Thanks to the wonders of advertising, this week’s $64 million dollar question, are mortgage rates really under 3.00%? The answer is definitely, maybe.
Watch to find out who can get a 2.XX% rate, and just as importantly what it will cost to get it and learn about variable rates due to credit scores.
So, again, I’m Josh Lewis, mortgage consultant, certified mortgage consultant and broker-owner here at BuyWise Mortgage in Huntington beach.
What we’re gonna go through tonight, probably a pretty quick, brief report. But what I want to cover is the 64 million dollar question that I’ve got from, probably 25 different people in the last three to seven days.
And I’m getting it from borrowers, getting it from past clients, professionals in the industry, realtors, and even just friends and family. So, this is the National Mortgage Professional magazine. Says, continued COVID concerns sink rates below 3%.
And if we do a Google search, you can find 25 different versions of this headline, talking about interest rates going below 3%. And even a couple of industry publications that say they do a phone survey of lenders, and that’s what they’re hearing, are rates below 3%. S
o, I wanna take a look at a couple of things before we dive into, are rates really below 3%? What does that mean, and what does it mean for you, as a borrower or a real estate professional, or just someone wanting to stay aware of the market?
So the first thing I always go to is the Freddie Mac primary mortgage market survey. If you’ve watched these reports before, you probably know what I think about it. It’s an interesting data point, it shows us the trajectory of interest rates over time.
But not necessarily the most accurate at any given point in time. This is announced every Thursday, and you can see it in newspapers, you see it in headlines on CNBC, on all of the nightly news. So, the issue with it, is they release it every Thursday. And it’s the average of the rates of loans done the prior week.
So it’s already a little bit out of date. Fairly recent, but a little bit out of date. So if we go back to June 11th here, 3.21 with .9 points. So most of our loans, 80, 90% of our loans we do are zero-point loans, that generally equates to about a quarter-point difference.
This tells me we’re somewhere around 3.4, 3.45% for most lenders. So, if we look at this, and then go look at the average from one week ago, you can see it was 3.18. So it hasn’t really gone down in the Freddie Mac survey. But that 3.18 a week ago with .7 points, .9 points.
That’s usually somewhere between .3 and .5 points. It tells you that most lenders have shifted to charging points. And that’s one of the reasons why we’re seeing rates under 3%. There’s a vanity issue. People always wanna get the absolute lowest rate, but if it’s a low rate under 3%, even better.
So whereas, if we’re talking about, someone could get a three and a half rate, with zero points, or a three and a quarter with paying a point, it’s not that big of a difference.
Most people can look at it, they run the numbers over time, and they’ll just choose to go with the zero point option, and we’ll get into that here in a second, as why I usually advise that. But, when it’s rate 3.125, at zero points, or 2.99, or 2.875 with a point, a lot of the time, people are making that choice to jump over and go that number.
So, it’s not just Freddie Mac. Another one that we like to look at, Optimal Blue, is a service that probably 40, 50% of lenders throughout the United States use for their secondary marketing. For their, handling their loan locks on their pricing.
What they do, is they aggregate the data on the back end, they don’t say what any lender is offering, but they’re saying what lenders in general are offering. So, as of June 12th, they were at 3.133. And they don’t really quote the amount of points in there, but a little lower than Freddie Mac.
And that’s about right, 3.133, and most importantly, if you look at this, rates have been pretty flat here, going back for the last month here. You know, they’re good, but relatively flat. And that’s what we wanna look at, is looking at that trend. Now, couple things that I wanna talk about.
Why do I recommend zero point loans for most people? This is a 65 year history of US interest rates. You know, going back to the mid 60s, we were, and this is a 10 Year Treasury. We use the 10 Year Treasury as a proxy for mortgage rates, ’cause there’s better data, and a lot more analysis on it.
But if we go back here and say, the 10 Year Treasury was under 5%, ran all the way up, in the early 80s, up into the 16% range. Well, since that time, from 1982 here forward, we’re going on 40 years of lower interest rates.
This is called a bull market in interest rates, meaning people have been buying bonds and pushing yields lower for 40 years. As long as this is true, and this trend remains intact, I don’t wanna see my clients pay points to get an interest rate that they’re gonna get for free, one, two, three years in the future.
