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Mortgage rates have been trending higher since late last week, finally hitting the highest level in just over 2 weeks yesterday, but that trend ended today. The average lender is almost exactly in line with yesterday’s latest rate sheet offerings.
In other words, not only did nothing interesting happen in rates today, but absolutely nothing happened.
Looking elsewhere for something interesting to say, let us address a common question we receive regarding our Daily Rate Index. “Based on what scenario is it because my rates are higher?”
First, our RATE Index is 6.70 today while Freddie Mac’s most recent index was 6.35 and will likely rise to 6.4 tomorrow. In particular, Freddy’s methodology allows “points” even though they are no longer captured after the most recent methodology change.
This raises the question of whether or not points are included in the MND rate. In so few words, numbers are built into our daily numbers. We use a proprietary formula to adjust base rates for Points in cases where Points are likely to be used in quotations.
In other words, if it made solid financial sense to quote a rate of 6.625% with a half point, our index would be higher than 6.625%. How much depends on our math at the time, and the amount can be surprisingly large at times. The reason is that for most lenders there is almost no cost difference between 6.625% and 6.875%. So quoting 6.875% makes a lot less sense than quoting 6.625% with a marginal increase in upfront costs.
Let’s quantify it with real numbers.
One of the leading lenders is currently offering a rate between 6.875 and 6.625% with a price difference of 0.25% to 0.18%.
This means it would only cost $720 to lower your rate by 0.25% on a $400k loan. The payoff difference is Rs 67, which means it will take only 10 months to break even on the additional expenditure. In such cases, most industries are quoting rates with advance points.
The other thing to know about our rate index is that it is based on a lossless scenario (or close to it). This used to apply to 20% down loans, but recent changes to Fannie/Freddie fees mean that 25% down is the new norm. In addition, a FICO of 760+ has replaced 740+ as the higher benchmark for top-tier rates.
Bear in mind, these are just two of the key ideas underlying our methodology. There are many other reasons why quoted rates can vary greatly. The highest and best use of our data is for day-to-day change, and we would love to present only that change and nothing else if we think we can get away with it after 15 years of offering rate benchmarks .
At the end of the day, there is no replacement for a competent loan officer who can explain all the nuances of the price “hits” that the industry has to deal with.
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