The Federal Reserve Has Swooped In to Save Mortgage Rates

Last updated on March 24th, 2020

In light of the ongoing coronavirus outbreak, which were the Federal Reserve’s very own words, the Committee took bold action to lower the target range for the federal funds rate to 0% to 0.25%.

That’s a full percentage point lower than the 1% to 1.25% it had been previously. And comes on top of the half-point cut executed just over two weeks ago.

As such, the prime rate has fallen from 4.75% to 3.25%. The prime rate directly affects consumers via things like credit card interest rates and home equity lines of credit (HELOC)s because they’re typically tied to that index.

For homeowners with HELOCs, their interest rates will adjust down 1.50%, which will provide meaningful monthly payment relief.

But what about first-lien mortgage rates, which hit record lows a couple weeks ago, then shot back higher once the market was flooded with mortgage-backed securities (MBS).

Well, the Fed also addressed that issue by effectively starting a new round of quantitative easing, which will probably be known as “QE4.”

Fed Pledges to Buy Agency MBS to Lower Mortgage Rates (QE4)

  • Fed said coronavirus outbreak has hurt communities and disrupted economic activity in the United States
  • To promote maximum employment and price stability it has lowered federal funds rate to 0% to 0.25% range
  • Also announced it will increase its holdings of Treasury securities by at least $500 billion and holdings of agency mortgage-backed securities by at least $200 billion
  • This will lead to lower mortgage rates for homeowners

The federal funds rate doesn’t directly affect consumer mortgage rates, you aren’t getting a 0% mortgage rate.

However, the Fed’s emergency announcement to buy agency MBS does.

First, here’s what they’re doing to combat a recession and ease global markets:

“To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion,” the FOMC statement read.

“The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

In short, the Fed has come to the rescue of the mortgage market, which didn’t seem like it needed rescuing until excessive mortgage demand worked against consumers.

Because there was a flood of mortgage applications, and not enough demand from investors of mortgage-backed securities, lenders were basically forced to raise mortgage rates to limit supply.

But now that the Fed has pledged to purchase at least $200 billion in agency MBS, and reinvest payments into agency MBS, lenders shouldn’t have trouble fetching a higher price for the home loans they sell.

As such, they’ll be able to decrease mortgage rates and perhaps we’ll see those record lows again.

How Low Will Mortgage Rates Go with QE4 in Place?

  • 30-year fixed mortgage rates were averaging around 3.75%-4% before the news hit
  • When the Fed launched QE3 in September 2012 it led to record low mortgage rates
  • At that time the 30-year fixed fell from around 3.55% to 3.31%
  • Expect mortgage rates to return to the low 3s and perhaps to new all-time lows over time

So we know mortgage lenders (and homeowners) are going to see some relief from QE4. The next logical question is how much will mortgage rates actually fall.

As noted, interest rates were suppressed by an oversupply, but now that a whale of a buyer has pledged to buy hundreds of billions in MBS, we should see interest rates fall again.

That’s great news for consumers, namely those looking to refinance mortgages or purchase a new home.

The bad news is mortgage rates jumped more than half a percentage point last week as a result of the oversupply, and thus might not hit those all-time lows again. And even if they do, it could take some time to do so.

When the Fed launched QE3 back in September 2012, the 30-year fixed averaged roughly 3.55%. During the weeks and months that followed, rates fell about 25 basis points.

In fact, the prior record low for the 30-year fixed was 3.31%, recorded during the week ended November 21st, 2012.

We’re in similar territory now, with mortgage rates pretty close to those September 2012 levels.

So we might see rates move in familiar fashion, from around 3.75% to 3.375% and on down to 3.25% if all goes according to plan.

Whether they hit 3% or even dip into the high 2s remains to be seen, but given the Fed’s pledge to buy billions in MBS, coupled with the 10-year bond yield below 1%, it’s certainly possible.

I just wouldn’t expect lenders to go too crazy in lowering rates at the moment, given they still have a ton of demand and lots of applications in their pipelines to process.

Still, it’s huge news because it means lenders have certainty now to originate ultra-cheap mortgages without fear of being stuck holding the bag.

But it might take some time for rates to trickle down and reach record lows again. Again, hang tight here, as I mentioned before.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


President-Elect Trump vs. Mortgage Rates

Last updated on June 1st, 2018

You may have already read the headlines. Things like Trump-fueled Treasury surge and the so-called Trump Effect, all driving mortgage rates higher.

And it’s not just fodder, it’s true. Since the election results came in last Tuesday night, mortgage rates have been on an upward tear, which clearly isn’t good news for those looking to secure a mortgage.

Of course, it’s been great for anyone with an investment account because stocks have surged during the same period. It may also be a boon for savers if depositories eventually raise the interest rates they pay out. Something above 1% would be nice…

The crappy part is that the recent jump could affect new homeowners for the next 30 years if they have to go with a higher rate today and things don’t improve anytime thereafter.

Why Are Mortgage Rates Higher with a President Trump?

  • Start with the basics
  • A strong economy leads to higher interest rates as a means to cool inflation
  • Everyone expects an economic boost under Trump
  • So with that there are expectations of higher mortgage rates

Put simply, mortgage rates tend to go up when the economy improves. The basic premise is a stronger economy means more inflation, which calls for higher interest rates to keep things in check.

When news broke of Trump winning, stock futures actually plummeted because there was a lot of uncertainty of what a Trump presidency would mean for America.

That uncertainty meant an expected stock selloff the next morning, which would have translated to lots of bond buying. Investors put money into bonds when there’s fear in the market because they’re reliable investments (albeit low paying and boring), unlike stocks.

It would have meant lower mortgage rates too because higher bond prices (up because of increased demand) mean lower yields (rates).

But then something strange happened overnight and the stock market opened markedly higher. The basic gist is that everyone apparently realized a Trump presidency would mean a more robust economy with looser regulations and more business-friendly policy.

The picture completely changed and we’ve had a stock market rally pretty much every day since he was announced as the winner.

Conversely, a Hillary Clinton win would likely have meant more financial regulations, or at the least no repeal of Dodd-Frank or anything else that’s already in place.

My assumption is that would have meant more of the same and no major market shakeup since her policies probably aligned with current administration.

Now we’ve got a businessman as our President-elect so the theory is a stronger economy and with that higher interest rates.

Long story short, mortgage rates are higher than they were last week, and significantly so.

Kiss Your 3% Mortgage Goodbye?

  • That rock-bottom mortgage rate might be gone forever
  • But rates are still going to be very attractive for at least the next couple years
  • When looked at on a historical basis
  • And your monthly payment may not even be that much different

The average 30-year fixed mortgage rate might be closer to 4% today compared to something like 3.625% pre-election.

On a $250,000 loan amount, we’re talking about a mortgage payment of $1194 versus $1140. That’s another $54 a month and roughly $650 annually. Ouch!

