Mortgage Rates Rising with Inflation
Rhonda Porter on 06 13, 2008
Rates are continuing their climb up upwards. Helping to fuel this rise in rates, Greenspan has announced that markets are showing a “pronounced turn around” causing investors to trade the safety of bonds (such as mortgage backed securities) for stocks. Great for stocks = bad for mortgage interest rates. Mortgage rates are currently 0.25% higher than they were on last Friday’s rate post and 5/1 conforming ARMS have really jumped. The change in rate from last week is italic.
Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). The conforming rate quote below is based on owner occupied with a minimum credit score of 720, “full doc” purchase with a sales price of $500,000 and a loan amount of $400,000. This scenario includes reserves (taxes & insurance) not being waived. Rates quoted are priced based on a 30 day lock with no prepayment penalties on any of the rates quoted below.
30 Year Fixed @ 0 Pt: 6.625% (APR 6.685%). Up 0.25%.
30 Year Fixed with 10 Year Interest Only @ 0 Pt: 6.875% (APR 6.932%). Up 0.25%.
15 Year Fixed @ 0 Pt: 6.250% (APR 6.345%). Up 0.25%.
5/1 ARM – LIBOR @ 0 Pt: 6.625% (APR 7.198%). Up 1.00%. ~ 5/1 ARM – LIBOR @ 1 Pt: 5.750% (APR 7.084%). Up 0.50%. (Just goes to show you how pricing can vary–it’s not always 0.25% in rate to 1% in fee).
Conforming-Jumbo Rates. Pricing is based on the same criteria above except where the loan amount is $417,001 – $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $650,000 and a $520,000 loan amount.
30 Year Fixed @ 0 Pt: 6.625% (APR 6.681%). Up 0.25%.
30 Year Fixed with 10 Year Interest Only @ 0 Pt: 7.125% (APR 7.197%). Up 0.25%.
5/1 ARM @ 0 Pt: 6.375% (APR 7.244%). Up 0.75%.
JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down). The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.
30 Year Fixed @ 0 Pt: 7.625% (APR 7.684%). Up 0.125%.
FHA. Pricing based on credit score of 620 or better and loan amounts up to $362,790 for FHA in King, Snohomish and Pierce Counties with 1 point.
30 Year Fixed: 6.500% (APR 7.287%). Up 0.25%.
FHA-Jumbo. Pricing based on loan amounts from $362,791 – $567,500 for King, Snohomish and Pierce Counties. For other loan limits in Washington State, click here.
30 Year Fixed: 6.750% (APR 7.537%). Up 0.375%.
VA. Pricing based on credit scores of 620 or better based on loan amounts up to $417,000. VA loan amounts over $417,000 are also available. Contact your local Mortgage Professional for more information.
30 Year Fixed: 6.500% (APR 6.828%). Up 0.125%.
Prime Rate (what HELOCs are based on): 5.000%
This is just a small sample available of rates and products. Rates are as of Friday, June 13, 2008 at 1:00 p.m. and may change at any time. So far for the month of June, we’re averaging 2.5 intraday rate changes (based on a lender who does not change rates as often as others). Available programs may change at anytime as well. This is not a guarantee nor is it a commitment of interest rate. To see live rate quotes for various scenarios, check out my Twitter page.
Just a reminder, I’m pricing conventional mortgages based on zero origination/discount points. You’re welcome to pay points to buy down your mortgage rate. Typically, but not always, 1% of your loan amount will buy the interest rate down 0.25%.
How would you like to see me price rates (with or without points) at Rain City Guide?
- Zero Origination/Discount Points. (What I’m currently doing).
- 1 Point – Discount/Origination. (How I previously posted rates at RCG).
- 0.5% Point – Discount Origination. (Split the difference).
I’d love your to hear your opinions on how you’d prefer to see rates posted and why. 
About the Author: Rhonda Porter
- Author's website: http://www.mortgageporter.com
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44 Responses to “Mortgage Rates Rising with Inflation”
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I liked them better the old way. Maybe I just got used to them, but it seems like most lenders start pricing with an origination fee of around a point.
I can’t help it, but last week (even with all of the disclaimers you made), I couldn’t help but think “wow, those rates sure look high.”
That’s what I’m afraid of, laxtosnoco. I may have to go back to the old way…especially with how rates are going up.
I like the current way. Not sure why; just seems more honest.
Thanks for opening up the comments again, btw.
Raising a topic that came up on some earlier threads: does anyone know which lenders (if any) have placed King County, or parts of the Puget Sound region, on “declining market” lists?
