The Truth Behind Mortgage Rates - Read & Share Freely

By
Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027

The Truth Behind Mortgage Rates. At last, someone is willing to tell the truth with 10 valuable lessons below!  I know of no other industry which spends more money on deceptive advertising aimed at confusing their end users than Banks, Credit Unions, and Mortgage Companies. To learn more about The Truth Behind Mortgage Advertising, click here.

Click here for a "how to" lesson on reading the charts contained in the daily reports.

Remember, obtaining a mortgage does not need to be an untrusting experience if you are working with the right professional, while being armed with the proper knowledge.  You might also find it useful to learn The Truth Behind Mortgage Quotes (which will tie-in nicely with the information below).

NOTE: Nothing contained in this article (or the articles contained in the hyperlinks within this article) is designed to be an offer to lend, or an updated mortgage quote...this information is merely informative to help Consumers make better decisions).

The Truth Behind Mortgage Rates

Lesson #1 - There Is Not Just One Rate On A Rate Sheet

The Truth Behind Mortgage Rates - www.JasonGordon.info

The Truth Behind Mortgage Rates

Lesson 2: Different Rates Available Each Day, 1/8 apart

In the example above, we have several different rates on a rate sheet on any given day.  These rates are in the left hand "yellow" column and are typically separated by 0.125% (also known as 1/8 of a percent).

The Truth Behind Mortgage Rates

Lesson 3: Different Lock Periods Available Each Day

In green, you will see that there are different "lock periods" available.  When pursuing a mortgage, you want to assure that your lock period is long enough to complete your loan.  If your lock expires while your loan is still in process, you are often subjected to a "worse-case scenario" between where you were locked, and where the market currently is at the time your lock expires.  Bottom line: lock long enough to complete your loan.

The Truth Behind Mortgage Rates

Lesson 4: Understanding Points Versus Lender Credits

NOTE: This particular Rate Sheet is significantly outdated, and the Lender who produced this Rate Sheet will remain anonymous for compliance purposes. 

That said, please do not confuse this post as a "live rate quote" (and instead, please understand that the purpose of this post is to provide "education" around the concepts of rate quotes).

In the pink area, there are several different "costs" or "credits" which correspond to each interest rate (and corresponding lock period).  The goal for both the Consumer and the Mortgage Professional is to get you to the "100.000" level when providing you a rate quote. Some Lenders might refer to this as the "PAR" level. 

In the above example, an interest rate of 4.00% on a 30 day lock = PAR (which would mean that this rate & lock period are available at 0 Points to the Borrower).  Note the Borrower would still paying their other Non-Recurring Closing Costs (NRCC's), such a Title Insurance, Lender Fees, Escrow Fees, Appraisal, Recording, etc.)

In the above example, an interest rate of 4.25% on a 30 day lock = 101.000 (which would mean that a 1% LENDER CREDIT will be provided to the Borrower).  In other words, there would still be 0 Points, but now a 1% LENDER CREDIT would be provided towards the NRCC's associated with this loan. (example: $300,000 loan amount x 1% = $3,000 LENDER CREDIT towards NRCC's)

In the above example, an interest rate of 4.50% on a 30 day lock = 102.375 (which would mean that a 2.375% LENDER CREDIT will be provided to the Borrower).  In other words, there would stil be 0 Points, but now a 2.375% LENDER CREDIT will be provided to towards the NRCC's (and likely Recurring Costs (RC's) such as Property Taxes & Insurance) associated with this loan (example: $300,000 loan amount x 2.375% = $7,125 LENDER CREDIT towards NRCC's and likely RC's)

The Truth Behind Mortgage Rates

Lesson 5: Understanding Pricing Adjustments

Not everyone will get the same quotes!  There are different risk assessments associated with each individual Borrower profile.  If you are insisting on a rate quote from a Mortgage Professional without providing your true information, you are not likley to get an accurate mortgage quote!

The Truth Behind Mortgage Rates - www.JasonGordon.info

Above is an example of a typical pricing adjustments associated with a Conforming Loan (hint: the loans you constantly see/hear advertised).  The numbers in (brackets) are not Consumer-friendly.  In other words, they either add to the costs (Points) of your quote, or subtract from the LENDER CREDITS of your quote (depending on which interest rate you select).