It’s not the end of the world per se, but it is a sizable jump and enough to change a lot of things for a lot of people.

For one, it could make a home unaffordable to someone on the cusp of approval simply because of DTI constraints.

Secondly, it could turn the decision to refinance on its head. A difference in rate of 0.25% to 0.375% is plenty enough to kill the deal, so to speak.

And rates could rise even more in the short-term, pushing you out of the 3% realm and into a very scary and unfamiliar 4% mortgage. I say that jokingly because there was a time not very long ago when a 4% mortgage would have been unheard of (in a good way).

Let’s face it, we had to come to grips with a rate rise, although it’s kind of ironic to see it come this way, from a presidential election, something perhaps few saw coming.

Hold On a Minute

  • Sure, mortgage rates might begin an upward march
  • Assuming the pundits are right about Trump
  • But the U.S. economy is still at the mercy of the world stage
  • And plenty can play out to change the direction of rates over coming months and years

But wait, this might not be the end of the story. Mortgage rates fluctuate all the time. They can shoot up at a moment’s notice thanks to some geopolitical issue or economic concern (or presidential election), but they don’t often move in one direction and never look back, just like the stock market.

We’ve seen similar instances in the recent past, and often the story changed quickly. Everyone expected a huge move after Brexit, but the result was fairly muted once the dust settled.

This Trump presidency still has a lot more questions than answers, and is mostly speculation rather than fact.

That could spell a mortgage rate reversal before most homeowners even notice a difference. Sure, it could be terrible timing for some people who have to lock and close their loans, but if you can wait, it might make sense to.

Yes, mortgage rates can surely continue to rise in the near-term, but there’s nothing to say they won’t trickle back down to levels seen a week or two ago.

For me, this certainly isn’t a done deal based on uncertainty alone! Remember, Donald Trump was seen as very uncertain before he became President-elect. So to think it’s now all figured out a week later is crazy.

Declaring low mortgage rates gone forever would be a huge blunder in my mind. We’ve made this mistake numerous times in the past few years and there’s little reason to think it couldn’t happen again.


The Refinance Rule of Thumb

How Much Lower Should Mortgage Rates Be to Refinance?

  • Unfortunately there is no one-size-fits-all answer
  • Because no two loan scenarios are the same
  • You have to factor in existing home loan details
  • And future plans/financial objectives/tenure in home, etc.

If you’re considering refinancing your mortgage, you may have searched for the “refinance rule of thumb” to help you make your decision.

Of course, there isn’t a single refinance rule of thumb. There are numerous ones that exist.

And before we dive into them, it should be noted that rules don’t tend to work universally because there is a laundry list of reasons to refinance a mortgage.

What works for one person might not work for another, and if you’re relying on some sort of shortcut to make a decision, you might wind up shortchanging yourself in the process.

That being said, let’s look at some of these “refinance rules” to see if there are any takeaways we can use to our advantage.

Only Refinance If the New Mortgage Rate is 2% Lower

refinance rule of thumb

  • Some say to only refinance if you can get a rate 2%+ lower
  • This is definitely not a rule to live by and ultimately very conservative
  • It’s possible to save lots of money with a rate that is less than 1% lower
  • There are also other reasons to refinance that aren’t always interest rate-dependent

One popular one is that you should only refinance if your new interest rate will be two percentage points lower than your current mortgage interest rate.

For example, if your current mortgage rate is 6%, this rule would tell you to refinance only if you could obtain a rate of 4% or lower.

But clearly this rule is much too broad, just like any other rule out there. When it comes down to it, a refinance decision will be unique to you and your situation, not anyone else’s.

This old rule assumes most mortgage loan amounts are pretty small, unlike the jumbo loans we see nowadays.

Is It Worth Refinancing for a 1% Lower Rate?

Let’s take a look at some math to illustrate why the 2% refinance rule falls short, and how even a rate just 1% lower (or less) can be quite beneficial:

Loan amount: $500,000
Loan type: 30-year fixed-rate mortgage
Current mortgage rate: 4%
Refinance mortgage rate: 3%
Cost to refinance: $4,000

In this scenario, the existing mortgage payment is $2,387.08. If refinanced to 3%, the monthly mortgage payment falls to $2,108.02.

That’s a difference of nearly $300 a month, which will certainly make it easier to meet your mortgage obligation.

However, it will take just over 14 months to recoup the cost of the refinance ($4000/$279). It’s actually even less once you factor in increased equity accumulation.

That said, the refinance “breakeven period” (time to recoup your upfront closing costs) is very short here. So we don’t need to follow that “2% lower rate” refinance rule.

In fact, even a drop in rate of just 0.50% (from 3.5% to 3%) would result in monthly savings of about $140 and take less than two years to recoup.

[See all the top refinance questions in one place.]

Pay Attention to Fees, Especially with Small Loan Amounts

But what if the loan amount were only $100,000? The game changes in a hurry. Your mortgage payment would drop from $477.42 to $421.60.

That’s roughly $56 in monthly savings, not very significant, especially if it still costs you thousands to refinance.

Assuming the cost of the mortgage was still somewhere around $3,000, it would take about 40 months, or roughly three and a half years, to recoup the costs associated with the refinance.

So if you were thinking about selling your home in the short term, it probably wouldn’t make sense to throw money toward a refinance.

That is likely why this old refinance rule exists. But home prices (and loan amounts) are much higher these days, so it’s not a good rule to follow for everyone.

The same goes for any other mortgage rate rule that says your rate should be 1% lower, or 0.5% lower.

Whether it’s favorable or not really depends on a number of factors, such as the loan amount, closing costs, and expected tenure in the home.

If we don’t know the answer to all those questions, we can’t just throw out some blanket rule for everyone to follow. Again, don’t cut corners or you could find yourself in worse financial shape.

[Check out these mortgage payment tables to quickly eyeball differences in rate, or use my refinance calculator to run your own simulation.]

Tip: Pay close attention to the closing costs associated with the loan. Simply looking at the rate and payment isn’t good enough.

Only Refinance If You’ll Save “X” Dollars Each Month

  • This blanket refinance rule fails to consider the interest savings
  • It might have nothing to do with your monthly payment
  • The faster accrual of home equity and things like a shorter loan term
  • Can make a refinance totally worth your while, regardless of payment

Another common refinance rule of thumb says only to do it if you’ll save “X” dollars each month, or only if you plan to live in your home for “X” amount of years.

Again, as seen in our example above, you can’t just rely on a blanket rule to determine if refinancing is a good idea or not.

Some borrowers may need to stay in their home for five years to save money, while others may only need to stick around for just over a year.

But plans change, and you may find yourself living in your home much longer (or shorter) than anticipated.

And if you look at the refinance savings in dollar amounts, it will really depend on the cost of the refinance and how long you make the new payment.

If it’s a no cost refinance, which is a popular option these days, you won’t even have to worry about the break-even period.

