Our goal at Sims Mortgage Team is to provide access to home purchase loans and mortgage refinance at competitive interest rates and without the usual hassle of the home loan application process.
Brokers, Banks And LO’s Are Advertising Mortgage Rates As Low As 1.99%. Truth Of The Matter Is That The Going Mortgage Rate Is Almost 1% Higher Than What Is Being Advertised. Can You Still Get A Rate Of 1.98%? Read On To Learn The Truth About The Ever So Illusive 1.98% Interest Rate
Post COVID-19, many mortgage companies have created a buzz by falsely promoting a 30yr fixed rate of 1.98%.
While it’s possible to obtain a 30yr fixed rate of 1.98%. It does come with some conditions.
Rates are definitely lower than they have been in recent times. Many lenders and brokers can offer rates as low as 2% to 3.5%, subject to your individual situation and terms.
Let’s assume the best mortgage rates to refinance are still as low as 1.98% for a 30yr fixed mortgage for a minute. The critical thing to understand is that such a low rate comes with some conditions we’ll examine now.
One of the most prominent and notable conditions is that such a low rate comes with points for those who have never heard the term.
When you borrow money, the lender makes money over the loan’s life in the form of interest charges, and the upfront cost of the loan comes attached with some fees.
In the mortgage industry, a point refers to a percentage point of the loan amount. Buying down the rate implies paying points to get to the borrowers’ desired rate.
Achieving the lowest interest rate, the borrower would need to pay some up-front points. For example:
Let’s set up a scenario here. Assume you’re looking to borrow $500,000 over a 30yr term.
Option 1, there are no upfront payments to obtain a rate of 2.65%.
Option 2, you would pay 1 point for a rate discount of 0.20% to bring your rate down to 2.45%. In essence, you would be paying $5,000 upfront to get the rate of 2,45% on a 30yr fixed loan.
Option 3, you would pay 2 points for a rate discount of 0.625% to bring your rate down to 2.025%. Which simply equates to you paying $10,000 upfront to get the rate of 2.025% on a 30yr fixed loan.
Option 4, lastly, for you to obtain a rate as low as 1.98%, you would need to pay between 2.4 to 3 points ($12,000 – $15,000) upfront.
These points are typically paid by the borrower upfront or added to the loan principal if refinancing to prevent or reduce the pocket expense.
The rates are also subject to market conditions, and any market changes can affect a rate unless the rate is locked. Meaning, the shorter the lock period, the better the rate; however, if the borrower is not ready by the time the lock period comes up for expiration, a lock extension can be quite a costly proposition.
Lenders and brokers advertise ridiculously low rates and confuse the intended audience with advertising similar to what we have shown below.
“Refinance today with rates as low as 1.98%. No closing cost, no out of pocket expense.”
In the real world, the above statement represents 3 scenarios, as explained below.
The lower the lender credit, the lesser the interest rate, and the more out of pocket you may need to pay for closing costs due to low lender credit.
It’s still possible to get a rate of 1.98%. Sure it is, just don’t expect it to be free of cost and expense. Any borrower needs to think about is, If I pay the upfront out of pocket expenses to reduce my interest rate, what is my long term benefit.
For example, If you want to refinance a home you purchased in May 2019 with the following terms:
Loan : $500,000 started May 2019 @ 3.5% for a term of 30yrs
Then you would pay $12,000 to buy down points to get a rate of 1.98%
By purchasing the upfront points, your monthly payment would drop from $2,245.22 to $1,843.10
This would be a saving of $402.12 a month.
By the same token, you would save $144,764 over the life of the loan.
So would you pay $12,000 upfront to refinance to a lower rate and reduce the loan’s interest rate and the monthly payment to save $402.12 a month or over $144,000 over 30 years?
In this scenario, refinancing gives you a 12X return on investment over 30 years.
Brokers and Lenders advertise such ridiculous rates just to pique your interest.
The bottom line is that a rate of 1.98% is the going rate. And in many cases, by the math is done, it may not make sense for one or more reasons.
If you don’t want to be disappointed at the closing table with costly surprises and are looking for an honest, trustworthy, and reliable mortgage broker and loan officer to help you through the complex process of refinancing, getting a cash-out refinancing, or even for a new home purchase loan. Then please contact us by completing our pre-application loan wizard. Don’t worry, it does not take long, and we don’t ask for your Social Security number or credit cards.
