When 1.99% Is A Bad Deal; Why Rates May Not Fall Further
1.99% – YAY!!!! OR NOT…. (LOOK AT THE FEES)
Several lenders were touting their 1.99% interest rates recently, and we were getting emails from agents and borrowers alike asking about the “amazing rates.”
But, that rate is not amazing when you look at the fine print, and almost all lenders, including JVM, can offer it right now.
The fine print in one of the promotions I saw disclosed “$11,000 in finance charges” for a $330,000 loan.
$330,000 at 1.99% yields a principle and interest payment of $974.
But, a “no points” loan (without the $11,000 charge) would be around 2.5% today, yielding a payment of $1,043.
This is only $69 higher than the payment at 1.99%.
In other words, it would take over 13 years to make up the $11,000 of finance charges that come with the 1.99% rate.
So, in the immortal words of Frankie Goes to Hollywood… “relax, don’t do it; take the 2.5% deal…” (sadly, most people miss the 2.5% reference in that song).
WILL RATES GO LOWER? FANNIE MAE’S NEW “FEES”
I get asked daily if I think rates will continue to fall, and yesterday was no exception.
And my answer is always the same – I think so but I am not sure b/c there are so many variables outside of our control.
For example, we saw rates edge up this week in response to news about Russia possibly coming up with a COVID-19 vaccine.
If shaky news like that pushed rates up, imagine what more concrete vaccine news might do?
Similarly, we are seeing completely unexpected factors pop up – including higher fees from Fannie Mae.
Fannie Mae just announced an additional 1/2 point fee for all refinance loans – which translates to about a 1/4 percent higher rate for all refinances. (Update: About a week after this blog was published, in response to industry pressure, Fannie Mae announced that it is deferring the implementation of the 1/2 point fee until December of this year.)
Fannie said that this is to account for “extra risk” in the COVID-19 environment, but I suspect it has more to do with monopoly pricing power 😊.
Anyway, rates may in fact go lower, but nobody knows for sure.
Our mantra remains: get in, while the gettin’ is good.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167