There are also homeowners who simply want payment relief, even if it means paying more interest long-term.

So it’d be foolish to get caught up on this rule unless you have a bulletproof plan in place. Let’s face it, nobody does.

[Does refinancing hurt your credit score?]

Forget the Rules, Consider the Loan Term

  • The mortgage term can be a big part of the decision
  • Consider your remaining loan term and what type of mortgage you’ll be refinancing into
  • Along with how long you plan to keep the new loan
  • And your future plans (moving, staying put, or keeping the property to rent out?)

Finally, consider the mortgage term when refinancing, and the total amount of interest you can avoid paying over the life of the loan.

If you’re currently five years into a 30-year fixed mortgage, and refinance into a 15-year fixed mortgage, you’ll shave 10 years off your aggregate mortgage term.

Assuming mortgage rates are low enough at the time of refinance, you could even wind up with a lower monthly payment despite the shorter term.

You will also build equity faster and greatly reduce total interest paid, which will shorten your break-even period and maximize your savings.

[30-year mortgage vs. 15-year mortgage]

If you simply refinance into another 30-year loan, you must consider the five years in which you already paid interest when calculating the benefits of the refinance.

Those who have had their mortgage for a decade or longer certainly won’t want to restart the clock at 360 months, even if mortgage rates look too good to pass up.

Also factor in your current loan type versus what you plan to refinance into.

If you currently hold an adjustable-rate mortgage that will reset higher soon, the decision to refinance may be even more compelling.

At the end of the day, you shouldn’t use any general rule to determine whether or not you should refinance.

Doing so is lazy, especially when it’s not that difficult to run a few numbers to see what will make sense for your particular situation.

If you feel overwhelmed by all the math, ask a loan officer or mortgage broker to run some scenarios for you to illustrate the potential savings and break-even periods.

Just be sure they’re giving you an accurate and complete picture and aren’t simply motivated by a paycheck.

And take your time – you’re not shopping for a big screen TV, you’re making one of the biggest financial decisions of your life.

Tip: When to refinance a home mortgage.

(photo: angermann)


What Mortgage Rate Can I Get With My Credit Score?

A reader recently asked, “What mortgage rate can I get with my credit score?”  So I figured I’d try to clear up a somewhat complex question.

With mortgage rates now at new all-time lows, again (sigh!), borrowers looking to refinance a mortgage or purchase a home seem to be increasingly curious about the possibility of snagging a 30-year fixed below 3%.

While it’s finally a real possibility, thanks in part to programs like Conquest from UWM, not everyone will qualify for the rock-bottom rates.

What they’re actually eligible to receive could be a lot higher, because well, what you see advertised isn’t always what you get.

Most of the time, the interest rate tends to be higher…let’s explore why that is and help you avoid any unpleasant surprises when you speak to a lender.

Mortgage Rates Are Based on Your Credit Score

credit score by rate

  • The illustration above should give you an idea of the importance of credit scores
  • When it comes to mortgages even a small difference in rate can equate to thousands of dollars
  • Someone could have a rate 0.75% higher (or more) based on credit score alone
  • So be sure all 3 of your credit scores are as high as possible before you apply!

The graphic above is based on real advertised rates from Zillow’s marketplace for a $400,000 loan amount at 80% loan-to-value (LTV) for a 30-year fixed on an owner-occupied, single-family residence.

While interest rates are even lower today, the same sliding scale rule applies.

Those with higher credit scores will get the lowest mortgage rates available, while those with lower credit scores will have to settle for higher rates.

Notice that the interest rate is a full 0.75% higher for a borrower with a 620 FICO score versus a borrower with a 740+ FICO score. That can equate to a lot of money over time.

One thing that determines what mortgage rate you’ll ultimately receive is credit scoring, though it’s just one of many factors, known as mortgage pricing adjustments, used to price your loan.

Along with credit scoring is documentation type, property type, loan amount, loan-to-value, and several others.

Each pricing adjustment is essentially applied based on risk, so a borrower with a high-risk loan must pay a higher mortgage rate than a borrower who presents low risk to the lender. This is how risk-based pricing works.

In short, the less risk you present to your mortgage lender, the lower your mortgage rate will be. And vice versa.

That’s because they can fetch a higher price for your lower-risk home loan when they sell it on the secondary market.

Lenders consider a number of things to measure risk, as mentioned above.

Using credit score alone, it’s impossible to tell a prospective borrower what they may qualify for without knowing all the other important pieces of the puzzle.

But I will say that your credit score is definitely one of the most important (if not the most important) factor that goes into determining your mortgage interest rate.

How Much Does Credit Score Affect the Mortgage Interest Rate?

credit matrix

  • There are pricing adjustments specifically for credit scores
  • They can raise your mortgage rate significantly if you have poor credit
  • The adjustments grow larger as credit scores move lower
  • And are especially impactful if you also come in with a small down payment

Generally speaking, a credit score of 740 or above should land you in the lowest-risk bracket, meaning if all other areas of your unique borrowing profile are in good standing, you will qualify for a mortgage at the lowest possible interest rate.

In other words, you’ll enjoy a lower monthly mortgage payment and save a ton of money on interest over the entire mortgage term.

As mentioned, your credit score can be hugely important in determining pricing because lenders charge massive adjustments if your score is low.

Just take a look at the chart above from Fannie Mae. If your credit score is 740 or higher, you’ll only be charged as much as 0.25% (this isn’t rate but rather a pricing hit) all the way up to 95% LTV.

Conversely, if your credit score is between 620 and 639, you’ll be charged as much as 3.25% in pricing adjustments.

For the borrower with a 620 credit score, this might equate to an interest rate of say 4.5% on a 30-year fixed mortgage, while the borrower with a 740 score receives a much lower rate of 3.75%.

That difference in rate could stick with you for years if you hold onto your mortgage, meaning higher payments month after month for potentially decades, all because you didn’t practice good credit scoring habits.

Not only can a good credit score save you money monthly and over time, it will also make qualifying for a mortgage a lot easier.

For these reasons, your credit score should be your top concern when applying for a mortgage!

What Credit Score Do You Need for Best Mortgage Rate?

  • Most mortgage rate ads you’ll come across make lots of assumptions
  • If you read the fine print you’re often required to have a credit score of 740 or higher for the best rate
  • So if your credit scores aren’t that high you should expect a higher  rate when obtaining a quote
  • And that’s if you even qualify for the mortgage to begin with

If you’ve ever seen a mortgage advertisement on TV or the Internet, the lender assumes you’ve got an excellent credit score.

This could mean a credit score of 720, 740, or possibly even higher.  And they use that assumption to produce a favorable mortgage rate in their ad.

But without that great credit score, your mortgage rate could be significantly higher when all is said and done.

At the other end of the spectrum, borrowers with credit scores of say 660, 640, and 620 will have increasing difficultly securing financing, and will receive higher mortgage rates, assuming a mortgage is ultimately granted.

