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Mortgage rates - question

623 148 June 22, 2020 at 11:23 AM in Finance (4)
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I don't want to go in assuming the wrong thing/jumping to conclusions so asking for thoughts..

We are shopping a new mortgage, so far have talked to one broker. Along with the expected info and questions, when I asked about rates for buyers with aprx 800 credit score and down payment over 30%, he started talking 3.75%. Now Bankrate indicates around the 3% mark, so when I inquired on that he sort of danced around the question, using the words "it depends" a lot.

Some background: MBA Finance, this is the 6th home we are buying so definitely not our first rodeo, and as mentioned, top-tier credit with zero non-primary mortgage debt or obligations.

Is he trying to sell me a high rate with then the potential of lowering it to make me feel better? I understand this is a common sales tactic in many areas but was really hoping for some straight talk and he knows he is competing with others for my business. Or do they just not care?

BTW the loan will be in California, and may be for $500K or $700K, in any case below the jumbo threshold.

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#2
Is this home going to be used as investment property?
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#3
Quote from enzofxx
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Is this home going to be used as investment property?
Nope... primary and only.
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Have you tried shopping for a rate with Cash Call? Their rate is currently around 3%.
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#5
Sales people are sales people. Just bought a home. The mortgage guy at a local branch of a national bank where we have accounts told me his rate and acted like it was very competitive. I quoted him another local bank that was a quarter percent lower and he acted like it was impossible. We ended up getting a rate half a percent lower than what this guy was promoting. Caveat emptor. Even with the internet, many people are too lazy to shop around or wrongly believe that more expensive means better service. Or simply don't care because they can't do math well.
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#6
I just closed a refi with Reali In California, 2.75% with minimal fees. Could've purchased for the same rate as well. Look them up, Reali.com. Overall it was a pleasant experience, would use them again.

Note, they immediately sell the loan after funding.
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#7
As long as you're not jumbo, or renting it out, or anything else unusual, then that rate stinks. Lenderfi is showing 2.875% with a lender credit for a $500k loan with 30% down in my zip code. I refi'd my house with them a few months ago for 2.875% and it went smoothly.

3.75% is probably about right for a "big bank" mortgage, but the online lenders can easily beat it by a lot.
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Hey thanks all. I cross-shopped with Bank of America, with whom I have a 30-year relationship and this would be the 6th mortgage with them over the years (1 at a time) not to mention cards and various accounts. They quoted 2.875% for a 5/1 ARM w/jumbo (30% down); this almost sounds too good to be true but I do have it in writing. Of course I know about the whole "rates change daily" thing...
So why shop against BoA? Their closing process is big pain. The last mortgage we took we almost lost the house due to their shenanigans.
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Quote from enzofxx
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Have you tried shopping for a rate with Cash Call? Their rate is currently around 3%.
You dont want cashcall https://www.consumeraffairs.com/f...hcall.html
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#10
Closing another refi today at 2.85%. Rates have been all over, and some times the banks have artificially raised rates when they had lines of borrowers they couldn't keep up with. Shop and you will get better.

One note...if you don't have a house in mind you may be premature. A rate lock won't hold forever, and unless you are in process of purchasing you can't expect a lock to last.
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#11
Due to the state of the economy there is a wider difference in rates between lenders at this time; where lenders are constantly evaluating their business models. With >40 million unemployed and the government declaring the option of forbearance for anyone, this has put the Loan Servicer on the brink of collapse with liquidity issues. Generally speaking, the Loan Servicer of Conventional loans still need to pay Fannie Mae or Freddie Mac every month, whether or not the mortgage payment is made. (While the headlines did not show it, many big names received bailouts to cover their margin calls in April.)
Jumbo loan products were suspended for a period, cash out refinances became more problematic and overall risk levels remain notably higher. Despite the Mortgage Backed Security (MBS) yielding the best pricing on record these risk levels have resulted in higher margins for the lender and lenders are rewriting their guidelines constantly, looking at a much more challenging future for loan performance. Each is handling the situation in their own way and the landscape has changed - which is why we are seeing such a difference between lenders at this time..

Rates under 3.00% are currently available on a case by case basis. This fluctuates, depending on markets, and some days I have locked as low as 2.75% on a Fixed 30 (w/ no large discount fee) for some of the strongest scenarios. Each scenario is unique and rate alone means nothing without taking all factors into account (i.e. qualified credit score, Loan To Value, Type of Transaction, Type of Property, State property is located in, and costs associated with the Note rate).

I cannot stress this enough. For over 25 years I have seen people ask "what's your rate?" and that is the most naive question in the world as it is only a portion of the data to evaluate when comparing.

The fact is that you need to see what costs are associated with the loan and the rate alone means nothing.

Also, while this one is a bit harder to grasp, in many cases the lowest rate may not be the best rate for your given scenario. ALL rates are available every day. What changes based on markets is the price associated with that Note Rate. When making your comparisons take a look at the stack of all rates and what their price is. Many times it may make more sense to choose a higher rate which provides a lender rate credit to offset the closing costs and prepaid expenses.

