How Your Mortgage Interest Rate is Determined

06.15.16 by

How Your Mortgage Interest Rate is Determined

mortgage rates

Mortgage rates are usually discussed in broad strokes– they’re up, down, fixed or adjustable — but it’s important to understand mortgage rates in context. Prospective homebuyers love to ask about rates. They think they will receive the same low rates advertised in newspapers. They don’t know that rates are as individual as fingerprints. To help your buyers understand how their interest rate is determined, we put together a list of the Top 9 Factors Determining Your Mortgage Interest Rate. Please share this with your buyers so they are better informed.

FICO Score

Everyone knows good credit is important, but you do not need perfect credit to qualify for a mortgage. Lenders use the middle score of all three of your credit bureau reports from TransUnion, Experian and Equifax. Because each company calculates credit differently, your scores will not match. Accounts may be missing from one credit bureau, but shows up on another. For this reason, lenders throw out the highest and lowest score and base your rate on your mid-score. The higher your mid-score, the lower your mortgage rate will be.

Home Location

Location tends to get overlooked while rate shopping, but where you buy also determines your mortgage interest rate. Most lenders offer a different rate based on your city and state. States with easy foreclosure processes have lower rates than states that make banks jump through hoops to take back the property after a borrower defaults. Likewise, states with booming economies are priced higher than states that need a little economic stimulus.

Property Type

If you’re buying a condo, your rate will be different than if you buy a single-family detached home.  Every property type has its own pricing. Mobile homes are priced differently than town homes which are also priced differently than single family homes. This is not something to worry about, but it is a factor in determining your rate.

Loan Amount

The more you put down, the lower your interest rate, that’s the rule of thumb. Take your purchase price, subtract your down payment amount, the balance is the amount you will borrow — your loan-to-value or LTV.  Borrowers who put down 20% are considered less risky and therefore given discounts, but the size of the loan matters. It is just as expensive for a lender to write a small loan as it is to write a large one so lenders price small loans higher than jumbo loans. Likewise, some lenders may not want loans that are too small because if may not be worth the expense of writing the loan.

Down Payment

It’s not necessary to put down 20% on a home purchase. There are many loan products that allow lower down payments. FHA loans allow 3.5% down payments; VA loans do not require a down payment while Fannie Mae and Freddie Mac recently introduced 3% down loan products. All are competitively priced so there is no need to fear moving forward with a government-backed loan product.

Loan Type

Conventional, FHA, VA, subprime — all of these are loan types. Rates for loan types vary based on your lender’s financial goals, and the risk associated with the loan type.

Occupancy Status

If you’re an investor and do not plan to live in the property, you will pay a higher rate than someone who is purchasing their primary residence. Vacation homes, rental properties are all priced higher because they are riskier investments for the bank.

Interest Rate Type

A 30-year fixed rate mortgage is now the standard, most popular mortgage product written, but it’s also the most expensive. Adjustable rate mortgages offer substantial discounts, but only for a limited time. If you’re looking for stability with no surprises, a 30-year fixed is the way to go. If you recently relocated and may not stick around for long, or if you just got married and know you plan to start a family so you will probably outgrow your starter condo in about five years, then an adjustable rate mortgage might make more sense.

Mortgage Term

Once you decide if you want a 30-year-fixed or an adjustable rate, it’s time to consider loan terms. The shorter the term, the less you pay overall. However, shorter loan terms also mean higher monthly payments.

No matter what type of interest rate you choose, or where you decide to buy, the goal is to become a homeowner. As rents push to record high levels, owning makes financial sense. No matter what rate you get today, you can always refinance.

Reprinted with permission from Partner Exchange

Mortgage Rates Inching Up

05.02.16 by

Mortgage Rates Inching Up

Mortgage interest rates jumped 7 basis points this week to 3.66% on average for a 30-year fixed-rate mortgage, according to Freddie Mac. Last week, the 30-year fixed averaged 3.59%.

The Federal Reserve decided during its two-day policy-making committee meeting to maintain the federal funds rate at 1/4 to 1/2 percent citing slower economic activity. Incomes have risen yet household spending has slowed.

Many of the experts, 46%, polled by Bankrate’s Rate Trend Index expect rates to fall in the next two weeks.

Rates are still historically low, yet home prices are soaring.

“Demand is starting to weaken in some areas, particularly in the West, where the median home price has risen an astonishing 38% in the past three years,” said Lawrence Yun, chief economist at the National Association of Realtors.

Nationally, the median price of an existing home was $222,700 in March, up nearly 6% from last March.

Buyers should lock in their rates if they don’t want to risk further increases.

Rates for a 15-year fixed-rate mortgage rose to 2.89% this week from 2.85% last week. A year ago this time, it averaged 2.94%, according to Freddie Mac.

