Dec 15, 2017

Borrowers tend to focus on mortgage interest rates and not the actual mortgage payment. When the market shifts or if a borrower’s credit profile changes, a rate that changes from a 3.875% to 4% can seem like a huge difference to the client. This can hinder mortgage transactions so being aware of the relatively small effect that slight rate changes have on payments can be helpful in understanding the actual effect of interest rates on the home-financing experience.

  • Slight shifts in rate for a $200k loan amount will result in a $15 to $30 change to the monthly payment.
    • $200,000 Loan Amount
    • Rate Change of .125% (1/8th) = $15 per month change in mortgage payment
    • Rate Change of .250% (1/4th) = $30 per month change in mortgage payment

One of the most powerful tools of mortgage financing is the opportunity for borrowers to receive additional Lender Credit for Closing Costs when a slightly higher interest rate is selected by the borrower.  This can keep thousands of dollars in the client’s pocket while offering the possibility for an absolutely free transaction on almost every deal…outside of any required down payment.

  • Lender Credit for Closing Costs
    • Can be provided if a borrower accepts an interest rate that is slightly higher than the No Points, No Fees loans Woodside Mortgage initially offers. 
    • The amount of Lender Credit that can be offered constantly changes with the minute-to-minute movement of interest rate pricing in the secondary market.
    • Lender Credit can be used towards paying all closing costs and pre-paid finance charges.

Example of how Lender Credit is given;

    • On a $200,000 loan amount a No Points, No Fees loan at 4.25% has a payment of $985. 
    • If the borrower accepts an interest rate of 4.375% the payment will increase by $15/mo, but could get a Lender Credit of .50% (which is $1,000) to be applied towards closing costs.
    • If the borrower accepts an interest rate of 4.75% the payment will increase by $60/mo, but could get a Lender Credit of 1.625% (which is $3,250) to be applied towards closing costs.

It is always wise to remember the basic difference between Refinance and Purchase transactions when considering mortgage interest rates. With a Refinance, there are no Sellers involved and no deadlines to meet. A borrower could wait weeks, months or even years to try and lock a low rate at the most opportune time in the market. With a Purchase transaction, however, the primary goal of buying a home should always be kept in mind as delays caused by shopping-around or not committing to lock a rate can possibly lead to seller-cancelled transactions or per-diem penalties that the seller could apply in order to make the buyer perform in a timely manner.