It’s easier for people to see on a purchase. On a purchase, when we’re looking at it and say, you can have this rate with zero points, or you can have this rate with one point. When we see that it’s, say, a 500,000 dollar loan, it’s an additional 5,000 dollars at closing.
When someone has to write that check, or wire the money in from their bank account, and they see they gotta put 5,000 dollars more in, and for that they’re gonna save 40 dollars on their monthly payment, they start thinking, hey, maybe there’s something to that zero point thing.
And then on a refinance, it’s much easier for a sales person on the other end of the phone to simply say to you, hey, if we pay a point, I can get you a 2.99% interest rate, or a 2.875% interest rate. It’s just equity in your home, it’s just shifting something from your balance sheet.
It’s no different, it’s your money, but it’s not coming out of your bank account or expendable, it’s just coming out of home equity. So because of that, we see, often times, people being more willing to pay points on a refinance, than they would on a purchase.
It’s not a terrible idea, and the argument for it right now, is hey, rates are at an all time low. We can get a 30 year fix down in the twos, wouldn’t you wanna do that?
There’s some merit to that, but if you’ve been watching these reports, you know that I think rates are gonna stay low for a long time, and have the potential to move even lower.
For that reason, I do not wanna trade my clients equity in their home for a vanity interest rate when we can get them an excellent rate without it. So let’s look at this. Rates have moved lower, and it’s important to know why.
When we look at interest rates in terms of the 10 Year Treasury, we just looked at the last 65 year history of it, now this is the last 30 day history. And we can pretty much see that they’ve gone absolutely nowhere.
When we got the hot jobs data two weeks ago, we kinda see yields pop up, but then boom, within a couple days we’re right back down here into this range.
So, mortgage rates, at least, there’s two pieces to mortgage rates. What is offered to borrowers on the street when they get a loan, and then the secondary piece is, what do they actually sell for in the secondary markets?
So, when we’re watching the secondary markets, they also have been very flat, ’cause they trade really close to how this 10 Year Treasury yield looks.
So, this chart here, what is important for us to watch? Why are rates getting better the last two or three weeks, when for the most part, rates have been flat, or even two weeks ago, got worse? I
t’s because this big spread, that we’ve seen over the last 10 years, we generally see a premium of about 1.7% above the 10 Year Treasury, will be what our 30 year fixed rates are.
That had spiked up to almost 2.8% here, when the Coronavirus issue was at it’s worst, and we are now down to 2.4%. So, without mortgage bonds, without treasuries moving at all, really, for the last 60 to 90 days, we’ve seen mortgage rates improve .4%.
Now, y’all, so look here, are we seeing rates at an all-time low? Absolutely we are, but as long as treasuries cooperate, and we saw a week or two back with that hot jobs report that they had spiked up almost to 1%, and if they get to one, they’re probably gonna go to one two, one three.
So, as long as treasuries stay in the current range, we have a lot of room to get back down to normal here. For the 2.4 spread, and normal is somewhere at 1.7, even 2% is .4% lower than where we are right now.
So, what I am saying is, if it makes sense to refinance now, by all means do it. If it makes sense to buy a home, do it. Take the best rate available, but don’t pay points, don’t pay fees to get it, because you’re likely to have an opportunity going forward to get that rate for free.
And if you don’t, you’re still getting a spectacular interest rate today. So for 80, 90% of borrowers, I do not advise chasing the sub-3% rate by paying points and fees for it. So, I normally, at this point of the report, I like to go through and say, what are interest rates?
So here’s the interest rate on standard balance loans below 510,400, and then high balance, above 510,400, for conventional, FHA, VA. I kinda wanna go with a different message tonight, and this is, if anyone ever tuned in, this is what I want everyone to hear.
There is no mortgage rate. If you call and ask someone, what’s the rate? What is the mortgage rate today? There is no one mortgage rate. We just saw several different indexes and a couple of factors that you can see in there.
The interest rate with one point is different than the interest rate with two points, which is different than the interest rate with zero points. But what most people don’t know, is the interest rate for someone with a 740 credit score is different from someone with a 715.
You know, when I look at those two credit reports, they’re gonna look really similar. The interest rate’s gonna be different. 715 is gonna get a real good interest rate, 740’s gonna get a great interest rate. And for the most part, both of those consumers are walking around feeling like, hey, I’ve got good credit.