[How to get a mortgage with a low credit score.]

Unfortunately, I can’t say you’ll get X or Y mortgage rate if you have Z credit score, there are just too many factors in play all at once. And credit score is just one of them, albeit a very important one.

But I can say that your credit score is hugely influential in determining both the mortgage rate you’ll receive and whether you’ll receive home loan financing to begin with.

So it’s recommended that you check your credit score(s) 3+ months before applying for a mortgage to see where you stand.  And continue to monitor them up until you apply.

This shouldn’t be much of a chore or even an expense now that so many companies provide free credit scores, including major banks and credit card issuers.

For example, I’ve got free scores coming out of my ears from the many banks and credit card companies I do business with.  It’s actually interesting to see the divergence in scores across different companies.

Check Your Credit Before Shopping for a Mortgage!

  • Don’t chance it – check your credit scores 3+ months in advance
  • Aside from the importance of knowing where you stand
  • It may take time to turn things around if you need to improve your scores
  • Things like disputes may take months to complete and reflect in your scores

If you don’t know your credit scores several months in advance of applying for a mortgage, you may not have adequate time to make any necessary changes.  Trust me, surprises come up all the time when it comes to credit.

An erroneous (or forgotten) late payment could deflate your credit scores substantially, even if it’s reporting in error.

And that lower score could increase your mortgage rate a percentage point or more. Yes, credit scores can make that much impact!

Disputing errors and/or addressing other credit missteps can take many months to complete, so don’t hesitate to check your credit if you think you’ll be applying for a mortgage at any point in the near future.

It’s good to know where you stand at all times, but especially before applying for a home loan. Don’t just assume you’ve got excellent credit. Verify it!

The good news is the low mortgage rates should be around for a while, and could even move lower, so you’ve probably got time. If your credit scores need some TLC, take the time to improve them instead of settling for a higher rate today.

Read more: What credit score do I need to get a mortgage?


Use These Mortgage Charts to Easily Compare Rates

Last updated on December 14th, 2020

One of the things prospective home buyers and existing homeowners seem to care most about is mortgage rates.

And for good reason – the interest rate you receive on your home loan dictates what you’ll pay each month, sometimes for as long as the next 30 years. That’s 360 months!

The rate you receive can also completely make or break your home purchase, or sway the decision to refinance a mortgage.

As such, I decided it would be prudent (and helpful) to create a “mortgage rate chart” that displays the difference in monthly mortgage payment across a variety of interest rates and loan amounts.

My New Expanded Mortgage Rate Chart

mortgage rate chart

  • I created a fresh mortgage rate chart that factors in the new record low rates
  • And the possibility of them drifting even lower over coming months and years
  • The chart is also more granular because rates are broken down by eighths as opposed to quarters
  • Also available in 50k increments if your loan amount is closer to that

mortgage rate chart 150k

These charts can make it quick and easy to compare rate quotes from mortgage lenders, or to see the impact of a daily rate change in no time at all.

After all, mortgage rate updates can happen frequently, both daily and intraday. And rates are especially erratic at the moment.

So if you were quoted a rate of 3.5% on your 30-year fixed mortgage two weeks ago, but have now been told your home loan rate is closer to 4%, you can see what the difference in monthly payment might be, depending on your loan amount.

Today, that scenario might be the opposite. A quote of 3.5% a month ago might now be 3%, or even below 3%.

That has forced me to create a new expanded mortgage rate chart that contains 30-year fixed interest rates all the way down to 2%. Whether they get anywhere close to that remains to be seen, but never say never.

I just hope I don’t have to make another chart…

Anyway, this is all pretty important when purchasing real estate or seeking out a mortgage refinance, as a significant jump in monthly mortgage payment could mean the difference between a loan approval and a flat out denial.

Or you might be stuck buying less house. Or perhaps driving until you qualify!

30-Year Mortgage Rates Chart

Mortgage Payment Chart

Click to enlarge

  • Use the 30-year mortgage rates chart above
  • To quickly ballpark monthly principal and interest payments
  • At varying interest rates and loan amounts
  • While handy for estimates, don’t forget the taxes and insurance!

My first mortgage rate chart highlights monthly payments at different rates for 30-year mortgages, with loan amounts ranging from $100,000 to $1 million.

I went with a bottom of 3.5%, seeing that mortgage interest rates were around that level recently, and generally don’t seem to go any lower than that. Well, maybe they will…one can hope.

There is certainly the possibility that fixed rates could drift back in that direction with all the trade war uncertainty and the election year on the horizon.

Regardless, one might be able to buy their rate down to around that price, assuming they want an even lower rate on their home mortgage.

For the high-end, I set interest rates at 6%, which is where 30-year fixed mortgage rates were for many years leading up to the mortgage crisis.

With any luck, they won’t return there anytime soon…though in time they could potentially surpass those levels. Eek!

Yep, they could rise even higher over time depending on what transpires in the mortgage market, but hopefully home loan rates won’t climb back to the double-digits last seen in February 1990.

That fear aside, this mortgage payment chart should give you a quick idea of the difference in monthly payments across a range of mortgage rates and loan amounts, which should save some time fooling around with a mortgage calculator.

It should also make your job easier when you compare rates from different lenders. Or when you compare your current mortgage rate to what’s being offered today.

For the record, you can use the 30-year chart above for adjustable-rate mortgages too because they’re based on the same 30-year loan term. They just don’t offer fixed rates beyond the initial teaser rate offered.

So if you’re looking at a 5/1 ARM, you can still use this chart, just know that your interest rate will adjust after those first five years are up, and the chart will no longer do you any good.

That is, unless you’re looking to refinance your mortgage to a new low rate to avoid the interest rate adjustment.

Tip: Use the charts to quickly determine the impact of a higher or lower credit score on rates. If you’re told you can get a rate of 4% with a 760 credit score or a rate of 4.5% with a 660 score, you’ll know how much marginal or bad credit can really cost.

15-Year Mortgage Rates Chart

15 Year Fixed Mortgage Payment Chart

Click to enlarge

  • The 15-year mortgage rates chart helps illustrate the massive cost difference of a shorter-term mortgage relative to a 30-year mortgage
  • Use it to determine the capability of making larger monthly payments at various loan amounts
  • And also to see if refinancing makes sense at certain interest rates
  • While payments are significantly higher, you can save a ton of money on interest while paying off your home loan in half the time

Now let’s take a look at my mortgage rates chart for 15-year fixed mortgages, which are also fairly popular, but a lot less affordable.

I used a floor of 3% and a max rate of 5.50%.  Again, rates can and probably will climb higher, just hopefully not anytime soon. Spoiler alert: They drifted lower, but not much lower than 3%.

For the record, you can obtain mortgage rates at every eighth of a percent, so it’s also possible to get a rate of 3.625%, 3.875%, 4.125%, 4.375%, and so on.

