“Where are mortgage rates at today?” “What is your interest rate?” “What is the rate for a 30 year fixed?” “What is the 15 year mortgage rate now?” “Can you get me a the 2% interest rate I see advertised from time to time?” In one form or another it is the same question, every day. Interest Rates, they are the commodity of my trade and I get that. However, there are several items that go into a mortgage rate and it varies from client to client.
In just about every case I answer these questions in one of 2 ways;
It Depends
Rates come in many different sizes and adjustments. They are all based on the client (credit), the property type (collateral) and the down payment (capital). This is also referred to as the 5 C’s of Credit. In addition, the loan type and the terms of the loan all pay a huge role. Before I can quote a rate, I must know what your credit score is and what your credit history looks like. How much are you putting down on the property? Is your down payment a gift from a family member or is it from your own savings? Do you want to “buy down” your interest rate via paying points? Where do you want to buy your new home? If you’re buying your new home in Ozark, Willard or Republic, I might suggest the USDA 100% financing program, which offers a lower fixed rate and less monthly mortgage insurance than a FHA or Conventional loan. The bottom line is my loan officers and I need several pieces of data to properly quote an interest rate.
You Pick Your Rate
Below is a screen shot of mortgage rates as I see them. If you were to come to my office this is a screen shot of my monitor. We would discuss in great length the rate that made the most sense for you and your family. Once I know a persons credit score, the loan product, debt to income ratios, loan amount, down payment, etc… The results look like what you see below. For the sake of time we are only going to discuss the 4 boxes in red, blue, green and black. The PAR rate (closest rate to $0 without it being a cost to the borrower) is represented by the horizontal orange line.
The box in red represents the interest rate. The blue box is the monthly Principle and Interest payment (this excludes escrow for taxes and insurance). The box I want to spend most of our time on is the green box, aka the Money Box!
The Money Box – You may have heard of paying points or discount points. The 8th column represents the points you will pay to buy down the interest rate below par. Buyer beware: If you pay down the rate to far it may cost you more than your saving from the lower rate. For example – if I want the rate of 2.75%, then I would need to pay $4872 for that rate. The difference in monthly payment from the PAR rate (no cost to borrower) of 3.5% to 2.75% is $41 a month ($449-$408). $4872/$41 = 118.82 MONTHS. It will take the borrower almost 10 years to break even. Currently, a home owner owns his or her home an average of 5 years. What are your plans with this home?
On the flip side of PAR is what we call a Lender Credit. The Lender credit works in reverse of a discount point. This credit can be used to offset closing costs associated with a mortgage. If you are short on funds for closing or just want to keep your funds for home improvements, furnishing the new home etc., you can choose a higher interest rate and have your closing costs covered via this lender credit.
Always Keeping Your BEST Interest in Mind!
Still have questions or want a rate quote contact me today.
