We’ve refinanced hundreds of clients recently and in doing so, encountered several commonly believed myths about mortgage interest rates – here are a few:
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 because 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, because 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 12 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 because the market moves every day and also because there are some unscrupulous lenders that quote rates 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 because 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 reviews, which cannot be filtered or manipulated. I might add that there are multiple services good lenders provide AFTER a loan closes too, such as home valuation updates, interest rate monitoring, 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.
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 because 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.
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Founder/Broker | JVM Lending
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