For example (strictly hypothetical), without discussing closing costs (as they vary greatly between States) let's say you had this choice of rates:

Rate...................Principal & Interest..............Price

2.875%...............1308.55 /mo ......................cost of $1866
3.00%................ 1328.24 /mo ...................... lender credit of $112

While having a rate in the 2's sounds like something to give you bragging rights it may not be the best choice for some. For the difference of $19.69/mo the price difference here between these two rates is $1978. That means it would take 100.46 months (8.37 years) for the higher mortgage payment to exceed the price (and that is not taking into account the $19.69/mo is tax deductible interest).

Sure there is the camp that will disagree with choosing 3.00% (as they may fully plan on keeping the loan for 10+ years and do not have assets restricting them); but each scenario's needs are unique and instead of raising a loan amount on a refi to roll in the costs, many prefer to keep their principal balance as close as possible to the current principal and this too makes great sense maintaining their hard earned equity.

Same thing applies for purchases and evaluating a borrower's liquidity as well as general time frames of how long they feel they will be keeping the loan and/or the home.

Pricing changes constantly based on the Mortgage Backed Security (MBS) Market and sometimes there is a 'sweet spot' that stands out when evaluating the stack of rates and their respective pricing. There is no single right answer as every one's situation is unique and must be individually analyzed..

Again, when discussing rates with others, keep in mind that type of property, credit score, Loan to Value (LTV), type of transaction (purchase/rate-term refi/cash-out refi) all have major influences on the way a loan is priced. (There is even some pricing variations by State.)

I am admittedly biased when I say you should speak with an experienced mortgage broker; as they will have all the resources available together with personalized service to deliver a competitive mortgage that is right for you.
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#12
Quote from tiedyed1
:
Due to the state of the economy there is a wider difference in rates between lenders at this time; where lenders are constantly evaluating their business models. With >40 million unemployed and the government declaring the option of forbearance for anyone, this has put the Loan Servicer on the brink of collapse with liquidity issues. Generally speaking, the Loan Servicer of Conventional loans still need to pay Fannie Mae or Freddie Mac every month, whether or not the mortgage payment is made. (While the headlines did not show it, many big names received bailouts to cover their margin calls in April.)
Jumbo loan products were suspended for a period, cash out refinances became more problematic and overall risk levels remain notably higher. Despite the Mortgage Backed Security (MBS) yielding the best pricing on record these risk levels have resulted in higher margins for the lender and lenders are rewriting their guidelines constantly, looking at a much more challenging future for loan performance. Each is handling the situation in their own way and the landscape has changed - which is why we are seeing such a difference between lenders at this time..

Rates under 3.00% are currently available on a case by case basis. This fluctuates, depending on markets, and some days I have locked as low as 2.75% on a Fixed 30 (w/ no large discount fee) for some of the strongest scenarios. Each scenario is unique and rate alone means nothing without taking all factors into account (i.e. qualified credit score, Loan To Value, Type of Transaction, Type of Property, State property is located in, and costs associated with the Note rate).

I cannot stress this enough. For over 25 years I have seen people ask "what's your rate?" and that is the most naive question in the world as it is only a portion of the data to evaluate when comparing.

The fact is that you need to see what costs are associated with the loan and the rate alone means nothing.

Also, while this one is a bit harder to grasp, in many cases the lowest rate may not be the best rate for your given scenario. ALL rates are available every day. What changes based on markets is the price associated with that Note Rate. When making your comparisons take a look at the stack of all rates and what their price is. Many times it may make more sense to choose a higher rate which provides a lender rate credit to offset the closing costs and prepaid expenses.

For example (strictly hypothetical), without discussing closing costs (as they vary greatly between States) let's say you had this choice of rates:

Rate...................Principal & Interest..............Price

2.875%...............1308.55 /mo ......................cost of $1866
3.00%................ 1328.24 /mo ...................... lender credit of $112

While having a rate in the 2's sounds like something to give you bragging rights it may not be the best choice for some. For the difference of $19.69/mo the price difference here between these two rates is $1978. That means it would take 100.46 months (8.37 years) for the higher mortgage payment to exceed the price (and that is not taking into account the $19.69/mo is tax deductible interest).

Sure there is the camp that will disagree with choosing 3.00% (as they may fully plan on keeping the loan for 10+ years and do not have assets restricting them); but each scenario's needs are unique and instead of raising a loan amount on a refi to roll in the costs, many prefer to keep their principal balance as close as possible to the current principal and this too makes great sense maintaining their hard earned equity.

Same thing applies for purchases and evaluating a borrower's liquidity as well as general time frames of how long they feel they will be keeping the loan and/or the home.

Pricing changes constantly based on the Mortgage Backed Security (MBS) Market and sometimes there is a 'sweet spot' that stands out when evaluating the stack of rates and their respective pricing. There is no single right answer as every one's situation is unique and must be individually analyzed..

Again, when discussing rates with others, keep in mind that type of property, credit score, Loan to Value (LTV), type of transaction (purchase/rate-term refi/cash-out refi) all have major influences on the way a loan is priced. (There is even some pricing variations by State.)

