And the Average Rate is???

And the Average Mortgage Rate in the United States is....

Who knows!?

One of the most complex answers these days is to tell a client what they can get for a mortgage rate. As I have spoken before about how Fannie Mae and Freddie Mac are broke, mortgage rates now take spreadsheet analysis to figure out the rate.

At the close of business Friday, the Freddie Mac average 30 year fixed rate was posted at 4.78%. Sounds good right...well their is more to the story. Before I say anything derogatory about the media today, this rate comes with .7 Points. Take your loan amount and multiply by .007 and you get the additional fee. On a $417,000 loan, this comes to $2919.00. You wanna write me a personal check for $3000.00? I will get you a better rate!

Oh yeah, you know this is based on closed mortgages, this has nothing to do with the mortgage rate of today, right. You knew this! Well, rates are way off since Wednesday, the mortgage back security market took a well deserved bath after weeks of rallying, mortgage rates finished in the low 5's Friday night. Mortgage rates can change by the hour and do change throughout the day.

If we back out the Points, this same average rate comes to 5.00% with 0 points. But wait, there's more! You must have a credit score of 740 or better, you must escrow your taxes with your lender, no cash out and have around 30% or better in equity in your home. That's pretty easy, right? The average homeowner in Massachusetts lost a little over 20% of there equity since 2005-2006, so in the case it may be hard to get the perfect sceanrio to work for you. In many cases, their are compensating factors, but without running your loan through the underwriting system of today, it's all just chatter of what the rate is.

One of the small problems, most banks, lenders and credit unions, cannot even close on a mortgage in under 30 days as we used to be able to. Why does this matter, rates are based on Lock Periods. 15, 30, 45, 60 and even 90 rate locks come into play. It used not matter because we could close on a refinance in under 30 days and quote a great rate. Some of our investors don't even let us lock a loan for less than 60 days unless we have the appraisal in or a complete application package, but that is a blog for another day. The difference, might be a 1/4 percent higher for that long term rate lock. Purchases always take priorority, so don't worry if you are buying a home.

Do you have a second mortgage or a line of credit and the combined loan to value (CLTV) exceeds 80% of your appraised value, you may not be able to get a mortgage depending upon what the second mortgage holder says. We are finding that many of the second mortgage holders will not subordinate these liens to the new first mortgage holder. This is very important and is causing a bottleneck in the industry. If the combined loans equal greater than 80% of the appraised value, you may not be able to get a mortgage at all. Many of the banks will not work with or assist their own clients. Very short sighted if you ask me.

I just happen to have a local bank in my back yard here in Acton, MA, I won't mention their name but they have been around since the 1800's and they have 2 branches in Acton. They currently have 16 mutual clients that I am trying to refinance there home, average savings is a little over $250 per month on the first mortgage. BUT, the CLTV (combined loan to value) exceeds 80% and therefore this little bank will not grant us permission to refinance the client.

"Uhmph...let's see, our client is going to save money, we keep the second mortgage open and continue to make money off them, they are in a better financial position and it will be easier for them to pay us back. Yup, it's final, DENY them the right to refinance their mortgage". said the little bank with the marble foyer!

Everyone is in a better position financially, the client is saving money, the Bank is in a better cash flow position with the client and I make people happy. Here is the funny thing, I referred many of these clients to the bank for there lines of credit, what a fool was I. Now, I am able to PULL all 16 loans from the little bank and I am going to place them with a competitor that is willing to out the customer as well as assist in jumpstarting this economy. What a novel idea!

So before you judge your Mortgage Lender on what they are quoting for a mortgage rate, find out the details of your situation. As I have been saying since Christmas, mortgage rates are at 5.00% and on any given day, they may swing a 1/4 percent in either direction. but we do have to know all the details, your credit score, your equity or down payment, is it a condo, the size of the loan amount, and I can go on and on.

Here a just a few things to be careful of:

• Do not use a free credit reporting agent to base your life on, most of us don't even charge for the $15 or so for what a REAL credit report costs and it will be far superior to something you are getting online.


• Do not go by the assessed value of your home, it means nothing to us or anyone else in the mortgage world, this is only a number for the local towns to base a tax rate on. Typically these values are set the previous year and are ow obsolete.


• Don't go by what your friend or neighbor got for a mortgage rate, that was a rate that was locked in on that day. And you have no idea what fees were paid to get that rate. In a lot of cases, that friend doesn't even know what he paid in fees because he was chasing the "Rate" and not a proper financial plan.


• If your credit scores are under 680, be prepared, this may costs in upwards of 2 points to get the same rate as someone with a score of 740.


• Do you own a multi family? Condo? Have a second mortgage or line of credit? Taking cash out? These are all very quick items that Fannie Mae and Freddie Mac charge extra for.

As always, buyer beware. In general, lenders get there mortgage rates from the same pool of funds. Rates should be very close to one another. Ask as many questions as you can! Rate is important, but if you don't know all the facts, that rate could cost you very dearly for what you didn't know. Always ask for a Good Faith Estimate of Closings costs, this is a breakdown of all the fees that are charged by the lender, attoreny, town and state. Great for comparison, and without this, you really cannot compare apples to apples.

That's all for today! The next installment will be about HVCC, never heard of it. If you are in the real estate business, you better know what this means. It is affecting us dearly!

Feel free to email me anytime with questions or comments, I love the feedback.

Bill Nickerson

email website
978-264-4803 bill@billnickerson.com

Providing Mortgages Since 1991