But for the sake of simplicity, I spaced it every quarter of a percent except for the jump from 5% to 5.5%.

These charts are really just a quick reference guide to get ballpark monthly mortgage payment amounts if you’re just beginning to dip your toes in the real estate pool.

If you’re getting serious about home buying or looking to refinance an existing mortgage, whip out a loan calculator to get the exact PITI payment.

Some Interesting Takeaways from the Mortgage Rate Charts

  • Monthly payment differences are larger when interest rates are higher
  • Higher mortgage rates may be worse than larger loan amounts
  • Small loan amounts are less affected by interest rate movement
  • Those with smaller loan amounts have a higher likelihood of affording 15-year payments

The lower the interest rate, the smaller the difference in monthly payment. As rates move higher, the difference in payment becomes more substantial. Something to consider if you’re looking to pay mortgage discount points.

If you look at the 30-year mortgage rate chart, the monthly payment difference on a $500,000 loan amount between a rate of 3.5% and 3.75% is $70.36, compared to a difference of $77.93 for a rate of 5.25% vs. 5.5%.

Additionally, higher mortgage rates can be more damaging than larger loan amounts. Again using the 30-year mortgage rates chart, the payment on a $400,000 loan amount at 3.50% is actually cheaper than the payment on a $300,000 loan at 6%.

So you can see where an individual who purchases a home while mortgage rates are super low can actually enjoy a lower mortgage payment than someone who buys when home prices are lower.

However, for someone purchasing a really expensive home, upward interest rate movement will hurt them more than someone purchasing a cheaper home.

Sure, it’s somewhat relative, but it can be a one-two punch for the individual already stretched buying the luxury home.

To illustrate, the difference between a rate of 5% and 5.25% for loan amounts of $300,000 and $900,000 is about $46 vs. $138, respectively.

Be Sure to Look at the Big (Payment) Picture

  • Most advertised mortgage payments only include principal and interest
  • There is a lot more that goes into a monthly housing payment
  • Including property taxes, homeowners insurance, HOA dues, PMI, and so on
  • Don’t buy more than you can afford without considering all of these items

Lastly, note that my mortgage payment graphs only list the principal and interest portion of the loan payment.

You may also be subject to paying mortgage insurance and/or impounds each month. Property taxes and homeowner’s insurance are also NOT included.

You’ll probably look at this chart and say, “Hey, I can get a much bigger mortgage than I thought.”  But beware, once all the other costs are factored in, your DTI ratio will probably come under attack, so tread cautiously.

And don’t forget all the maintenance and utilities that go into homeownership. Once you hire a gardener, pool guy, and run your A/C and/or heater nonstop, the costs might spiral out of control.

I referenced this problem in another post that focused on if mortgage calculators were accurate, in which I found that housing payments are often greatly underestimated.

So you might want to drop your loan amount by $100,000 if you think you can just get by, as those other costs will certainly play a role.

Oh, and if you want to nerd out a little bit (a lot), learn how mortgages are calculated using real math, not some fancy calculator that does it all for you.

Or just use my mortgage payment calculator and enjoy the simplicity of it all. The choice is yours.


Mortgage Lenders Now Providing Payment Relief Due to Coronavirus

Last updated on December 28th, 2020

I will update this post as new information is made available, but we’re starting to see mortgage relief packages rolled out by all the major housing agencies.

Whether the government launches some sort of HAMP-esque program that goes beyond the usual loss mitigation options remains to be seen.

That may be dictated by how bad the coronavirus outbreak gets, and its eventual effect on the housing market.

Coronavirus Relief for FHA Loans

The Department of Housing and Urban Development (HUD), which oversees the FHA home loan program, has halted foreclosures and evictions for the next 60 days as a result of COVID-19.

This applies to the initiation of a foreclosure and the completion of any foreclosures in process.

Additionally, lenders must cease all evictions of individuals living in an FHA-insured single-family property.

This guidance applies to both forward FHA loans and reverse mortgages, known as Home Equity Conversion Mortgages (HECM).

With regard to mortgage payment relief, the FHA has called on loan servicers to offer its suite of loss mitigation options, including short and long-term forbearance options, along with mortgage loan modifications.

Coronavirus Relief for VA Loans

The VA has released a circular titled, “Foreclosure Moratorium for Borrowers Affected by COVID19,” which strongly encourages a 60-day halt on foreclosures and evictions beginning March 18th, 2020.

They have also encouraged holders of VA guaranteed home loans to extend forbearance to borrowers affected by COVID-19.

Loan servicers have been to told to evaluate the VA Loss Mitigation options outlined in Chapter 5 of the VA Servicer Handbook M26-4.

This may include the reapplication of prepayments to cure or prevent a loan default, and allows the terms of any guaranteed loan to be modified without the prior approval of the VA, assuming conditions in the regulation are met.

USDA Rural Development Response

First off, USDA Rural Development will continue to provide USDA home loans and grants to those in rural communities nationwide.

Additionally, they have granted authority to lenders that participate in their Single-Family Housing Guaranteed program to work with borrowers having difficulty making payments.

Lastly, RD will issue guidance to its Single-Family Housing Direct borrowers to ensure those in need of payment assistance are adequately reached.

Fannie Mae and Freddie Mac Assistance Options

The pair, which back the vast majority of home loans, have both suspended foreclosure sales and evictions for the next 60 days.

Both Fannie Mae and Freddie Mac will provide payment forbearance for up to 12 months.

Fannie Mae says it will either reduce or suspend borrower’s mortgage payments during that time.

Neither will assess penalties or late fees against borrowers.

Freddie Mac says forbearance is an option regardless of occupancy, meaning primary residences, second homes, and investment properties are all eligible for relief.

Additionally, both are suspending the reporting of delinquencies related to any forbearance, repayment, or trial plans to the credit bureaus.

So homeowners won’t have to worry about getting dinged by the credit bureaus as they seek assistance.

Boston Mortgage Relief

The Mayor of Boston, Marty Walsh, has inked a deal with 12 banks and mortgage lenders that allows homeowners to defer mortgage payments for at least three months.

The institutions in question include Bank of America, Boston Private, Cambridge Trust Company, Century Bank, Citizens Bank, City of Boston Credit Union, Dedham Savings Bank, Eastern Bank, Mortgage Network, Inc., PrimeLending, Salem Five Bank, and Santander Bank.

The participating lenders will extend loan deferment if needed, and have also agreed to a collective goal of approving deferments within 21 days of application.

Only “essential paperwork” is needed from the borrower, and it will not be reported to the credit bureaus as being a late, nor will they will charge late fees.

Most importantly, once the deferment period comes to an end, the homeowner will not be required to pay the total deferment/forbearance amount in a lump sum.