Likewise, the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.86% this week, up from 2.81% last week, and 2.85% a year ago this time.

mortgage rates

Reprinted with permission from Partner Xchange

Palm City Mortgage Rates Projected to Rise Sooner Rather than Later

07.31.15 by

Palm City Mortgage Rates Projected to Rise Sooner Rather than Later

 Palm City FL real estate

Now that we are almost into August, with summer in full swing, there might be vague thoughts running through your mind about some potential real estate moves—but certainly not until the fall. Right now all most of us are thinking about is whether another chilled glass of summer-something-or-other is in order. Florida mortgage rates and what the folks in Washington might be doing to affect them are not exactly what occupies an idyllic July afternoon.

But if you’ve been paying attention to any newscasts long enough to reach the dull-as-dishwater economic stories they throw in toward the end of the broadcasts, you may also have an inkling that conditions are about to change. And the evidence does suggest that mortgage rates in our area face a likely increase come fall. If your vague suspicion does come to pass, and if you’re among those considering buying or selling a home in Palm City this year, now should be the time to stop “thinking” and start “doing”.

Exhibit A for that proposition comes from one Michael C. Fratantoni, who happens to be the Chief Economist of the Mortgage Bankers Association (MBA). When he recently spoke at the National Association of REALTORS® office in Washington, he made no bones about it: mortgage rates will continue upwards, with a first significant Fed hike likely in September. September! The 30-year fixed mortgage, which we all know has lingered at historic lows—below 4%—for several years, is likely to hit 4.4% by the end of 2015 , then move beyond 5% next year.

It’s enough to stifle any thoughts about that frosty beverage.

The good news for Palm City homeowners planning to list is that Fratantoni doesn’t believe any of these factors will keep the nations’ buyers away. After a pretty lackluster 2014 performance, the MBA forecasts a 14% year-over-year increase in purchase-money mortgage originations in 2015—and nearly 9% in 2016.   Nationwide, incomes are also expected to rise, and with new household formations on the rise, the national real estate market looks to remain in fairly good balance.

While it seems there’s no instantaneous need to drop all your summertime activities to rush your home onto the market, with mortgage rates in Palm City expected to rise sooner rather than later, it’s certainly worth making it a priority to give me a call this week. After that, there will definitely be ample time to finish enjoying that delightful chilled summer beverage.

 Higher Mortgage Rates in Palm City? Projections Tend to Agree

 

 

Heads-Up: Stuart Mortgage Rate isn’t Standing Still

07.05.15 by

Heads-Up: Stuart Mortgage Rate isn’t Standing Still

 Stuart-Florida-Homes[1] Lake tuscany home 3

In case you set your alarm clock to go off when it was time to buy a home, that clang you may be hearing from somewhere in the distance could be it (figuratively speaking, of course). The reason has to do with the direction of Stuart mortgage rates (among others).

Now, I realize this could come across a little bit like Aesop’s boy who cried ‘Wolf’ since a year and a half ago the experts were unanimous in predicting that mortgage rates would rise throughout 2014 (to at least 5%, if I remember correctly). And not only did they not jump—after a short rise, they actually fell!

The experts were wrong. To the extent I agreed with their call, I was, too—but at least I wasn’t lonely. And I also try to be clear that predicting the future of any financial movement is never a sure thing. The same is true today…but…

Last week, less than a week after the Federal Reserve monetary policymakers emerged from their meeting, Bankrate web commentator Janna Herron published a view that sent alarm bells ringing in my head. It makes so much sense, I feel compelled to share it. Already publicized in the rest of the media was the announcement that 15 of the 17 Fed officials now agree that they expect to raise the federal funds rate at some point within the next 6 months (and one expert was quoted as expecting that as early as September or October). Fifteen out of 17 is a 88% majority, so it couldn’t get much clearer. The funds rate has been cemented to the ground at precisely zero for almost seven years. Since 2008.

Stuart mortgage rates are based upon that Fed funds rate. When it rises, mortgage rates have to rise, or lenders would have to be reclassified as charitable enterprises (not likely). The reasons given for the Fed governors’ near-unanimous prediction are both the rise in the pace of job gains and, as was reported, “The Fed also noted improvement in housing.”

Now, that news may have prompted Stuart mortgage-rate watchers to sit up and take notice—but not necessarily have them hearing alarm bells going off. But there were two other pieces of information:

  • First, the current national mortgage rates reported last week rose. They were pegged at just over the 52-week average for 30-year fixed loans, but at 4.13% it remained below the 4.33% of a year before. In other words, still (perhaps momentarily) in the historically basement-level range.
  • Second, new mortgage activity began to rise, moving 1.6% up from a week before. Applications had been dropping, but now they were on the move. This while home builder confidence levels soared, with expectations hitting the highest levels in nearly a decade.