I wonder if any lenders have decided to apply tougher criterion to loans in our region now that we have experienced some depreciation.
In places like Miami I have heard that lenders even have lists for particular black-listed condo buildings (i.e. not just zip-codes), where they higher borrower requirements than elsewhere in the same zip code. I haven’t heard anything like that happening in the Puget Sound.
biliruben,
I think it’s more “honest” because you can have the loan priced with a point (which is how come I keep stressing it on the posts). Sometimes the pricing for zero points is significantly higher than if someone paid a point (which is why I show both on the 5/1 ARMs).
Sniglet, not any lenders that I work with (that I’m aware of). WaMu did way back when and I’ve heard that BOA has (we don’t work with either).
Condos will be the next to get tougher here too.
biliruben, Sniglet kind of requested opening rates for comments again after last Friday’s post.
I think with what’s going on the market, it’s good to re-open the rate posts.
HI Rhonda, I also like the 1% pricing, it’s what everyone has gotten used to reading over the years, and you really want the “at first glance readers” to have their attention captured enough to actually read what you are writing.
And, it’s no less or no more “honest”, it’s just a method of pricing. Quite often buyers with low cash, but enough income do choose the 0% points, but more commonly is the desire for that lower rate, and willingness to pay that point.
Thanks, Leanne. I just put up a survey on my other blog asking how I should post rates (I post them there on Friday’s too).
You have a point (pun intended) about how some borrowers are less likely to qualify without points and in this market, when rates are rising, this could be especially true. Sellers may be more likely to pay the point as well.
When I provide a GFE, I will often provide a report that shows 3-4 different price points for the same program (0-1 point). I do want to provide an accurate fair view of what rates are currently doing.
I was asked yesterday by David G during Dustin’s 4Realz Roundtable if I thought an “automated site” could accurately quote rates and my response was maybe 1-2 years ago. There is really just so much to it now.
I think either way is fine, but could you clarify something?
A point (or points) can go to the “bank” to lower the rate, usually called a “discount point”, or points can go to the “lender/broker/originator” as an originatiion fee or a mortgage broker fee, which also has the effect of lowering the rate
When you quote a “pointless” rate, does that mean that neither the banker or the broker/lender is receiving a fee directly from the borrower (and the bank or originator is solely deriving revenue from the YSP or SRP)? Does this mean that the only closing costs are true 3rd party costs (appraisal, title escrow, etc)?
And yeah, rates are higher. I had a borrower that I had quoted exactly one month ago, and the new rate was .625% higher. Whoa!
It’s like gaining weight….you barely notice it creeping up on you at with a few pounds here and there, then BAM! Nothing fits anymore!!!!
Hey, I think I hear Ben and Jerry calling my name!!!
And if we are voting, I vote for the pointless change. My bias is generally to reduce loan costs for the borrower, since the average borrower is not in the loan long enough to benefit from a low rate strategy.
Sniglet:
Echoing Rhonda, no lenders that I currently work with have a declining market policy. WAMU’s may still be in place, don’t know, they left wholesale, I heard BOA did, but they left wholesale too.
HSBC lifted theirs a few weeks ago. Provident has a more or less de facto declining policy, as their restrictions on distance and time on comps are much greater than FMA/MAC.
Roger, when I say a rate is pointless, there are no points or fees in lines 801 (orig), 802 (discount) or 808 (mortgage broker points). The mortgage is priced at zero points with the compensation coming from the bank (srp or ysp).
Okay…I do have a poll up for anyone interested in voting on how I should price “Friday’s Rates“.
Rhonda,
I didn’t follow all this. I always assumed that no points meant no points to the underlying lender. But that there was still a point to the broker if it was a brokered loan. So zero points IS one point. NO?
Ardell-NO.
Different LO’s may call no points or par pricing differently–this is adds to the confusion of shopping for rates. Here’s what I mean (other LOs may have different definitions):
0 Points = no points paid by the consumer. No points meaning no origination fees, no discount points and no points paid in line 808 to a mortgage broker. In this case, the LO is being paid by the lender (who the loan is being sold to).
1 Point = consumer is paying a total of 1 point for the loan including origination, discount and mortgage broker fees paid in line 808 (mortgage broker fee).
In my opinion, if a consumer says they want a rate priced with no points, that means no origination, no discount–no points. This is why I’ll show a consumer 2 or more ways the loan may be priced so they understand the impact points have to rate and that it’s their choice on how the mortgage is priced.
Ardell, I should add that I hardly ever broker. As a Correspondent Lender, a majority of the loans are closed in our credit line (like a bank). Even if I brokered a loan, it would still be the same. No points = zero origination/discount/line 808–which is dumb that brokers need to show an orig/discount point there.
