If you are “floating” a conventional rate right now, you might want to contact your mortgage originator to discuss whether or not you should lock today. Typically, I don’t like to make bold predictions with mortgage rates as there are too many factors that impact their direction and traders may not always react consistently to these factors… but today I can tell you quite confidently that Monday’s conforming rate will cost more from many wholesale lenders.
Fannie Mae and Freddie Mac are revising their price adjustments (LLPA) on mortgages with a term greater than 15 years. This will go into effect on loans they purchase April 1, 2011 or later. However, this means that wholesale lenders need to make their adjustments well in advance so that by the time Fannie or Freddie buys the loan from them, the wholesale lender isn’t stuck with that price hit…not to mention, if they sell the loans prior to the April Fools increase, they’ve made some extra coin.
The adjustments range from 0 – 0.5% in fee depending on credit score and loan-to-value. For example, someone locking today with a credit score of 740 and a loan to value of 80% or higher does not have a base price adjustment. With the new LLPA, this person has a price adjustment of 0.25% in fee. On a $400,000 loan amount, this boils down to $1,000 in fee and may or may not make a difference in rate (typically 1% in fee = 0.25% in rate) depending on how pricing is at that moment.
Someone with a 680-699 mid-credit score and a loan to value over 80% will see an increase of 0.5% to fee for their conforming mortgage rate. 0.5% in fee tends to pencil out to a 0.125-0.25% higher interest rate or the borrower can pay 0.5% more in fee (discount) to buy their rate down.
Homebuyers who are putting less than 20% down payment with credit scores below 740 should make sure their mortgage professional is approved to originate FHA loans as they are well worth the consideration. As always, I strongly recommend getting started with the preapproval process early so that you can work on improving credit, if needed, as one digit lower may ding your mortgage rate.
If you or your mortgage professional are convinced that rates will be going down, then you may not want to lock. They will just need to go down low enough to compensate for the increase to conforming price adjustments (LLPA) which will be factored into the pricing of conforming rates.