As with any batch of economic numbers, the signs can be interpreted in multiple ways, but one way sure does seem to stand out: mortgage rates are attractive now, housing activity is almost certainly on the rise, and mortgage rates and monthly payments are very likely to become more expensive. The same thought may be occurring to more and more people as we enter the summer home-buying season: “What if I could pay less every month for the same home…for the next 30 years…”

Note to Treasure Coast home-buyers. Listen carefully: that could be the sound of your own alarm bell going off! If you think you hear it, now would be a great time to give me a call!

Heads-Up: Stuart Mortgage Rate isn’t Standing Still

Keeping an Eye on Mortgage Experiment for Palm City Buyers

07.03.15 by

Keeping an Eye on Mortgage Experiment for Palm City Buyers

Treasure Coast home buying activity may be going great guns, but for some would-be buyers, credit score woes are still a stubborn obstacle. That’s why we have been keeping an eye on the new pilot project that was announced late last year. This was the one called the “Wealth Building Home Loan.” It’s an experiment aimed at opening up home ownership options, particularly for first time home buyers. Bank of America and Citibank were first to sign up for the program, said to “take a fresh approach to affordable mortgage lending.” It sounds like a pretty good idea!

How It Works

The Wealth Building Home Loan is a mortgage that runs for 15 years at a fixed interest rate. Because the term is so short, equity builds rapidly. The payments are more manageable than any reality-grounded Palm City mortgage watcher would think because discount points can be used to buy the interest rate down to…well, “zero”! Since no down payment is generally required, home buyers can apply their available cash to purchasing those points. Since that sounds almost too good to be true, we’ve been keeping an eye open for progress reports.

Extra Help for Buyers with Modest Income

Qualifying for the mortgages would emphasize home buyer income rather than credit score. This would be a real godsend to the many people still rebuilding their credit after the economic downturn. Furthermore, interest would be set at three-fourths of a percent lower than the 30-year FHA rate—which makes sense, since shorter terms mean lower lender risk—with additional points to be offered at special bargain prices.

A Game-Changing Approach

The loan program is piloted through The Neighborhood Assistance Corporation of America, which secured underwriting from BofA and Citibank. It’s intended to be “a game changer,” because equity ownership takes place rapidly. Already in the first three years of a WBHL, 77% of the monthly payments pay off the principal, rather than the 68% that goes to interest under a standard 30-year mortgage. The effect is to accumulate a significant ownership stake almost from the word ‘go’—and more ownership equates to better loan performance.

When last checked, the program was in “pilot project” status (still in the initial shakedown phase) while the innovators who came up with the idea figure out how to make the loans widely available. So far, so good, apparently—we’ll keep an eye on developments to see if the program is greenlighted by the two underwriters.

In the meantime, Treasure Coast mortgage-seekers have a wide variety of currently available options for taking advantage of the great buys viewable on this morning’s Palm City listings. Give me a call for a no-obligation discussion of how you can take advantage of today’s opportunities!

Keeping an Eye on Mortgage Experiment for Palm City Buyers

Florida Mortgage Rates on the Rise? Bellwether Signals Clues

06.27.15 by

Florida Mortgage Rates on the Rise? Bellwether Signals Clues

 Home Mortggage Rates

If you’ve ever had the kind of neighbor who is apt to borrow something (like your hedge trimmer), only to later complain about how it performed, you know how much patience it takes to hold your tongue. The Mortgage Bankers Association would be justified if they felt that way about me: I read their website, and sometimes quote it in posts about current Stuart mortgage rates—but it sure makes for dull reading!

Anyway, with apologies to their (undoubtedly hard-working) writing staff, last week’s blog about national mortgage rates was as numbers-heavy as usual, yet still held a contradiction…but one that actually makes perfect sense. It also flags what could be seen as a bellwether that Stuart home buyers and sellers would be hard-pressed to ignore.

The apparent contradiction was that mortgage rates were on the increase: national mortgage rates for 30-year fixed loans rose to 4.17%, which is the highest they’ve been since November. This is for conforming loans; the jumbos (greater than $417,000) went north as well, up to 4.15%.

As everyone knows, low mortgage interest rates are terrific for our Martin County residential home sales. The low monthly payments that they create make homeownership more affordable for a greater number of buyers. So when rates increase and monthly payments go up, it should create a drag on the market. The apparent contradiction in the MBA release was that the increase in rates was accompanied by an increase in mortgage applications. And it was a big one: up 8.4% from the week before.

Most commentators were united about the phenomenon, and it’s hard to disagree. In addition to the natural surge that comes with the season (spring and summer are always expected to be quite active), consumers are seeing the uptick in mortgage rates and suspecting that rates will head higher. That’s nudging them to action, causing them to jump in now, while rates are still attractive—especially compared with historical averages.

