Mortgage rates are at all-time lows…largely, because of economic concerns with Covid-19.
Mortgage pricing is based on numerous factors. Base rates are pinned to mortgage backed securities (MBS) which compete with Treasury, and similar interest-bearing instruments for investor money. Lenders “buy” “commitments” from providers of MBS funds at daily, up-to-the-minute rates, which change frequently.
In addition to cost of funds, historically proven risk factors add to pricing. For example; condos, non-owner occupied properties, cash-out loans, all add to lender risk. In addition, borrowers with lower credit scores represent greater risk than those with higher scores as do loans with higher loan-to-value ratios.
In addition to cost of funds and risk elements, lenders have costs associated with loan processing and a need to meet minimum profit margins. There are other factors, too complicated to discuss here, including hedging against rate/volume commitments.
This week I’ll close a cash-out transaction for a client with a condo, for $510,000 at 3.190% and, next week, for another client, at 3.125%, on a single-family home, for $500,000. The condo loan amounts to less than 65% of the property value and the SFR LTV is below 50%. Both have credit scores above 740.
Now is a rare opportunity for homeowners to get what may well be the lowest mortgage rates for decades to come and the potential savings could be huge! I’m always happy to answer any questions to help you determine if a refinance makes sense.