The Truth Behind Mortgage Rates

Lesson 6: Credit Scores (FICO's) Matter!

As you can see above in the yellow highlighted area, Credit Scores can have a significant impact on your pricing adjustments! If you are applying as an Individual Borrower, a Lender will take your middle credit score into consideration.  If you are applying Jointly with another Borrower, the lowest of your middle credit scores will be taken into consideration.


The Truth Behind Mortgage Rates

Lesson 7: Equity in the Home Matters!

The term Lenders use is actually called Loan To Value (LTV) which essentially divides the mortgage loan amount by the value of the home in most cases.  For example, if you are purchasing a $500,000 home with 20% down ($100,000), you are borrowing the remaining 80% ($400,000).  In this case, your LTV would be 80%.  Note: the lower your LTV is, the less risky you appear to be in the eyes of the Lenders (and thus will be priced more favorably).


The Truth Behind Mortgage Rates

Lesson 8: If You Don't Live In The Property, You Will Pay More!

As you can see in the turquoise blue area of the chart above, you wilil pay more if you do not live in the property.  The term above refers to Non-Owner Occupied (NOO).  Also in this area, you can see that Condominiums above 75% LTV are priced less favorably, as are 2-4 Unit Homes.

The Truth Behind Mortgage Rates

Lesson 9: Refinances with "Cash-Out" Cost More!

When pursuing a mortgage refinance, there are 2 different types available.  The first is called a Rate & Term (R/T) Refinance, where you are simply replacing 1 mortgage for another with better borrowing terms.

Theother type of Refinances is called a Cash-Out (C/O) Refinance. As the name suggests, you are not only replacing your existing mortgage, but also pulling additional Cash Out (presumably for home improvements, debt consolidation, investment purposes, or other uses).

As the bottom area of the chart displays, there are additional (less favorable) pricing adjustments associated with obtaining a C/O Refinance.


The Truth Behind Mortgage Rates

Lesson 10: Obtain Your Loan From A Trusted Loan Professional

The process of obtaining a mortgage can be a pleasant one if you work with the right Professional. We all tend to make better decisions in life when we are armed with factual data to analyze. That said, allow your Mortgage Professional to review your credit report, supporting documentation, and appraisal as part of the process of quoting mortgage rates & fees to you.  Ideally, your Trusted Mortgage Professional should be providing you with different options when locking in your mortgage rate & fee/credit combination.

If I can be of any further assistance personally, please feel free to contact me at the phone/email/website below. Regardless of who you choose to work with, I hope you make better decisions now that you have been educated about The Truth Behind Mortgage Rates

The above information was compiled and distributed by San Diego Residential Mortgage Specialist, Jason E Gordon in an effort to provide transparency regarding true mortgage rate activity and market guidance to consumers and professionals interested in this activity.  To learn more about Jason Gordon, please CLICK HERE.

Comments (17)

Ricky Khamis
Amerifirst Financial, Inc. (NMLS #145368) - Gilbert, AZ
NMLS 173141 | CADOC 173141 - 480-339-1565

Jason I am VERY impressed with how well thought out this post is and it is very educational for consumers.  KUDOS

Feb 23, 2013 03:53 AM
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Sr Loan Officer, CMA, CMPS, CDLP, CDRE, RCSD, CDPE

Thanks for the kind words Ricky! I often imagine how much greater the mortgage industry would be if these deceptive advertising campaigns were not present. Although we will never be able to compete with the pricey advertising budgets of some of these larger Banks, Credit Unions, and Mortgage Companies, we can instead spread the truth to one Borrower at a time!

Feb 23, 2013 04:09 AM
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

Jason,

Thank you for keeping us updated. I already use your  The Truth Behind Mortgage Quotes  as a link in my signature so all my clients know the truth! This is why I recommend you over all the other lenders I network with and are solicited by. Keep up the great work and thanks for the update.

Feb 26, 2013 11:15 PM
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