The down-low on rates

Obviously, getting the best rate possible is of concern to every client.  But, as you talk to different people (in and out of the industry), you need to keep a few things in mind.

1- Rates change on a minute-to-minute basis.  Rates quoted yesterday could no longer be valid.  And most certainly, friends, family and co-workers who closed a month ago are talking about rates that are no longer available.

2- Interest Rates vary by loan program.  Government loans (FHA, VA, etc.) price differently than Conventional loans do, and renovation loans, too, are another whole category.  Additionally, there are differences between fixed and adjustable loans, as well as, 30-year and 15-year loans.

3- Interest Rates vary by loan amount.  Loans on a one-family home below $647,200 (conforming loans) price different than those above.  There is another pricing tier for loans below $970,800 (high balance loans) and above it (jumbo loans).

4- We even have loan programs that have different rates based on geography, in combination with income limits.  Understand that we are searching for the lowest rate and points/lender credits combination we can find.  

5- You cannot lock in an interest rate until you have a fully executed contract.  Until then, any rates you get quoted could be “white lies”.   Often, people quote rates as if you were locking for a week to ten days, as an example.  That isn’t practical, nor ethical in our mind.

6- Longer rate locks bring with them higher rates/costs.  In a rising interest rate market, we need to balance the length of a lock with the likelihood of closing within the lock period.  Communication between all parties (buyer, seller, agents, attorneys, title company, and us) is more crucial today than ever before.

7- Many clients almost obsess about rate, when it is only one component of their real concern- the monthly payment.  They need to understand that a .25% difference in rate can move the payment on a $300,000 loan $42 a month.  And sure, who wouldn’t prefer to save the $42?; but, there are other ways to trim the monthly payment.  (And when you consider that the mortgage interest is fully tax deductible on loans up to $750,000, the $42 is closer to $30 in real cost.)

a. Real Estate Taxes.  Every $1000 in taxes will change your payment by $83- more than double the .25% difference in rates.  So, whether you choose a house with lower taxes or grieve them down after closing (which we will help you with), taxes play a big part in your monthly payment.

b. Homeowners Insurance/Flood Insurance.  Getting a few quotes, tweaking the amount of your deductibles, and including other insurances (auto, etc.) all can reduce your expense.  A $300 annual savings is not unusual, and results in a $25 lower payment.

c. Private Mortgage Insurance.  This is a rarely discussed factor; and yet, an important one.  PMI Rates are determined by the amount of your down payment and your FICO score; but, not al PMI companies charge the same rates for the same loan.  We shop for the most aggressive rate among four different companies for your individual loan.  Some PMI companies favor certain loan scenarios.  One, for example, has better rates when there is more than one borrower.  Another company averages the FICO scores of all borrowers (while the others, price based on the lowest score).  We have seen variations of up to 20 bp on the same loan. That kind of variation can lower a payment (on a $300,000 loan, it’s $50) which is more than the .25% in rate all by itself.

8- One of the significant determinants of rate is your credit score (which also impacts your homeowner’s insurance premium and PMI payment, should you have one).  We will work on optimizing your credit score to position you for the best interest rate, insurance premium, and PMI.  Even borrowers with good credit can benefit by score improvement.  Getting a 719 score over 720 will save you money, as an example!

9- A major component of who you choose to work with must be the advice they give you.  In many respects, a mortgage is a commodity.  A 30 year fixed rate loan is a 30 year fixed rate loan.  And most “commodities” are shopped by price-alone.  But, we don’t see a mortgage as a commodity, for two reasons:

a. The ability of a top-notch originator to save you money in so many other ways outlined above (credit scores, PMI, homeowner’s insurance, loan program, loan amount and term, etc.); and,

b. The advice, experience, and expertise they can bring to you about the timing of your lock.  Your loan originator should have an opinion on the future of interest rates, backed up by timely facts (international factors, the US economy, jobs reports, etc.).  You should ask everyone you shop with their opinion about the short- and long- term rate forecast AND their rationale for that opinion.  Expect your eyes to be opened, as to how few people have a real grasp of interest rates.

10- Rates are only part of the decision-making process.  What use are low rates, if you can’t get approved or close on your loan?  You need to understand your lender’s stance on issues like Certificates of Occupancy (for decks, garage conversions, mother-daughter set ups, etc.) and surveys.  Many lenders are strict; others, like us, are more common-sense in their approach.

11- Industry experts claim that many of the institutional lenders (like the banks and credit unions) have upwards of a 30% Declination Rate. That means almost 1 in 3 loans, that were “pre-approved”, don’t close!  Largely, that is the result of a weak pre-approval.  If you did not submit pay stubs, W2s, tax returns, bank statements, divorce documents, etc.; your “pre-approval” is likely worthless.  If the pre-approval document doesn’t include an interest rate, real estate taxes, and your credit scores; how can you truly know what you can afford?  Our pre-approval screening is thorough and comes with it, the confidence of a buyer who is going all cash.

Lastly, especially in an emotionally-charged transaction like buying a home, communication and access may be the most important point of difference between lenders.  Creating an excellent customer experience is our passion; and that begins, with extended hours of availability and interaction “your way” (whether via text, e-mail or phone).  We subscribe to the Platinum Rule in business.  “Do unto the client, in the way they want to be done unto.”  Our focus is transparency and education.  Give you the best information we can; give you our advice; and then, execute your wishes at the highest level in the industry.

Written by

Lisa Zambelli