Taking Rates in the News with a Grain of Salt

Today there is a news story about home mortgage rates staying the same. It quotes the FreddieMac rate survey rate.

People often ask why they cannot get the rate quoted in the newspaper. Here are some things to think about when talking about rates.

The FreddieMac rate survey is probably pretty accurate. They have been doing it along time and is a respectable organization. But they are surveying for rates not the price of a rate. The standard practice in some parts of the country is for the borrower to pay an origination fee for their loan. In other areas the standard practice is for the origination fee to be included in the rate. Net affect is rates are lower when an origination fee is paid by the borrower than when that fee is paid from the value of the loan. Rate difference is .25% to .375%

The source of the rate is also important. FNMA, the other large source of mortgage funds, has a wholesale rate that they publish and offer to news organizations. It is a "wholesale" rate meaning it does not include the cost of origination or servicing the loan.

Some other factors that affect rate are time, Loan to Value (LTV), and credit worthiness/risk profile.
The shorter the time to closing the loan, the lower the rate. Most surveys use a 30 day rate. 15 day rates are lower, 45, 60, 90, 120, 180, are each incrementally higher. The higher the ratio of loan amount to value of the home, the higher the rate. This is especially true for loans over 80%LTV. Credit Worthiness/ risk profile are also factors. The more risk a loan has the higher the rate.

Occationally a small bank or other institution will have an especially low rate. It is great if you can get it. Funds are usually limited and standards are very high. Most of the time when a low rate is quoted there is a catch. Get your quotes in writing from a reputable company.