Connecticut COVID-19 Mortgage Assistance

Connecticut Governor Ned Lamont has announced that his administration has reached an agreement with 50+ credit unions and banks to offer mortgage relief to homeowners affected by the COVID-19 pandemic.

Like other states, there will be a 90-day grace period on mortgage payments and no foreclosures/evictions for 60 days.

Additionally, homeowners will get relief from any fees and charges for 90 days, and won’t suffer any negative credit score impact.

Nevada Mortgage Relief Measures

  • Moratorium on evictions and foreclosures for duration of the State of Emergency
  • 90-day grace period on mortgage payments
  • Banks have agreed to work directly with customers to ensure no one pays a giant lump sum payment to get back on track

Governor Sisolak and State Treasurer Zach Conine have announced relief options for homeowners in the state of Nevada.

They say “a vast majority of lending institutions are offering homeowners facing financial hardships due to COVID-19.”

This includes a a 90-day grace period on mortgage payments, and more importantly, have agreed to “ensure that no one is hit with a giant lump sum payment if they need to stop making payments for a couple of months.”

“In many cases, these payments can instead be added onto the back end of a loan, so people can get back to work and get back on their feet.”

New Jersey Mortgage Grace Period

New Jersey Governor Phil Murphy announced mortgage payment forbearance of up to 90 days for borrowers economically impacted by COVID-19.

  • 90-day grace period for mortgage payments
  • No negative credit impact for receiving assistance
  • No mortgage-related fees or charges for at least 90 days
  • Moratorium on foreclosure sales and evictions for at least 60 days

New York State Mortgage Assistance

In New York State, Governor Cuomo signed an executive order that provides mortgage relief, including a 90-day payment holiday to homeowners impacted by the novel coronavirus.

Here are the details:

  • Postpones or suspends any foreclosures
  • Waives mortgage payments for 90-days based on financial hardship
  • No negative reporting (late payments) to credit bureaus
  • Grace period for loan modifications
  • No late payment fees or online payment fees

Apparently, any missed monthly mortgage payments are being tacked on to the back of the loan. It’s unclear if this will effectively freeze the mortgage or result in a balloon payment.

Worldwide Response

Last week, Italy’s deputy economy minister announced that mortgage payments would be suspended across the entire country in light of the coronavirus (COVID-19) outbreak.

While plenty of Italian homeowners might not actually contract the virus, the economic implications of a countrywide shutdown could affect their ability to make timely housing payments.

For example, with Italy effectively coming to a standstill, many homeowners may not be able to work until the lockdown is lifted.

It’s unclear who will be paid during this time. There are also longer-term layoffs to consider if businesses are permanently affected.

In the UK, similar measures are already being extended by individual banks, including TSB Bank, which is offering a “repayment holiday for up to two months.”

My understanding is this gives homeowners a two-month break before they must resume making timely monthly mortgage payments.

Similar moratoriums are being offered to mortgage borrowers by other British banks, and they’re also making it easier for customers to get access to their cash if need be.

U.S. Mortgage Lenders May Not Be Far Behind

  • Italian banks have already suspended mortgage payments nationwide
  • UK banks are now offering mortgage holidays to affected customers
  • Matter of time before U.S. banks and lenders extend similar assistance
  • If you need help paying your mortgage, contact your loan servicer and look out for news bulletins

While no major coronavirus restrictions have made it to the United States just yet, at least beyond some universities and other private institutions, there’s a chance we could experience a similar clampdown soon.

Really, it sounds more like a matter of when than if, despite no mandatory freedom of movement likely.

This is known as “social distancing,” designed to limit human-to-human contact and stop the spread of the fast-moving COVID-19.

Assuming that happens, there’s a good chance mortgage lenders will step in and offer temporarily relief for those affected.

Again, while the virus itself may not directly affect an individual homeowner’s health, disruptions in multiple industries could lead to layoffs or the inability to perform job duties.

Generally, when a natural disaster occurs, Fannie Mae, Freddie Mac, and HUD offer some level of assistance and/or guidance to loan servicers to ensure borrowers can get back on their feet, or avoid falling behind to begin with.

This may involve the suspension or reduction of mortgage payments for 90 days up to six months, depending on the circumstances.

They may also suspend eviction lock-outs on real estate owned (REO) inventory to avoid displacing tenants during what could be a sensitive time.

Tip: If you need assistance paying your mortgage at this time, be sure to keep an eye on the FHFA or HUD websites, along with Fannie Mae and Freddie Mac’s, for any pertinent announcements.

Homeowners Are Helping Themselves to Lower Mortgage Rates

  • Record low interest rates lead to 55.4% increase in weekly mortgage applications, per MBA
  • Refinance share surged to 76.5% of total loan volume from 66.2% a week earlier
  • 2020 mortgage origination forecast revised up to $2.61 trillion
  • Industry group now expects refis to account for $1.23 trillion in volume, up 36.7% from earlier estimates

In the meantime, homeowners seem to be helping themselves by taking advantage of the record low mortgage rates also on offer at the moment.

Instead of asking for a payment holiday, borrowers are lowering their mortgage rates in droves via a traditional mortgage refinance.

This morning, the MBA reported that home loan applications surged 55.4% from a week earlier as refis jumped 79% to their highest level since April 2009.

Home purchase applications also rose six percent from a week earlier, a good sign in an otherwise uncertain time.

That pushed the refinance share of mortgage activity to 76.5% of total applications from 66.2% a week earlier.

The record low interest rate environment prompted the MBA to revise its origination forecast, forecasting total mortgage volume of $2.61 trillion this year, a 20.3% increase from 2019’s volume ($2.17 trillion).

Additionally, they expect home refinance originations to double their earlier projections, surging 36.7% to around $1.23 trillion.

Despite the unknowns in this ever-evolving situation, home purchase originations are still slated to climb 8.3% this year to $1.38 trillion.

While this is generally good news for the mortgage industry, it’s probably wreaking havoc on loan servicers and mortgage investors who are seeing prepayment speeds go through the roof.

Additionally, it’s going to make it difficult for mortgage companies to get their staffing right if mortgage rates all of a sudden U-turn, and in any case, once the party comes to an end.

Read more: How soon can I refinance my mortgage?


Veterans Can Now Get Rates as Low as 2.25% on a 30-Year Fixed Mortgage

Posted on June 24th, 2020

It seems mortgage rates keep moving lower and lower, and now some veterans and active duty military might be able to snag a 30-year fixed as low as 2.25%! That’s pretty unheard of.

While it sounds too good to be true, it appears to be a reality thanks to United Wholesale Mortgage’s push to dominate the mortgage market.

The rapidly growing wholesale lender based out of Pontiac, Michigan announced the new offering today via their website, calling it “Conquest for VA.”

Who Is Eligible for Conquest for VA?

