Colorful San Francisco building tops with Bay Sunny day

    In July of last year, I wrote a blog called “7 Myths About Mortgage Rates,” largely in response to so much confusion amongst our many clients.

    Since I wrote that blog, rates have risen almost 3/4% and misconceptions remain as prevalent as ever.

    So, I thought it was time to repeat the blog with the addition of three more extremely important myths, as many borrowers seem to believe we have far more control over the rates we quote than we actually do. Please pay special attention to #8 below.


    Myth #1 – Borrowers will keep their loan for 30 years so the rate is extremely important.

    This is something we hit hard with first-time homebuyers especially, b/c they are utterly convinced that they will keep their mortgage forever, but nobody does. People hold their mortgages for an average of 4 to 7 years, depending on the study, b/c they move, refinance into a lower rate, need cash out, or simply pay off their mortgages.

    Myth #2 – The Fed controls mortgage rates.

    I blog about this quite often, including here and here, but the Fed only controls the short-term Fed Funds Rate; it does not control long-term rates. Other factors such as inflation, supply and demand for mortgages, and economic-growth-signals influence long-term rates. In addition, other institutions outside of normal banking channels (over which the Fed has much less control) such as VC firms and credit card issuers also influence rates.

    Myth #3 – There is one mortgage rate for everyone.

    I’ve beaten this dead horse into hamburger too, but there are at least 14 Factors That Impact Your Mortgage Rate. The impact of factors like low credit scores, multiple units and cash out are now more significant than ever for some types of loans.

    Myth #4 – Borrowers can find THE lowest rate by constantly shopping for the lowest rate.

    It is true that borrowers can always find a lower rate somewhere at any given time, but it will never remain the lowest rate. This is b/c the market moves every day and also b/c there are some unscrupulous lenders that quote rates during the pre-approval phase that they often can’t deliver.

    Myth #5 – Interest rates are the most important thing when shopping for mortgages.

    We have at least a dozen loans in our pipeline right now that blew up at other lenders b/c they either missed issues or simply could not perform. In addition, many lenders drag their borrowers through hell when they do “perform” in any way, which is why we always remind people to check Yelp or any other review source that cannot be filtered or manipulated. I might add that there are multiple services that good lenders provide AFTER a loan closes too, such as home valuation updates, interest rate monitoring, concierge/contractor services, and even moving assistance.

    Myth #6 – Low rates are necessary to keep the housing market strong.

    Low rates definitely seem to bolster the housing market but the data in this blog by a financial advisor clearly show that low rates do not always correlate to rising prices. There are numerous periods where both rates and housing prices edged up at the same time, including 2012 – 2017, and vice versa from 2007 – 2012. Today is another great example, as rates have risen 3/4% in recent months and the housing market remains stronger than ever.

    Myth #7 – Low rates are good for the economy.

    Low rates are great for those of us in mortgages and real estate, but not so much for the economy overall. Excessively low rates are horrible for pension funds, retirees and savers of all sorts b/c their returns are diminished or wiped out altogether. And low rates also foster misallocations of capital, as companies and governments alike take advantage of low rates to borrow on the cheap in order to finance projects they might not otherwise touch. And finally, very low rates foster more inequality, excessive/unsustainable consumption and asset bubbles. This recent column in the Global Policy Journal addresses much of this.

    Myth #8 – Lenders control the rates they quote and quote higher rates just to make more money.

    Lenders can of course control the rates they quote to some extent by adjusting the amount of money they want to make on each loan, and lenders do make more money when they quote higher rates. BUT – lenders cannot control the market overall and must quote higher rates when rates go up overall– or they will lose money. Many borrowers get frustrated when rates go up after they are pre-approved b/c they think we either “baited and switched” them or that we are just being greedy. The fact of the matter is that we often make less money when rates go up b/c we have to get special rate concessions (for regulatory reasons) to keep clients happy and/or to ensure they can get a low enough rate to keep payments within qualifying range. Most lenders can never simply change their rates from day to day to make more money b/c regulations force them to set established margins (profits per loan) that they have to maintain over a set period of time.

    Myth #9 – You can “time” the market and/or catch bottoms.

    Borrowers often ask to wait and lock when rates bottom out. But NOBODY has a clue as to what rates will do on any given day b/c so many unknown factors affect interest rates overall. These factors include supply and demand for mortgages, geopolitical situations, economic signals, central bank policies and comments, and much more.

    Myth #10 – The rates quoted in the news reflect the current market.

    Many news sources rely on surveys that various entities (like Freddie Mac) perform on a regular basis. These surveys, however, often reflect market data that can be as much as a week old. B/c interest rates move every day, press reports can sometimes be ridiculously outdated and inaccurate.

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    Jay Voorhees
    Founder/Broker | JVM Lending
    (855) 855-4491 | DRE# 1197176, NMLS# 310167

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