It's a regular feature in print and online; the media is constantly publishing mortgage interest rates, with headlines tracking upswings and downswings and advertisements claiming the "Lowest Rates in..." Many would-be home buyers are left wondering why rates are different between mortgage lenders and who truly has the best to offer.
Royce Lewis, Loan Production Manager at Capital Mortgage Services, offers advice on how to sift through the hype and find the best mortgage options.
Why does one mortgage company have a different rate than another?
Rates are normally published at a "PAR" price, which means if the lender delivers a mortgage at the "PAR" they will break even. They will not lose any principal, but they will not gain any profit. The lender must also assess a service fee to the mortgage delivery, which also affects the PAR price. When a lender adds enough rate to generate a profit and adds a service fee, the actual contract rate will increase over the nationally publicized rate.
Why are some lenders' rates higher or lower than another?
This is entirely dependent on how much profit the lender decides to make. IF an interest rate is set slightly higher than the "PAR" rate, then the lender will receive a premium when they deliver the loan. The premium is the profit that is generated on each loan. The higher the rate, the greater the profit.
Can a mortgage broker offer the same rate as a mortgage banker?
Generally, they cannot. A broker's job is to act as a "middleman" and place a willing lender with a willing borrower. The broker charges a fee to make this introduction and that fee will usually increase the overall rate or fees involved with the mortgage loan transaction. With a mortgage banker, there's no middleman - just a lender and a borrower - so there are no broker charges added.
A recent news story forecast the possibility that the U.S. Treasury would purchase up to $500 million in mortgage backed securities to allow mortgage rates to go down to 4%. Is this likely?
Mortgage rates at 4% are unlikely without some severe limitations because the primary source of cash to fund the individual mortgage loans come from the sale of mortgage backed securities. The sale of these investments is based on several financial assumptions, including the term of the investment. If interest rates are allowed to go down without severe restrictions, then every qualified borrower will likely refinance their mortgage which will drastically increase prepayments. This will penalize the investors who made their investments before the lower rate structure was introduced. I believe this will make the sale of the news issue of mortgage backed securities very difficult, if not impossible, which will limit the liquidity to fund the low rate mortgage loans. I believe the financial advisors will need to come with another alternative to achieve the same or a similar objective without affecting the prepayment speed of the existing investments.
What is your personal forecast on mortgage rates?
I believe interest rates will likely go up. The government funds its obligations from the sale of government investments, like government bonds and bills. Most forecasts anticipate a substantial amount of upward pressure on the investment market to create the cash to fund the various bailout plans. The government will continue to raise investment rates to entice new investors until they have raised the necessary amount of cash, and as the government raises its investment rates, the rates on the mortgage backed securities will have to increase at the same time.
To learn more about the state of the mortgage industry, including the current mortgage rates available, contact Capital Mortgage Services at 4212 50th St., telephone (806) 796-7231. Recognized as an innovator in the mortgage industry, locally-owned Capital Mortgage Services takes great pride in bringing a full range of mortgage services to clients, and their mortgage banking specialists can help you find the right solutions to your mortgage needs.