Your Mortgage Rate and the Closing Costs Associated with It
Yesterday, mortgage backed securities (MBS) traded in a tight range and closed near the previous day's closing price levels. This stability will allow lenders to offer par 30 year conventional mortgages ranging from 4.625% to 4.875% depending on individual borrower risk profile characteristics
To qualify for a par interest rate requires a FICO score of at least 740 with a loan amount to home value ratio of 80% or less. This also assumes that borrowers pay all closing costs which includes 1 origination/discount point or broker charge (how mortgage bankers and brokers earn income). I bring up this topic due to a recent conversation I had with a reader. This reader sent me an email indicating they had been quoted a specific zero point mortgage rate, as is the usual reaction to such a statement I requested this reader to please send me their good faith estimate. Sure enough, there were no points; however, upon further inspection I noticed a 1.00% closing cost labeled "broker fee"(see example below). So although the "fees" were not described as "points", this client was still paying the same amount. Consumers beware of how lenders structure your good faith estimates.
I also had a reader comment yesterday about an offer they received on a refinance where the lender was “absorbing the costs”. Well, it appears that way on the surface when you get a good faith estimate that shows the lender paying all the fees; however, the rate they were quoted was abnormally higher than the average market par rate. So, is the lender absorbing the costs, or is this consumer paying the costs via a higher interest rate? If the latter is the case the consumer will pay more money in the long run vs. paying costs up front. Has this concept been presented to you by your mortgage professional? Have you experienced this dilemma. Should you pay additional closing costs? Should you pay a point? ? As always I am interested in hearing your thoughts on the subject.
I have written in the past about lenders controlling their pipeline of business by increasing borrowing costs for no apparent reason. It was reported yesterday by a fellow mortgage professional of one lender doing this. With the price action of MBS yesterday, there was no reason for any lender to worsen pricing but that is what happened. As lenders start to offer better rates, many consumers jump off the fence and lock their rate. Once the lender gets enough locks, they start to increase rates to slow down their volume of new originations.