  • Active duty military and veterans who otherwise qualify for VA loans
  • Those looking for a VA purchase loan or VA IRRRL (streamline refinance)
  • Primary residence only for purchases
  • Primary and second homes for VA IRRRLs
  • Minimum FICO score of 640
  • Must obtain financing via a mortgage broker approved to work with UWM
  • Homeowner must not have closed a refinance through UWM in past 18 months
  • Mortgage rates start from 2.25% to 2.375% on the 30-year fixed

Now let’s talk about who’s eligible for this seemingly fantastic loan program, which UWM says is being offered to honor our nation’s veterans.

As the name suggests, Conquest for VA is reserved for veterans and active duty military, and anyone else generally eligible for a VA home loan.

So if you don’t qualify for a VA loan, you’ll have to look into their general Conquest loan program instead.

Additionally, these low rates are only applicable to new home purchase loans and streamline refinances (IRRRLs). In other words, no cash out refinances here.

Take note of the occupancy type as well – primary residence only for purchases, primary and second homes for IRRRLs.

You must have a minimum FICO score of 640 and like the conventional Conquest program announced a couple weeks ago, these rates are only available to borrowers who haven’t worked with UWM in the past 18 months.

In terms of interest rates, they start as low as 2.25% on the 30-year fixed, which is surreal, though they could be an eighth higher at 2.375%. Either way, pretty hard to beat.

Another cool feature to this program is you can choose your own loan term, ranging from as little as eight to a full 30 years.

For example, if you’re already several years into a 30-year fixed, you could choose a shorter term to avoid resetting the clock while refinancing.

Lastly, UWM is a wholesale mortgage lender, meaning you can’t contact them directly as a homeowner.

Instead, you have to work with a mortgage broker who is approved with UWM.

So if you’re weighing the mortgage broker vs. bank argument, these super low rates could be a tipping point for some.

As always, be sure to shop mortgage rates with mortgage brokers and banks to ensure you don’t miss an even better deal.

Also, pay attention to the closing costs associated with these mortgage rates since interest rate is just one piece of the pie, and mortgage APR is a more accurate representation of total loan cost.

Like I mentioned with their conventional Conquest program, UWM seems to be the trailblazer here, but my guess is other mortgage lenders will jump on board and offer similarly low rates now or in the very near future.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


How About a 1% Mortgage Rate?

Well, maybe not exactly 1%, but in the 1% range? More specifically, starting with the number “1,” which on its own sounds too good to be true.

It’s now a reality thanks to, you guessed it, United Wholesale Mortgage, who again is bringing some of the lowest rates in the industry via their aggressive Conquest loan program.

In case you’re not familiar, UWM works exclusively with independent mortgage brokers, meaning you can’t call the (wholesale) lender up directly to get a mortgage rate quote.

Instead, you’ll need to find a mortgage broker that is approved and working with UWM, who can shop your loan with UWM among other partners.

If all works out, and you’re into the idea of a 15-year fixed mortgage as opposed to a 30-year fixed, a mortgage rate that starts with the number one might be in the cards.

Get a 15-Year Fixed Mortgage Rate Below 2%

  • UWM’s Conquest program now offers low rates on 15-year fixed mortgages
  • Interest rates starting as low as 1.875% for well-qualified borrowers
  • Those with high-rate 30-year fixed mortgages may not see a big payment difference when refinancing
  • Possible to save hundreds of thousands via lower interest expense

In order to qualify for a sub-2% mortgage rate, you’ll need to go with a 15-year fixed mortgage, which is inherently more expensive due to its shorter loan term.

However, that shorter term also means you’ll pay a lot less interest and own your home a whole lot faster.

And assuming you qualify for UWM’s Conquest program and manage to get a rate of 1.875%, the difference in payment may be negligible if moving from a high-rate 30-year product.

Let’s look at an example to illustrate. Say you took out a 30-year fixed at 4.875% two years with a loan amount of $300,000. Yes, rates were that high just two years ago!

Your current monthly mortgage payment would be $1,587.62. After two years, you’d have whittled that balance down to roughly $291,000.

If you were to refinance your mortgage into a 15-year fixed priced at 1.875%, your new monthly mortgage payment would be $1,855.91.

Yes, $268 more per month, but you’d be free and clear in 15 years, as opposed to 28.

More importantly, you’d pay about $200,000 less in total interest. Yes, $200,000.

If you kept the old mortgage, you’d pay $272,000 in total interest over 30 years, assuming you held it to maturity.

If we factor in the interest on the first two years on the old mortgage and 15 years on the new 1.875% 15-year fixed, it’s roughly $72,000 in interest total.

Does a 15-Year Fixed Mortgage Make Sense Today?

Now a 15-year fixed isn’t for everyone, especially those who can barely afford a 30-year fixed, or have a better use for their money.

There’s also a decent argument these days that your money could be better served elsewhere, with mortgage rates so cheap at the moment.

If you can borrow at around 2.5% to 3% on a 30-year fixed, there’s a good chance you can beat that rate of return in many other places.

However, if you’re risk-averse and totally dislike debt, which seems to be a lot of folks out there, this strategy could be pretty darn effective.

For the record, UWM also offers 30-year fixed mortgage rates as low as 2.5% via their Conquest conventional loan program.

Similar rules apply – most importantly, you must not have refinanced via UWM in the past 18 months to qualify for these low rates.

And it only works on home purchase loans and rate and term refinances (no cash out permitted).

Additionally, it has to be a primary residence or second home. In other words, only vanilla loans are eligible.

As I said when they released their 30-year program, it’s another sign (of confidence) that mortgage rates are likely going to move lower in the near-future.

In other words, we might see a 15-year fixed priced close to 1.5% at some point soon if this trend continues.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


How Low Will Mortgage Rates Go?

It seems that lately we reach a new all-time low for mortgage rates just about every week, which begs the question, how low can they go?

Indeed, mortgage rates have hit record lows eight times so far in 2020, and it is only mid-August.

If you had to bet, you’d probably guess that we’d see at least two more record lows this year, given the recent trend of lower and lower.

I assume that too would break some sort of record for most record lows in a calendar year, but that’s unclear.

What is clear is that we continue to see old records get broken with relative ease, and at this point even lower rates feel like a given.

The 2020 mortgage rate predictions are now totally laughable, with a 30-year fixed around 3.75% the most common response.

Can Mortgage Rates Get Even Better from Here?

how low will mortgage rates go

  • Fixed mortgage rates are already at all-time record lows
  • There have been eight record lows this year, including three record lows in three weeks recently
  • Is it possible that mortgage rates could move even lower in the second half of 2020?
  • The trend certainly seems to point to even lower rates, especially with wide spreads relative to Treasuries

As noted, mortgage rates are hitting record lows so often it’s becoming a bit of a non-event. Heck, I don’t even write about it anymore.

And it’s hard to know if homeowners are even excited about it at this point. When something happens on a weekly basis, it’s difficult to garner any sort of novelty.

There’s also an expectation at this point that mortgage rates will simply get better and better and better.

