For rational, expert advice, analysis, and a custom mortgage rate quote call 1-877-720-6188 now! 

Mortgage Rate Headline Story:

LESSON LEARNED? The media is almost always wrong with this issue. THE FED DOES NOT CONTROL RATES.

Late last month the Fed took some of the most aggressive rate cutting action since 9/11/01. The market response mortgage rates have been skyrocketing continuously until yersteday.

On January 23rd last month, the intra-day low for the benchmark 10 year treasury was 3.281%. Yesterday, it closed at 3.917% nearly 20% higher in less than a month AFTER the Fed made huge custs to it's Discount and Fed Funds rates.

If you are waiting for the Fed to lower your mortgage rates you will miss the boat. It is market forces that rule, not the Fed. The mortgage secondary market exists 24/7 to stay only slightly ahead of mortgage rate movements. Their sole existence is to minimize loss due to interest rate fluctuations. They do this by playing both sides of the trade.

If professional secondary marketers cannot predict mortgage rates will be on any given future date how can the average consumer? Successful floating is almost always the result of a consumers sheer luck.

Play it smart. If the numbers make sense now to refinance your mortgage rate, then act decisively now and call us at 1-877-720-6188.

*As always, there are assumptions we have to make. Why? Mortgage investors and the secondary market, pay more or less money for loans depending upon characteristics and quality of the loan package and applicant. The less risk as defined by the secondary market present in a loan request, the better the rate one deserves. The higher the risk present in a loan request, the higher the price we must require to offset the risk being taken. It is not rocket science nor is it mysterious. I will expand upon these criteria below in more detail.  

Loan Amount: $200,000

Loan Term: 30 Years

Amortization Type: Fixed, fully amortizing

Property Type: Single-family dwelling

Occupancy: Owner-occupancy, primary residence

Customer Credit Quality/Score: 720+/Excellent

Loan-to-Value Ratio (LTV): 80%

Documentation/Processing Type: Full Documentation

Property State: CA

Rate Lock Term: 30 days

Now, let’s get into why the prices for this example scenario may be more or less than what is stated in the grid.

Loan Amount: Most investors consider $225,000 to $250,000 to be the “base” amount with $417,000 being the maximum allowable loan amount under conforming limits and $50,000 being the minimum. The smaller the loan amount the higher the rate or fees must be to maintain the required profit margin. The higher the loan amount up to the $417,000 limit the better the pricing gets as it takes a smaller and smaller percentage of the loan amount to maintain the necessary profit margin.

Loan Term: The longer the term the higher the rate and/or fees. A 40 year terms cost more. 20 Year terms will allow for a small discount to the price. No investors offer improved prices for 25 year loans. 15 and 10 year loans are considered separate programs and they are listed here ____.

Amortization Type: Balloons, interest-only and negative amortization loans cost more than fixed rate, fully amortized loans. Fixed rates are considered the lowest risk to mortgage investors and to the secondary market.

Property Type: Condominiums, Town homes, 2-4 unit homes, manufactured homes, and mobile homes on deeded land are considered riskier in the order they are listed and usually carry pricing penalties that must be passed on to the customer. Single family detached dwellings are considered the lowest risk by the secondary market.

Occupancy: Owner-occupied, primary residences carry the lowest level of risk to the secondary market and as such serve as the base line for pricing. Investor properties or non-owner occupied properties carry the highest risk to the mortgage investor and therefore require the largest adjustments in the price. Second homes may have a small adjustment or none at all depending upon any other characteristics present in the loan request.

Borrower Credit Quality: Obviously the higher ones credit score the better the rate one can expect to receive up to a limit. Usually the rate one is offered for possessing a credit score 750 or greater is the same as one at the highest score. A score of 720 is generally considered high enough to earn the best prices. The lower ones score falls below 720 the higher the risk adjustment investors will add to the price available.

Loan-to-Value (LTV): The more “cushion” between the amount of the loan and the purchase price or appraised value, whichever is less, the quicker an investor may be able to dispose of a property in the event they are forced to repossess it. It also reduces the risk of not recovering their original loan investment in the property. 80% is the standard, so-called “cut-off” point. Anything below this percentage becomes safer and safer and garners a better and better price. For every 5% increment above this level the risk of loss to the investor grows larger and larger. Therefore the investor must offset the risk by charging higher rates and/or fees.

Documentation/Processing Types: The more you are willing to disclose and document, the higher the lenders certainty increases regarding the ability and willingness of the borrower to repay the mortgage. Every applicant’s employment, income, asset, and credit profile has varying degrees of risk. The level of risk in these areas can be assessed more clearly and accurately when documentation supporting the stated information is provided and verified. When this is not done the lender is taking a greater risk by not knowing for sure. Lenders offset this risk by giving more weight to the borrower’s credit worthiness and/or by reducing the Loan-to-Value. They also charge a premium for the extra risk they are taking.

Property State of Residency: Nothing illustrates the cost of political interference in free markets in this industry more than the state adjustments to price. Heavy-handed, so-called “consumer protection” legislation exacts a heavy cost almost exclusively on those the legislation is supposedly intended to help. Free markets always react naturally to unnatural and ineffective methods of uninformed, and frankly, careless politicians. This may be the first time many visitors of this site learn that there is a direct cost they pay for the privilege of residing in an anti-business or anti-lender state. Consistently, California, Massachusetts, Hawaii, Minnesota, Nevada, Rhode Island, & Washington D.C. rank as the most expensive areas to maintain compliance with the law. They also make it more difficult for lenders to recover their investment in the event of default through foreclosure. The result is a risk adjustment exacted by the market to offset complying with these heavier regulations. This is paid for as it always is and will be the consumer. The bottom line is the more difficult politicians make it to transact and maintain business within the state, the larger the adjustment required to offset the higher costs associated with the tougher compliance.