Gold. We can be reached at 916-233-6759. |
Are Mortgage Rates Going Up or Down?
Are mortgage rates going up or down? As a mortgage professional for almost two decades, we have been through many wild rides, but nothing compared to what we are experiencing right now with this coronavirus; or what we are calling our alternative universe. Just over two weeks ago, the fear of COVID-19 sent stocks tumbling, and mortgage rates lower – according to Mortgage News Daily, the average rate for the popular 30-year fixed mortgage fell to 3.23%, an 8-year low.
Rates had been dropping for weeks as “breaking news” seemed to ping our phones by the minute, and fear began to manifest in real-time, as we watched the stock market cradle. In times of economic uncertainty, mortgage rates are typically the beneficiary of bad news, and rates go down as dollars move from the risky stock market and into the “usually” safe haven of mortgage-backed securities (aka mortgage debt) – and rates go lower. Question is, are mortgage rates going up or down?
As news of the virus drove interest rates down, homeowners rushed to apply for mortgages not seen in over a decade. According to the Mortgage Bankers Association, during the first week of March, refinancing applications reached their highest levels in over 11 years and jumped 79% week over week. We all went from being plain old busy to our hair catching on fire. That’s when the damn broke, almost at once, as Banks quickly began to increase rates to stem the demand. More factors contributed to mortgage rates spiking, and I will cover those in future blogs — no need to get too far in the weeds here.
In what seemed like a matter of hours, those attractive low-interest rates vanished in a poof of air, and rates shot up – and fast!
The Fed Didn’t Drop Rates?Are Mortgage Rates Going Up or Down?
Most had not heard the news that rates had jumped when the Fed made a dramatic announcement that they were going to lower the Fed funds rate to almost zero. Within minutes my cell phone exploded with calls and text messages from clients “Dan, did you hear the news? The Fed is lowering rates to zero, and I want it!“ Unfortunately, I had to tell them it doesn’t work that way.
The Fed Funds Rate is the overnight rate at which banks borrow money from each other; it is not, however, the mortgage rate. Mortgage rates are influenced by the U.S. and global economies and the demand (or lack thereof) of mortgage-backed securities (MBS) that are bought and sold on Wall Street. In short, MBS represents the prices investors are willing to pay for these low risk, low rate, fixed investments. More demand drives interest rates lower, and less demand drives them higher.
So to be clear, the Fed can’t just announce they are lowering mortgage rates by dropping the federal funds rate. But, by making these incremental moves, they can help influence mortgage rates to drop – or in this case not to go too much higher!
What is Quantitative Easing, and why do we want it?
Now that we all know Fed rate cuts don’t always lead to lower rates, there are a few other tricks the Fed has up her sleeve to help us. One method that paid huge dividends during the crash of 2008 is Quantitative Easing (QE), which is “the introduction of new money into the money supply by a central bank.
In laymen’s terms, if the guys on Wall Street and investors won’t purchase Mortgage bonds or treasuries, the government can step in and fill that void. Thus, keeping the demand for MBS going, which in turn keeps mortgage rates low. And if rates stay low, it will promote consumer spending (and borrowing) and keep our economy humming. The Fed’s goal to push rates down using QE may work again, as it did when they purchased billions in bonds and securities over many years following The Great Recession.
What is happening today reminds me of just how fragile and reversible progress can be. And unfortunately, as a society, we sometimes have this terrible habit of repeating mistakes we made years ago. This is why it is so essential to work with people you trust and who have the experience to guide you through the steps of homeownership and finance. I am hopeful this move by the Fed will pay dividends, just as it did before, and we can all continue to realize the dream of homeownership. Be safe, everyone. Dan
— Dan Tharp, our mortgage lender. He can be reached at 916-257-1470.
Dan Tharp, is with Guild Mortgage. His NMLS # is 280913. He is proudly the preferred lender for Weintraub & Wallace Realtor group with RE/MAX Gold. If you want to buy or sell a property please call us at 916-233-6759.
The Million Dollar Question About Interest Rates
Interest rates are overdue for a correction.
All eyes will be on the Federal Reserve today and whether short-term interest rates will finally get the boost we’ve all been expecting for years. The government has been tip-toeing around this issue for so long nobody can really predict when it will happen except that it’s got to happen eventually. Interest rates have been suppressed for way too long. I imagine you probably are a little shocked that a Sacramento Realtor would admit this, but it’s true. Mortgage rates have gotta go up.
Initially, yes, it will be put pressure on the entry-level market, but we need a healthy economy. People forget that we have not quite recovered in Sacramento. We still have homes underwater, we still have tons of those loan modifications that are adjusting right now, and many homeowners struggling to make those higher payments may end up doing the short sale they probably should have done years ago.
Some people who bought during 2007 to 2011 and now selling are making a profit, but those from 2004 to 2007 are still hurting.
Part of the opposition to rising interest rates probably stems from a long comfort level. Once you get used to something, it’s hard to remember the way it used to be. Like having to find a public pay phone when you’re out and need to make a call rather than reaching into your pocket to pull out a cell.
I recall in 1995 when my husband and I took out a loan on our previous home and were so thrilled, absolutely tickled pink to obtain a rate of 8%. Far cry from the double digits. I don’t know about you, but less than 1% return on a money market account or a CD is horrible. You may as well pack your mattress with cash, should you have any, that is.
It’s anybody’s guess where the Fed will move short-term rates today. But experts say the prediction is up, and it seems to be more likely now than previously. We are headed toward an economic recovery, and it sure would be nice to get there. On top of this, remember, historically, people still buy homes in Sacramento in spite of higher interest rates.