CNBC’s Diana Olick agreed that such sharp increases actually help the home-buying market. She quotes one lender’s take about the buyers: “They understand that ‘wait a minute, rates are at an all-time low, let’s react now, let’s react before they go higher.’”

It’s far from a certainty that rates will continue to take off. Lots of us remember last year, when almost all the experts predicted a rise, yet mortgage interest rates headed in the opposite direction…and stayed there! But you can hardly blame area buyers if they go with the national trend and decide that locking in today’s rates is a prudent move: it’s a bird in the hand.

If you have been thinking along the same lines, I hope you will give me a call!

 

Florida Mortgage Rates on the Rise? Bellwether Signals Clues

6 Mortgage Shopping Myths

01.27.11 by

Mortgage shoppers hear many strange tales about the home loan-shopping process. Here are 6 common myths about shopping for a mortgage and the facts you should know:

Myth: Shopping for a mortgage loan will hurt your credit score.

Fact: Credit scoring companies know most people want to shop around for a mortgage or car loan. That’s why their formulas allow a window of time during which multiple inquiries about your credit will be counted as only one inquiry. If you stay within that window, you don’t have to worry about shopping for a loan from multiple lenders.

Myth: All lenders sell your personal information to telemarketers.

Fact: When you apply for a loan and the lender checks your credit history, the credit reporting company may sell your name and telephone number to other lenders. These names and telephone numbers are known as “trigger leads.”

If you’re shopping for a loan and don’t want to become a trigger lead, you can submit a form online at OptOutPrescreen.com. This will help to keep your information private and ensure the credit bureaus won’t sell your information as a trigger lead.

Myth: Everyone can qualify for the low-interest rates advertised on television.

Fact: Advertised interest rates may require that you have a very high credit score or pay a lot of upfront fees that add to the cost of your loan.

The best way to find out exactly what interest rates you’ll qualify for is to shop around and compare loan offers from multiple lenders. The rates you’ll be offered will depend on your credit score, the type of loan you want and your down payment (or the equity in your home) as a percentage of the amount you want to borrow.

Myth: If the Federal Reserve raises interest rates, mortgage interest rates will go up.

Fact: The Federal Reserve sets bank interest rates, not mortgage interest rates. While the Fed doesn’t directly control long-term interest rates for mortgages, auto loans, credit cards or other types of consumer loans, the interest rates on those types of loans can be affected by the Fed’s decisions, actions and statements. But keep in mind that if you have a fixed-rate loan, the rate won’t change no matter what the Fed does. If you have an adjustable-rate loan, the adjusted rates may be indirectly affected by the Fed’s actions. (For more information read: How the Fed affects mortgage rates.)

Myth: The loan that has the lowest interest rate or lowest monthly payment is always the best loan.

Fact: Mortgage loans are not all alike. Some have a fixed interest rate while others have an adjustable rate. It’s important to compare more than just the interest rate and monthly payment when shopping for a mortgage. Be sure to look at the loan’s costs and fees, as well as the terms of the loan. For example, some mortgages may offer a low initial monthly payment but require a balloon payment. Or a loan may have an interest-only period, after which your monthly payment will rise dramatically. And some have less expensive costs and fees, which may make sense for your situation.

Myth: I may be required to pay a large sum of money upfront to guarantee my loan approval.

Fact: The federal government has warned borrowers to be aware of so-called “advance fee loan scams,” in which a lender guarantees that the borrower will be approved for a loan after the borrower pays a hefty upfront fee. Be wary if a lender asks for you to send or wire a large upfront payment to “guarantee” your loan approval. This may be a sign of a scam.

Reputable lenders may charge modest fees to review your credit report and conduct an appraisal during the loan approval process, but they typically won’t approve a loan until they’ve reviewed your financial situation.

For more information about advance fee scams, visit the FTC’s Facts for Consumers.

For more information, visit our website or call us at (772) 888-2885.
Our market reports are here!

Courtesy of Claudine Porikos and Kim Davis, Group One Mortgage

Mortgage rates are historically low right now!

04.16.09 by

The 30-year mortgage: In mid-March, 30-year conventional mortgages carried interest rates of from 4.875 percent to 5.125 percent depending on the lender, the state, and the buyer’s credit score. (See bankrate.com and others)

At 5 percent interest, the monthly payment on a 30-year mortgage for a $100,000 loan is $536.83, which many homeowners could easily afford.

The 15-year mortgage: Some home buyers look forward to paying off the mortgage before they retire or before their children enter college. The 15-year mortgage is a good choice for them.

It’s nice to know that while it will pay off in half the time, they won’t be paying twice as much each month. The 15-year payment for a $100,000 loan is less than you would think. At an interest rate of 4.25 percent, it would be $752.28 a month. Over the life of the mortgage, they would save almost $67,000 in interest.