The difference being when I broker a loan at zero points, the consumer would see my “rebate pricing” (aka YSP)
As a Correspondent Lender, I act more like one of the “big banks” and do not show my “rebate pricing” (aka SRP). Although, I have no problems letting the consumer know what I’m paid in SRP and if they’ve requested a mortgage priced with zero points, they also understand how I am paid.
No LO works for free…at least not on purpose! We do plenty of charity work to help people who may never buy or refi…at least not in the immediate future…and dish out plenty of advice without compensation. However, if you’ve entered into a transaction and it’s zero points on the GFE/HUD-1 Settlement Statement, the lender/bank is paying the LO instead of the borrower.
In that case I vote for 1 point quoting.
Loans priced with paying a total of 1% origination/discount fee is probably the most common. This is why I show consumers how points impact their payment…they’re usually surprised that it’s not as much as they think…but sometimes that 0.25% in rate (it’s not always 0.25%) makes a difference to a borrower.
I agree with Rhonda’s explanation. Borrower’s don’t care that much who the point is being paid to, but they sure care who the payment is coming FROM!
Them!
Re declining markets, Wells Fargo announced Friday (the 13th) that a declining market policy was in effect immediately in King, Snohomish, Pierce, Skagit, Yakima, Clark and Skamania counties.
Bummer.
Roger and Rhonda,
Actually more of my clients paid extra points to buy down the rate in the last couple of years than I have seen in a long time. More points and lower rate is making a coming back, now that the zero down borrowers with stacked costs are out of the picture. People buying “for the long haul” and not as short term owners, are more likely to exchange up front cash for lower long term payment.
Ardell, that’s really interesting…hopefully they all have 30 year fixed mortgages if they paid extra points or, better yet for your buyer, the seller paid for them!
It takes quite a while to break even on points and the average home owner does not retain their mortgage that long. Even if they’re growing roots in their home, if they refi they may not have kept the mortgage long enough to break even on the costs.
Roger, I’m waiting on our Wells AE to confirm this…we never received an email and we do quite a bit (100% correspondent) of biz with Wells. I’ll let you know what I find out.
The long term trend has been to less points, but recently it has been climbing back up, at least according to Freddic Mc stats.
I have started to close a higher percentage of loans with points also.
My bias is to lower costs vs lower rates, but the customer gets to choose what is most comfortable for them.
It’s all about education the consumer and allowing them to make an informed decision.
Rhonda, in the 80’s we had very high interest rates, so we did a lot of 3-2-1 buydowns, so buyers could feel more comfortable with payments, and qualify. These were FHA loans of course.
Today, does it make sense? We used to raise the price of the house (if we felt it would appraise) by 3%, have the seller pay 3% towards the buydown, and often the seller would also pay 3% towards the buyers closing costs.
Lots of buyers were able to buy a home they would stay in longer by doing this. It worked for the times back then, perhaps it works again for the times we’re seeing today?
Leanne, We still have buydowns except the borrower qualifies at the fully indexed rate. Since a buydown is temporary, the buyer may be better off with the seller paying points to buy down the rate.
Rhonda, is a permanent buydown for say 1% about the same cost as the old 3-2-1 plan?
Leanne, it all depends on current pricing. Buydowns are simply pre-paid interest compliments of the seller. I’ve never done a 3-2-1 buydown but “back in the day” when buydowns were more popular, I did many 2-1 buydowns. They are essentially the same animal except the 3-2-1 buys down the rate further for an additional year and costs a great deal more.
Here’s a rough example based on a loan amount of $350k and rates from yesterday (since I’m up early) of approx. 6.5%:
A 3-2-1 buydown costs approx. 4.5% in points or $15,750.
A 2-1 buydown (based on this scenario) costs approx. 2.5% = $8,750.
Note: the actual costs is the difference in payment. This is a rough estimate for a quick example (I’m going to do a follow up post–THANKS LEANNE!)
With the buydown, the buyer is qualified at the note rate of 6.5%.
If instead, the buyer received 1% to buydown the rate, it would be 6.25% instead of 6.5% and the borrower would qualify at 6.5%. The cost of the point = $3,500.
What if the seller was willing to pay for a pricey buydown and instead the borrower used all of that dough to buy down the rate? Ahh….watch for my follow up post.
Thanks Rhonda, I think we’re going to be doing lots of FHA loans, and we all used a lot of buydowns in the ’80’s.
We did wraps too!!
. Any of you know what a wrap is? 
