Rates
What are today's interest rates?
We get this question ALL. THE. TIME! And we think it is a disservice to our clients to simply tell them a rate, because that’s lazy, dishonest, and that may not be what it is once you go to buy a home or refinance one. Rates could be lower or higher OR cost more or less once you get to that point!
You can have almost any rate you want. It just depends on how much you want to pay for that rate. The lower the rate, the higher the fees (generally called points). The higher the rate, the lower the fees. (You could even get credits!) This is why it is best to customize your rate to what you want. We never want our clients to feel trapped. You have options!
Remember: In almost all cases, you cannot lock into a rate until you are under contract on a home or you begin the refinance process.
When you see mortgage rates listed online somewhere or on a lender's website, they are vague estimates or quotes and will absolutely vary depending on your situation!
This is why we would rather game plan with you regarding your personal budget to customize the rate/cost that works for you! When broken down, the big things that matter when buying a home are:
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What your monthly payment is
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The amount of money you need at closing
Keeping it simple really matters.
What actually determines my interest rate?
This is actually well above our paygrade, but the nerdy answer is that interest rates are based on the bond market, specifically mortgage-backed securities, and they change all time, just like a stock. That’s the best and simplest comparison we can give you. This is typically standard across the board wherever you go! This is the base rate.
This is why going to a “low rate lender” is actually not correct. If you go to a "low rate lender," it could mean you are getting charged a lot of fees, generally known as points mixed in with fluff fees (Processing Fee, Underwriting Fee, etc.). We do not charge any fluff fees.
After the base rate, other criteria is now added into that base depending on the factors below, among others! It can be complex, and everything is found out in the end, so this is why it is best to get your full file into your loan officer and tell them as much as possible upfront. This will allow them to be accurate for you upfront and avoid surprises later! Nobody wants that!
Down Payment: Generally, the higher your down payment, the lower the rates, but sometimes putting more money down might not be the right decision because it could cost you more money out of pocket to get a minimally lower rate.
Home Price & Loan Amount: Your home price minus your down payment will be your loan amount. This helps to determine your rate/fees.
Credit Score: This is a big one for your rate and fees. The lower the score, the higher the rate. It all goes in buckets. Remember, mortgages are risk-based, so if you have lower credit scores, this could be a deterrent to the lender because you look like a higher risk. Remember: a loan is when someone gives you money in the hopes that they get paid back.
Type of Occupancy: The 3 different types of occupancy are primary, secondary, and investment. A primary loan will have lower rates; since you will live there and it means more to you, the lender assumes you would be most willing to stay on top of payments, no matter what! A second home loan would be a vacation home or a true second home that you or your family will use. These will generally have higher rates. An investment property loan will typically have a renter living in it. This type of loan will have the highest rate because you will possibly have less interest in this property. If money gets tight, you would be more likely to pay your primary home mortgage over your investment mortgage, hence making them more risky to lenders.
Loan Term: Shorter term mortgages (like a 15 year) generally will have lower rates than a longer term mortgage (such as a 30 year). However, even though your rate may be lower on a 15 year mortgage, the payment will be higher than a 30 year, because you're “scrunching” down the term to be paid off quicker! After being educated, most of our clients go with a 30 year term to have affordable payments and then simply pay more towards the principal to lower the term. You can always do that with a mortgage, but if you get stuck in a lower term mortgage, you can't go back! It’s good to have options!
Loan Type: Different loan types (such as Conventional, FHA, VA, USDA, Non-QM) all have different types of rates. They all have benefits and drawbacks!
Property Type: Different types of homes (such as Single Family, 2-4 unit, condo, etc.) all have different types of rates due to risk factors.
First time homebuyer: Depending on if you are a first time homebuyer or not, this could actually give you better or worse rates/fees. Fun fact: as long as you haven’t had ownership in a home in the past 3 years, you are considered a first time homebuyer. So if you have owned a home, sold it, and waited 3 years, you are a first time homebuyer again!
Monthly Income: Depending on how much money you make per month, this can give you higher or lower rates. I know it might sound weird, but if you fall under certain income limits, you may get better rates!
There are many other factors that go into your rate as well, so make sure to give your loan officer all of the necessary information upfront, so they can be accurate for you!
That’s all that matters!
What's the difference between mortgage interest rates and APR?
Interest rates and Annual Percentage Rates (APR) are related, but they are not the same thing. But legally, you have to see both.
The mortgage interest rate is the interest you will pay on your loan.
The APR is the interest rate plus other fees/costs associated with buying a home. It’s essentially a full look at everything. By law, the APR must be disclosed in any loan agreement, and also in advertising. If you ever see a low rate advertised without an APR, this could be illegal and a bait & switch scheme. This means that the interest rate may be low, but it has a lot of fees. Remember: the lower the rate, the higher the fees!
How do I get the best mortgage rate?
The simple answer to this is:
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Get a fixed mortgage
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Save for your down payment
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Pay your bills on time
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Watch your credit score
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Take advantage of any special loan programs, like being a first time homebuyer
The true and complex to this is:
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Be honest, and complete everything for your mortgage advisors, so they can be accurate for you.
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Talk about your short term and long term goals with your mortgage advisor.
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Your personal budget may actually dictate a higher rate, because there are fewer fees to keep more money in your pocket.
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Once you get into it, you will realize that while your interest rate is important, there are many other factors that are more important like affordability, saving for the future, and living a happy life in your new home!