Well, they do, but mortgage lenders want really good credit. And if we go below 680 on a conventional loan, it gets a good bit worse, and we used to say, on FHA, you know, below 640 it’s gonna get worse.
Now, half of lenders aren’t even making loans down to 640, even though the FHA’s happy to do it. And VA, same thing, that 680 score is really important to have right now. Another thing that people don’t take into account when they say, what is the interest rate?
What are you doing? Interest rates are different for a purchase, versus a refinance, just a rate and term refinance, and then a cashout refinance. So what are you doing? It will dictate your interest rate. What is your credit score? It will dictate your interest rate.
How much equity do you have in your home, or how much money are you putting down? It should be logical to most people, that if you put 5% down, the rate’s not gonna be as good as if you put 35% down. But most people don’t take that into account.
I had someone this week ask me, said, “Hey, my neighbor just got 2.99%, can I get that also?” I said, “I don’t know, tell me about your neighbor, “does he have an 800 credit score, or a 600? “Does he have 50% equity in his home, or less? “Is his loan above 510,400 or below?” S
o, just realize, that when you’re looking at interest rates on the internet, on billboards, in the newspaper, it’s clickbait, it’s clickbait. No one can sell you a loan without talking to you.
So until you will put in your information on the internet, pick up the phone and call on the billboard, on the newspaper ad, no conversation starts.
So, and probably the worst, and most egregious example, is the mortgage mailers that are in your mailbox. Those are super aggressive, and none of these know anything about you.
So again, just be aware that there’s matrices that we have to look at, that go through, and it’s not me, it’s not the next lender, it’s not any other lender that you’re talking to. Every lender falls under these same guidelines.
And not every lender has the same interest rates, they don’t have the same access to the same investors, or the secondary markets, they don’t have the same overhead cost structures for how they price things, but we all have the same matrix, and add on for cash out is gonna be the same no matter what lender you go to, within individual loan types.
So, just understand there’s over 40 factors that go into accurately quoting an interest rate. Anyone that will quickly, in two seconds, tell you on the phone without asking you some questions, that this is the interest rate, is most likely lying to you and trying to get you deeper into a conversation.
A gentleman that my business partner Scott and I know, he acts as a trainer in the real estate industry, and he wrote a book about converting internet leads. And he told about his time at Quicken Loans, biggest lender in the country, hands down, far and away.
And what he said, is their strategy, his strategy, when he was there, was to get people, and keep them on the phone as long as possible, make the loan application that can be done in about 10 minutes, take 40, 45 minutes, get a credit card for an appraisal, and get people committed to you as much as possible, so they didn’t want to go through that process with anyone else.
So, there’s a balance to that. If you call and say, I’m only gonna give you 10 seconds, tell me what your rate is, you’re not gonna get an accurate rate quote. But you don’t need to spend 45 minutes. Spend five, 10 minutes on the phone with someone, tell them honestly what your situation is, ask for their best numbers.
If you’re going to shop it around, get it in writing, and get the numbers on the same day. These interest rates sometimes change intraday, but they definitely change every day. So, if you truly want an honest apples to apples comparison, get them all on the same day.
I never begrudge anyone educating themselves and seeing what’s out there. Again, if you look at a hundred lenders, I know I’m much closer to the cheapest than I am even to the middle, much less the highest. But our proposition is value, you’re gonna get expertise at a great price.
And I always want you to have peace of mind and a comfort level with that when you’re out and looking at your options. So if making a few calls gives you that, then by all means, that gives me the greatest comfort level.
So, hopefully, that helped, hopefully, if you’re looking around at interest rates, if you’re seeing mailers, if you’re seeing flyers, you’re seeing crazy things on the news, you have a little bit better understanding of what that all means right now.
If you have any questions and you’d like to reach out, call, text, email, whatever works best for you. I think I actually have my contact info, let’s throw that up there. There’s all my contact info, and again, Scott and I have a big network of people around the country.
Connected a lady in Kentucky with one of our good buddies who we will today, he’ll do a spectacular job for her, just like we would in California.
So again, if you have questions, no matter where you are, you don’t have to just be in California, to do a loan, we have to be in California.
We got a great network around the country, so. By all means, have a good night, thanks for tuning in, and we’ll talk to you soon.