Which brings up a different question, there are plenty of good ARM programs out there, that people have in place on their homes. Are ARM’s still assumable?
Thanks Rhonda!
Leanne,
ARMs are assumable…subject to borrower qualifying with the lender and lender fees.
Wrap? Are you talking about that repetitve music with a strong beat.
I don’t think wraps are legal anymore.
What does assumable mean?
biliruben,
An assumbable mortgage means that a home buyer essentially takes over the existing mortgage balance and payment…they “assume” the mortgage as long as the lender approves the transaction.
ARMS, FHA and VA mortgages are assumable. Sellers will want to make sure a modification is recorded to release their liability from that type of transaction.
The buyer must qualify for the mortgage they are assuming with the lender and there are fees involved to that lender.
Hi biliruben,
When a loan is assumable, this means that the payments on a deed of trust can be taken over by another borrower, provided the borrower qualifies to repay the loan.
The lender will require that the new borrower submit a loan application and their income, assets, credit, and downpayment are subject to the lender’s review and approval. The borrower will also pay standard origination fees.
As interest rates begin their eventual rise, rates available today might not be around in a few years, making loans originated at today’s low rates attractive to homebuyers if homeowners should have to sell for any reason while rates are high.
Thanks, Rhonda and Jillayne.
I seem to remember my 7-1 ARM being specifically non-assumable, and I had been under the impression that assumable mortgages were basically unheard of these days.
Would it be a reasonable strategy to get an FHA loan, buy down the with a gazillion points, on a 30-year fixed, and use the low, assumable rate as a selling point down the line?
I’m never for paying a gazillion points, biliruben!
Don’t forget, you’ll have upfront mortgage insurance and monthly mortgage insurance for at least 5 years…then the buyer must qualify for the mortgage, the lender has to agree and the rate needs to be favorable…which it could be!
Bili, I agree with Rhonda, paying a gazillion points is too expensive, it’s pre-paid interest, and I think it is tax-deductible, but I still don’t think its the best plan. Personally, keeping that money in the bank is a better plan. Invest it, save it, whatever. Once you pre-pay to buy a rate down, you can never get that money back, and if you sell in the short-term, you don’t want to be kicking yourself.
But, having an assumable FHA loan may stead you well in future years if interest rates to up. It more or less depends on how many years you think you’ll be in the place. I don’t know what the cost to a new buyer is to assume an FHA loan, it used to be just $500 for the lender processing.
I think there are a lot of assumable loans out there today, just doubt that many sellers know if they have one or not! But, sellers with high balance loans should ask their lenders if their loan is assumable, it might help get their home sold. Remember, an assumable loan has a processing fee of some amount, but there shouldn’t be any new discount points or origination fees, so it could well be cheaper, if the loan amount works for the amount of cash a buyer has for down payment.
I’m not on the “assuming” end of the mortgage business…here’s a good article and explanation: http://www.mortgagenewsdaily.com/wiki/Assumable_Mortgage.asp
Can you buy your rate down to a no-interest loan?
Yes, but it is at a cost equal to, or greater than, the principal amount of the loan.
Hey biliruben and Roger, you should call in and join us for the last 15-20 minutes of RCG conversations.
That’s where we’re all at right now.
Regarding assumable ARMS, why would you want one?
They are generally based on a pretty standard margin (usually from 2.25 to 2.75) and an index. The index moves up and down with the market.
You most likely will be able to get the same rate or better with a new origination, with a rate that is fixed for a number of years.
Now, an assumable fixed rate, that may have some value, but remember those are only FHA and VA, and will almost always have mortgage insurance, even if the LTV is below 80%.
I’d be happy to hear more from the old-timers on the subject….
Everyone has been talking about the lending industry getting back to where it was in more conservative times. When I started in real estate, most if not ALL mortgages were done with 3 points, and all quoting was on a 3 point basis.
Ardell, I remember my loan officer (when I bought my second home and I was not yet in mortgage) telling me what a great deal it was to have your mortgage priced with a 1 point orig. and 1 point discount. 2 points! The fact is, if you refinance or sell before you “break even” on that cost, which any point regardless of what you call it (discount or origination) is a cost; you’ve probaby wasted some money.
The mortgage industry, believe it or not, has evolved quite a bit…just like I’m sure real estate agents have progressed since you’ve started in the RE industry.
Roger, I just received confirmation from one of my retail contacts at Wells Fargo
it’s true…
“We have declared King, Snohomish and Pierce to be “soft” markets. We have a scale of 1-4, 1 being stable, 2 being soft, 3 being distressed and 4 being severely distressed. There is a 5% LTV reduction for each.”