I am admittedly biased when I say you should speak with an experienced mortgage broker; as they will have all the resources available together with personalized service to deliver a competitive mortgage that is right for you.

Very well said. It's something the average person only does a few times in life, so most don't know what the numbers mean, nor do they put the effort into learning. I didn't go with the lowest rate I was offered. I went with the best one for my situation.
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#13
Quote from tiedyed1
:
Due to the state of the economy there is a wider difference in rates between lenders at this time; where lenders are constantly evaluating their business models. With >40 million unemployed and the government declaring the option of forbearance for anyone, this has put the Loan Servicer on the brink of collapse with liquidity issues. Generally speaking, the Loan Servicer of Conventional loans still need to pay Fannie Mae or Freddie Mac every month, whether or not the mortgage payment is made. (While the headlines did not show it, many big names received bailouts to cover their margin calls in April.)
Jumbo loan products were suspended for a period, cash out refinances became more problematic and overall risk levels remain notably higher. Despite the Mortgage Backed Security (MBS) yielding the best pricing on record these risk levels have resulted in higher margins for the lender and lenders are rewriting their guidelines constantly, looking at a much more challenging future for loan performance. Each is handling the situation in their own way and the landscape has changed - which is why we are seeing such a difference between lenders at this time..

Rates under 3.00% are currently available on a case by case basis. This fluctuates, depending on markets, and some days I have locked as low as 2.75% on a Fixed 30 (w/ no large discount fee) for some of the strongest scenarios. Each scenario is unique and rate alone means nothing without taking all factors into account (i.e. qualified credit score, Loan To Value, Type of Transaction, Type of Property, State property is located in, and costs associated with the Note rate).

I cannot stress this enough. For over 25 years I have seen people ask "what's your rate?" and that is the most naive question in the world as it is only a portion of the data to evaluate when comparing.

The fact is that you need to see what costs are associated with the loan and the rate alone means nothing.

Also, while this one is a bit harder to grasp, in many cases the lowest rate may not be the best rate for your given scenario. ALL rates are available every day. What changes based on markets is the price associated with that Note Rate. When making your comparisons take a look at the stack of all rates and what their price is. Many times it may make more sense to choose a higher rate which provides a lender rate credit to offset the closing costs and prepaid expenses.

For example (strictly hypothetical), without discussing closing costs (as they vary greatly between States) let's say you had this choice of rates:

Rate...................Principal & Interest..............Price

2.875%...............1308.55 /mo ......................cost of $1866
3.00%................ 1328.24 /mo ...................... lender credit of $112

While having a rate in the 2's sounds like something to give you bragging rights it may not be the best choice for some. For the difference of $19.69/mo the price difference here between these two rates is $1978. That means it would take 100.46 months (8.37 years) for the higher mortgage payment to exceed the price (and that is not taking into account the $19.69/mo is tax deductible interest).

Sure there is the camp that will disagree with choosing 3.00% (as they may fully plan on keeping the loan for 10+ years and do not have assets restricting them); but each scenario's needs are unique and instead of raising a loan amount on a refi to roll in the costs, many prefer to keep their principal balance as close as possible to the current principal and this too makes great sense maintaining their hard earned equity.

Same thing applies for purchases and evaluating a borrower's liquidity as well as general time frames of how long they feel they will be keeping the loan and/or the home.

Pricing changes constantly based on the Mortgage Backed Security (MBS) Market and sometimes there is a 'sweet spot' that stands out when evaluating the stack of rates and their respective pricing. There is no single right answer as every one's situation is unique and must be individually analyzed..

Again, when discussing rates with others, keep in mind that type of property, credit score, Loan to Value (LTV), type of transaction (purchase/rate-term refi/cash-out refi) all have major influences on the way a loan is priced. (There is even some pricing variations by State.)

I am admittedly biased when I say you should speak with an experienced mortgage broker; as they will have all the resources available together with personalized service to deliver a competitive mortgage that is right for you.
Excellent answer and much appreciated. Sincerely, thank you for taking the time and thought to do so.

Without stepping on your professional toes, would you say there is a 'sweet spot' for the payback period (100.46 months in your example) under the following scenario:
1. We can pay all of the loan back after say 6 months (but we need the loan now)
2. We are highly risk averse and at the present time feel that we have enough in the markets (as a percentage of total assets) and honestly don't feel comfortable risking any more given the state of the world today
3. The lender we are focusing on (a large bank FYI) is recommending we do not pay back the loan but instead invest and has 'invited' us to talk to their investment guy (yes I realize what's going on here, they are killing two birds with the proverbial single stone).
4. Assuming we invest rather than pay off, mulling over the choice between a 7/1 and 10/1 ARM. You already know the nuances I am sure.
5. Loan amount of under $900K.

Edit: Should have mentioned that, I am comparing APRs and not just the 'naked' interest rate.
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Last edited by kacki July 1, 2020 at 09:43 AM.
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#14
I am in the process of refi-in with loandepot. I got a 3% with a $2K lender credit.
As I have refied with them before with same house, I do not have any closing costs.
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