Mortgage Interest Rates - Florida

September 2014 - Interest rates are expected to rise in the long term but maybe not in the next 30-60 days. Please see my rate lock advisory page for more details.

October 2013 - Interest rates have leveled off a little bit and I expect them to be relatively flat until the end of the year. Here is a video of myself giving "my take" on rates and my reasoning behind it. If you are looking for a daily analysis of what is going on in the markets, I strongly recommend my Daily Rate Lock Advisory  page.


Rates and Payments

I was listening in on a seminar yesterday which said that 90% of on line shoppers are looking for a calculator or some way of calculating a payment. This was a little curious to me because my web site has ten different calculators that have never been the most popular links but I figured I would use them in a blog in light of our recent jump in interest rates.

In general, interest rates go up fast and come down slow. In general a good day on the stock market is bad for rates and a bad day is good for rates. Sometimes customers become overly sensitive to interest rates. A change of 1/8 on a $100,000 loan will change your payment  $ 7  per month. A change of 1/8 % on a $200,000 loan will change your payment  $12  per month.

A few weeks ago , we had an unheard of change in our mortgage markets with a change of 3/8% to rates in a day. We should call it “black Wednesday” . This change took place over speculation that our government will soon cease its program of systematically purchasing American mortgage backed securities as early as this summer or perhaps as late as the end of the year. This immediately created volatility in the bond market which created turbulence with our mortgage rates.

The Federal Reserve has hinted that the determining factor which will guide policy is unemployment. The sooner unemployment gets back to lower levels, the sooner they will curtail the purchasing of mortgage back securities which is the policy that is keeping our rates at 50 year lows. To me that sounds like the policy could be around for a while.

As Americans many of us lack that perfect timing in life. We show up late for dinner. We do our school work at the last moment. We actually listen to our spouse after there is a problem and then we go shop for that home or look at that refinance after rates have jumped. If any of you have been sitting on the fence or perhaps just too busy to deal with your current overpriced loan it may be a good time to make the time because this summer and fall very well could be your last chance.

Customers love to compare the interest rates offered by lenders but it is important to keep in mind that there are about 10 factors that determine the interest rate that will appear on your paperwork.

I would like to touch upon them here.

Purpose of loan: If you are purchasing or refinancing with cash out it makes a difference. Banks reward purchases and will give a pricing adjustment if you are pulling cash out. Fannie Mae pricing is very sensitive to “cash out” especially if your middle credit score is less than 740. In fact incremental adjustments will take place between 740-720, 719-700,699-680,679 and below all the way done to 620. Below 620 Fannie Mae does not want your loan. FHA is a lot more forgiving when it comes to cash out adjustments and I can look at your loan all the way down to a 580 middle credit score.

Occupancy: This is a very important adjustment which is based on your intended use of the property. With conventional Fannie Mae financing, primary residences are rewarded, second homes have a slight negative adjustment and investment properties have somewhat of a large hit to pricing. The reasoning here is based off of statistical average of the “performance” of previous loans where human nature is documented that customers will fight very hard to keep their primary residence and make their payments where they will be more inclined to let an investment property go into foreclosure if they get behind or lose value. FHA financing does not even accommodate second homes and investment properties.

Credit Score: Credit scores are of course very important when it comes to getting you approved and also the interest rate you receive. In addition to purpose of loan Fannie Mae financing will not reward good credit scores but will adjust pricing in a negative way for lower credit scores. FHA really has only two tier pricing when it comes to credit scores. Above 640 and below 640 down to 580 middle credit score.


Loan to Value: In much the same way Fannie Mae financing adjusts incrementally between ranges of 20 points in credit score, Fannie Mae pricing with adjust incrementally with changes in Loan to Value. Below 60% loan to value is rewarded with no adjustments to pricing. 60% to 70% has a minor adjustment, 70% to 80% has a more severe adjustment and above 80% has some larger adjustments that have a more dramatic effect on pricing almost to the point where you want to reconsider doing that loan. FHA pricing does not have incremental pricing for loan to value just set guidelines with the same pricing for each loan under the limit.

Loan size: Banks reward larger loans with positive pricing adjustments and penalize smaller loans with negative pricing adjustments. This is common sense because when it comes time to sell the loan on Wall Street they earn a percentage of the loan amount. About the smallest loan we do nowadays is $75,000 and the largest Fannie Mae loan without being a jumbo is $417,000.

Loan Program: So far we have been comparing Fannie Mae and FHA but there are a host of other niche programs that require major adjustments just due to the risk of the program. Good examples are rehab loans such as the FHA 203K which is more work for us as banks because it is sort of a mini-construction loan. Another example are Jumbo loans which are less marketable on Wall Street for banks so they charge a premium to pricing due to the inherent risk. Other niche programs that have large pricing adjustments include Fannie Mae Home Path, Fannie Mae Rehab loans, Harp loans, FHA manufactured housing, reverse mortgages and others.

Rate Lock Period: Banks offer their rates in different time frames or increments. Usually they come in blocks of 15 days so you can have a 15 day lock, a 30 day lock, a 45 day lock, 60 days etc. Nowadays we are seeing less and less long term locks available due to the risky nature of our markets. The shorter the term of the lock, the less risk involved, the better the pricing.

The State: Lenders chart all the loans they make and it is interesting to find out which states have customers that pay their bills better than others. Adjustments due to state are small adjustments.

Escrow Waiver: Many customers choose to pay their taxes and insurance on their own rather than having them included in their payment. This is called waiving escrows. Banks prefer to have customers escrow so that customers don’t get behind on paying the large sum for taxes and insurance that are due once a year. This fee is not a huge fee but sometimes it will make the difference between and 1/8th percent to rate. In this customer the customer can also pay the fee which is .25% of loan amount.

Am I paying Points or is my Bank paying closing costs? : Every conversation about rates should include a mention of whether you want a rate with no points, discount points to buy the rate down or if you would like me to pay costs for you we can look at that. Paying discount points to buy the rate down will yield the lowest payment, no points will be in the middle, having costs paid for you will have the lowest out of pocket expense but the highest payment.

If you are considering purchasing or refinancing in the next 90 days you may wish to check out my Rate Lock advisory page which offers a daily analysis of what is going on with interest rates.




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