Mortgage Rates

Mortgage rates is the determinant that determines your monthly mortgage payment over the term of your mortgage loan.  The higher your mortgage rates are, the higher your mortgage payment will be and the more interest you will pay over the term of your mortgage loan.  Many home buyers shop for mortgage rates, which is highly advised, however, sometimes no matter how much you shop for mortgage rates, some home buyers may be quoted higher mortgage rates due to their credit.  The lower your credit scores are, the higher your mortgage rates will be.  Mortgage lenders view mortgage loan borrowers with low credit scores high risk.  With high risk mortgage loan borrowers, mortgage lenders charge a higher mortgage rate due to the higher chances of a mortgage loan default which could result in foreclosure.

Mortgage Rates And Closing Costs

On every mortgage transaction, whether it is a home purchase mortgage loan or refinance mortgage loan, there are closing costs.  Mortgage lenders will give you the option of getting a mortgage lender credit to cover part or all of your closing costs which is commonly referred to as a lender credit.   However, there is a cost involved with a lender credit.  In lieu of a higher interest rate, a mortgage lender can give a mortgage loan borrower a lender credit towards the mortgage loan borrower’s closing costs on their home purchase mortgage loan or their refinance mortgage loan.  For example, say that a mortgage loan applicant gets quoted a par mortgage rate of 4.0% interest rate with zero lender credit.  These numbers I use are just hypothetical numbers for case scenario purposes.  Let’s assume that the mortgage loan borrower’s closing costs is $5,000.  We will assume that the mortgage lender will give this borrower a lender’s credit of $2,000 for every 0.125% increase in mortgage rates.  So if the mortgage loan borrower chooses a $2,000 lender credit, he can choose a 4.125% mortgage rate, if he chooses a $4,000 lender credit, he can then choose a 4.25%.

Buying Down Mortgage Rates By Paying Points

Mortgage loan borrowers who plan on keeping their homes for a long time and not planning on refinancing in the near future can get lower mortgage rates by paying the mortgage lender points.  For example, if the given par rate is 4.0%, the mortgage lender can offer a lower rate than the 4.0% mortgage rate if the mortgage loan borrower can pay points.  A mortgage lender may offer a 3.75% mortgage rate if the mortgage borrower pays a 1% buy down in points.  1% is based on the amount of the mortgage loan balance.  A mortgage loan borrower can use a sellers concession credit to buy down the mortgage rate.

Lender Paid Mortgage Insurance: LPMI

Mortgage borrowers who are applying for a conventional loan and have less than 20% equity and/or down payment, mortgage lenders will require private mortgage insurance until they reach a 80% loan to value.  Lender paid mortgage insurance, also referred as LPMI, is an option most conventional mortgage lenders have where the mortgage loan borrower does not have to pay private mortgage insurance in lieu for a higher mortgage rate.  Sometimes getting a conventional loan with lender paid mortgage insurance is a better conventional loan program even though it has a higher mortgage rate because the monthly payments are lower.  Other times having the mortgage loan borrower pay private mortgage insurance is a better mortgage loan program where the payments is lower.  It depends on the individual mortgage loan borrower’s situation.  Your loan officer can analyze the two options for you and which program will best benefit you.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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