Mortgage Charges Hit 5-Month Low. Why Yours Will In all probability Be Increased
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Mortgage rates fell to 2.88% last week – their lowest level since mid-February this year. However, if you’re looking to buy a home or get refinancing, you probably won’t see the lowest rates you see.
That heady 2.88% interest rate is the 30-year median fixed-rate mortgage rate, which publishes weekly average interest benchmarks that experts call the industry standard for tracking interest rate movements, according to Freddie Mac. Individual mortgage lenders also frequently advertise low interest rates on their websites.
But for buyers and refinancers, the industry standard advertisements and lenders are much less important than the individual circumstances.
It’s not to say that average mortgage rates aren’t useful. They can be a helpful guide as to which sentence your personal circumstances may qualify you for. In other words, someone whose financial situation has not changed dramatically will likely qualify for a lower interest rate today than it was earlier in the year when the average 30 year interest rate was 0.30% higher.
But there are so many factors that go into your interest rate that it is virtually impossible to know your mortgage or refinance rate without submitting an application and getting a lender to verify your information.
Even then, as long as your price offer is not blocked, it can change. “The market has been incredibly volatile, so something you do very well on Monday may not be there on Tuesday,” said Jennifer Beeston, a mortgage educator and lender licensed in 46 states.
With all the attention paid to average interest rates, there are more important factors for borrowers to consider when it comes to securing the mortgage that makes sense for them. What looks like a great interest rate at first glance could come with thousands of dollars in additional fees on an actual loan.
Here’s what you need to know about your mortgage rates and how to make sure you are getting the best deal.
What you should know to get the best price
1. Your personal situation is important
Personal factors affect the mortgage or refinance rates for which you can qualify. Your creditworthiness and the size of your down payment will have a big impact on your rate. But even if you have the exact same credit score and down payment as someone else, you won’t both be offered the same price. The type of mortgage, the type of property, the repayment period, the size of the loan, and even the location where you buy a home can all play a role.
So until a lender knows all of your relevant financial information and the details of the home you are trying to buy, don’t consider a specific rate for you.
What buyers can do
Take the time to review your credit reports for inaccuracies and build your creditworthiness before you apply. There is no quick fix to increasing that Creditworthiness of mortgage lenders, but paying your bills over time and settling your debts will increase that score. At the same time, you can get the best possible interest rate when you refinance by building up your cash reserves for a larger down payment or increasing the equity of your home.
2. Prices vary from day to day
Mortgage rates are not set by a single company but are influenced by a variety of market factors, much like the stock market. The prices fluctuate from day to day and from week to week. And when the news mentions certain interest rates, it usually refers to a mortgage rate survey like Freddie Mac’s weekly survey.
These types of surveys do not take into account your personal situation and can also easily be out of date by the time you see them. You may have a higher credit score or pay a higher down payment on your home than the minimum borrower standards required for the survey, or vice versa. Hence, the interest rate collection trends could be more useful than the specific interest rates mentioned.
What buyers can do
Be careful when the rates charged are low enough that it makes sense for you to get a lower price than you could possibly get before. Keep in mind, however, that the average interest rate or a certain advertised interest rate is likely not the exact rate you will get and that much more goes into the buying or refinancing decision than low interest rates.
3. Take advertised prices with caution
Displayed prices are never guaranteed. “[Advertised rates] will generally offer the best possible rates to the best possible candidates with the best possible references, ”said Keith Gumbinger, vice president of mortgage information site HSH.com. This will not apply to most people, says Gumbinger. When you see publicly listed rates, there is usually fine print that indicates the type of borrower that those rates might apply to, such as:
“When people see tariffs online, they often don’t get the same tariff when they call,” Beeston says. Other times, you might be able to grab this amazing price advertised in the mail, but there may be a catch. People have to ask, “How much am I paying for this price,” Beeston says. You may be offered a low price, but you will have to pay thousands of dollars in discount points to get it.
Discount points are optional fees that you can pay to lower your interest rate. It usually costs 1% of your loan amount to lower your interest rate by 0.25%. And the exceptionally low prices you can find online may include excessive discount points. Even the Freddie Mac survey includes discount points in their rate averages.
What buyers can do
Get a quote directly from a lender and always check what fees you are paying. When you get a price you like, lock it and ask how long the price lock lasts, which is usually 30 to 60 days.
How do you know exactly what mortgage rate you qualify for
To get an approximate estimate of the mortgage or refinance rate you are entitled to, you can call a mortgage lender and provide some basic information (credit rating, income, etc.). But there’s only one way to be sure of what price you’re getting – file an application, do a credit check, and get a price lock. “The only time you know what you’re getting bulletproof is when you have this loan estimate in front of you and it says ‘blocked’,” Beeston says. Until you have requested and received a price lock, it can still change. “If it’s not locked, it’s not real.”
But when you buy a mortgage, you don’t want to focus so much on the interest rate that you end up doing a bad deal.
There are sizable fees that you have to pay each time you take out a mortgage, usually between 3% and 6% of the loan amount. And the lender with the lowest interest rate may charge much higher fees. This is why it is important to shop around and compare offers from multiple mortgage lenders. You can do this by comparing the credit estimates that you will get after submitting your applications. The loan estimate is a standardized form so it is easy to compare quotes between lenders.