Oddly, you can’t blame folks for thinking that way because they’re probably right.

If you asked me right now if I thought mortgage rates would move even lower from their current levels, I’d say YES with no hesitation.

That’s not just a gut feeling – it’s based on math and data and events going on in the industry and the world.

Just Look at Spreads If You Want a Hint

treasury spreads

For one, the spread between 30-year fixed mortgage rates and the 10-year Treasury (which they track) is super wide at the moment.

At last glance, the 30-year fixed was averaging 2.88%, per Freddie Mac, while the 10-year yield was around 0.55%.

While yields did “jump” a tad in the latest week, the spread is still historically large, around 225 basis points.

Typically, the spread might be 170 basis points or even less, meaning the 30-year fixed could easily be pricing around 2.25% today if spreads were more normal.

This implies that mortgage rates have plenty of room to move lower, despite hitting a fresh record low just last week.

The next clue that mortgage rates may fall even more is the fact that a 2.25% mortgage bond coupon has already been introduced, all the way back in April.

That came four months ago, and we’re now in a very different, arguably more volatile and fragile August, which tells me it’s a matter of time before the 30-year fixed moves to that range and possibly beyond it.

Lower Mortgage Rates Are Already Being Offered

Finally, we’re already seeing certain mortgage lenders offer the 30-year fixed below 2%. So it’s not just a question of if, it’s already a reality.

This week, wholesale mortgage lender UWM announced the availability of a 1.999% 30-year fixed mortgage rate via its Conquest program.

In order to get that rate, you need to work with a mortgage broker since UWM doesn’t work directly with the public.

You also need to qualify for that rate by being a solid borrower with a vanilla loan scenario, e.g. excellent credit score, low LTV, conforming loan amount, etc.

And there’s a good chance you’ll need to pay mortgage discount points to obtain that rate.

That brings up another important point – it may not be wise to pay points right now given the trend of lower and lower mortgage rates.

If you’re just going to refinance your mortgage a second time a couple months later, you certainly don’t want to pay lots of money upfront for a home loan you’ll barely keep, and thus not actually benefit from.

Now in terms of how low mortgage rates will go, that’s anybody’s guess, but at this point I wouldn’t rule anything out.

We’re already seeing mortgage rates in the 1% range, and we’ve got the potential for a very wild second half of the year with a contentious U.S. presidential election and a stock market that refuses to read the writing on the wall.

The only real caveat, as I’ve mentioned before, is the lower you go, the harder it is to see massive improvement.

After all, if mortgage rates are already in the 1% range, how much better can they really get?

The caveat to that statement is I said the same thing when mortgage rates were 3%…


Beware the New Mortgage Fee Fearmongering

You may have heard there’s a “new mortgage fee.” And you might have been told to hurry up and refinance NOW to avoid said fee.

While there is some truth to that, it is by no means a reason to panic, nor is it even applicable to all homeowners.

Additionally, it’s possible it may not save you money to refinance now versus a couple months from today, depending on what direction mortgage rates go.

So before we all get in a tizzy and give in to what some are clearly utilizing as a scare tactic, let’s set the record straight.

What the New Mortgage Fee Is and Is Not

  • A 50-basis point cost known as the Adverse Market Refinance Fee intended to offset COVID-19 related losses
  • It’s not a .50% higher mortgage rate
  • It’s an additional .50% of the loan amount via closing costs
  • Only applies to mortgage refinance loans backed by Fannie Mae or Freddie Mac
  • Home purchase loans are NOT affected by the new fee
  • Nor does it apply to FHA loans, USDA loans, or VA loans

Over the past week, I’ve been bombarded by articles warning of the new mortgage fee – most feature something to the effect of “refinance now” and “act fast!”

But in reality, you might not need to do anything different, nor hurry.

Sure, it’s an amazing time to refinance a mortgage, what with mortgage rates hovering at or record all-time lows. No one can argue that.

Still, it all seemed to come to a screeching halt two weeks ago when Fannie Mae and Freddie Mac surprised us with their Adverse Market Refinance Fee, which is designed to offset $6 billion in COVID-19 related losses.

Why would they do such a thing at a time when the economy (and homeowners) are already suffering due to COVID-19? Well, that’s a different story and not really worth getting into here.

The important thing to know is this new mortgage fee only applies to home loans backed by Fannie Mae and Freddie Mac, and only if you’re refinancing an existing mortgage.

It has nothing to do with FHA loans, USDA loans, VA loans, or home purchase loans. Or jumbo loans while we’re at it.

Additionally, they have since exempted Affordable refinance products, including HomeReady and Home Possible, and refinance loans with an original principal amount of less than $125,000.

Some single-close construction-to-permanent loans are also exempt.

In terms of cost, it’s .50% of the loan amount, not a .50% increase in mortgage rate. That could mean another $1,500 in closing costs on a $300,000 loan, which is nothing to sneeze at.

But mortgage rates don’t live in a vacuum, and can change daily, so how much more (or less) you’ll actually pay depends on what transpires between now and the implementation date.

When Does the New Mortgage Fee Go into Effect?

  • Applies to loans purchased or delivered to Fannie and Freddie on or after December 1st, 2020
  • This means you’d want to apply for a refinance 60 or so days before that cutoff
  • Since mortgages are sold and securitized once the loan actually funds
  • But remember there’s more to mortgage pricing than just this new fee

The fee was originally supposed to go into effect for loans purchased or delivered to Fannie and Freddie on or after September 1st, 2020, but after much uproar, they just delayed it to December 1st, 2020.

This doesn’t mean you have until December 1st to apply for a refinance in order to avoid the fee.

Since we’re talking purchase of your loan or delivery of your loan so it can be bundled into a mortgage-backed security, there needs to be a buffer.

We have to account for how long it takes to get a mortgage, plus the post-closing stuff that takes place before delivery or sale.

You’d really want to get your refinance in maybe 60+ days prior to December 1st to be safe, though it’s unclear if mortgage lenders will already start baking in the fee even earlier.

If not, you might be stuck paying an additional .50% of your loan amount, either via out-of-pocket closing costs or a slightly higher mortgage rate.

Assuming you don’t want to pay anything at the closing table, your interest rate might be .125% higher, all else being equal.

So if you qualified for a 30-year fixed mortgage rate of 2.5%, it might be 2.625% instead. On a $300,000 loan, it’s about $20 higher per month.

Sure, nobody wants to pay more, but it shouldn’t be a refinance deal breaker for most folks.

And here’s the other thing – mortgage rates might move lower over the next few months due to, I don’t know, COVID-19, the most contentious presidential election in recent history, a stock market that could collapse at any moment, and so on.

In other words, if mortgage rates drop another .25% or .375% by later this year, it’s possible to come out ahead, even with the new fee.

The counterpoint is not to look a gift horse in the mouth. Either way, don’t panic.