15 Factors That Affect Your Mortgage Rate
This is another reminder that many factors impact every borrower’s interest rate including credit score, loan amount, down payment % or loan-to-value ratios, loan purpose (purchase vs. cash-out refi), property type (condo vs. SFR), and loan type (FHA, VA, conforming, jumbo, non-QM).
We encourage agents to share this blog with clients when they ask about rates, as the above factors can influence a person’s rate by as much as 2%: 15 Factors That Impact Your Mortgage Rate.
Assumable Loans
This is a reminder that the only “assumable loans” are FHA, VA, and USDA loans (Fannie/Freddie, non-QM, and jumbo loans are never assumable). Assumable means that qualified borrowers can literally assume a seller’s mortgage.
If listing agents know there is a low-rate FHA, VA, or USDA loan attached to a property that they are listing, they might want to add the ability to assume that loan into their marketing materials. The ability to assume a 3% loan can augment a property’s value tremendously.
Here is a blog I wrote about it: Assumable Mortgages; How to Get a 3% Mortgage in a 7% World.
Financialized Economy – Why Everyone’s So Confused
In the famous 1967 movie, The Graduate, Dustin Hoffman’s character was advised to go into the plastics industry because the future was so bright – and it was. But what is interesting is that nobody would advise the best and brightest among us today to pursue a traditional industry.
It was also interesting to learn that sleeping with your girlfriend’s mom often does not work out well.
In the 1990s, I knew an extraordinarily bright young man who excelled at the Bay Area’s best prep school – and I was very interested to see where he would end up. I was even more interested when he ended up at MIT where he obtained an engineering degree.
But this is the most interesting part. He did not take his talents to traditional industries (ag, mining, manufacturing, transportation, energy production, chemicals, etc.). He instead went to Wall Street to work for Goldman Sachs.
That young man, however, was hardly unique – as a huge swath of our best and brightest now head straight to Wall Street – because we are now a financialized economy.
This is unfortunate for several reasons: (1) this is part of the reason why America is no longer the industrial powerhouse it once was; (2) our best and brightest are now often focused on nebulous aspects of finance instead of on improving the world; and (3) we now live in much more precarious economy with more booms, busts, inflation, and fraud than ever before.
This all started in August of 1971 when Nixon took us off of the Gold Standard (where the value of the dollar was fixed to the price of gold) and instead the dollar “floated” as fiat currency backed by nothing but the “full faith and credit of the United States” (and also backed by our military, as Brent Johnson reminds us often).
Since, that date though, we’ve seen enormous turmoil in the markets and the Fed has risen to much more prominence. Very few people had a clue who the Fed Chairperson was prior to the 1970s, but now the entire world hangs on every utterance by the Fed.
As far as turmoil, we had the 1970s massive inflation bouts; we had numerous hard-hitting recessions; and we’ve had enormous booms and busts including the S&L debacle of the late 1980s; the early 1990s real estate crash; Japan’s crash; the dotcom crash; the financial frauds with the likes of WorldCom and Enron; and the 2008 great financial crisis.
I share all this because we currently live in an age of maximum confusion when it comes to financial markets – and that is why rates are so volatile right now (shooting way up and way down).
On the one hand we have the liquidity crowd (Michael Howell and Raoul Pal) telling us that liquidity infusions into the economy will drive asset values higher almost no matter what – and we’re seeing that now (Bitcoin anyone?). We also have numerous inflation hawks telling us that inflation will hit double digits.
On the other hand, we have old-school investors like Warren Buffett and Michael Green who clearly think we’re in a bubble that will invariably pop. And – we also have numerous macro analysts and economists like George Gammon and Stephen Hanke who think inflation will likely not be a problem for a variety of reasons.
The fact is that nobody truly knows what will happen, but we will all get to see who is right over the next 18 months – and it will be fascinating.
I lean towards the Warren Buffett side of things, as he has proven to be right every time in the past when others were telling us that this time is different.
In any case, everyone should be prepared, be liquid, and be diversified.
