Whenever you’re in the planning stages for your next Sonoma County real estate venture, the best available mortgage rate is a number you look for. Whether you are thinking of a purchase of a new area home or simply refinancing your existing property, that rate determines how much you will pay each month.
You would think that getting a good idea of what that number is should be pretty easy. Certainly, you would be encouraged by what you find on the web. That number—the mortgage rate—is available online almost everywhere you turn. It’s in TV ads. It’s on the radio. It’s almost looking for you.
But as everyone soon learns, those numbers aren’t exactly the ones that you need. What appears in the ads and pop-ups isn’t necessarily that number (if by “that number” you mean the mortgage rate you will wind up paying).
This whole topic was addressed this last weekend by USA Today in an article that did a good job of explaining why the actual mortgage rate that most applicants will be offered is not readily available. The rates in the ads are called the “published” rates. Unlike many other kinds of consumer advertisements, in mortgage financial parlance, a “published” rate isn’t the same as a “promised” rate. As this month’s survey by Freddie Mac specified, the mortgage rate average of 3.45% was on average only available to customers who chose to pay an additional fee—in this case, .5 point of the loan amount. For a $275,000 loan, that would cost the borrower $1,375 up front to get the “published” mortgage loan rate.
That isn’t the only wrinkle. As USA Today put it, “Lenders also publish rates that have very specific prerequisites.” The rate may only apply to applicants with specific credit scores. The rate might call for a minimum loan-to-value percentage, too—or only be available in specific areas (which may or may not include our area).
This might sound like a deliberate bait-and-switch tactic by the lenders, but when you get to the reasons for all the razzmatazz, it’s actually necessary. Our Sonoma County mortgage lenders are able to keep rates competitively low by only lending to borrowers who have a very good chance of repaying the loan. Those whose histories indicate that they pose a higher risk of not being able to keep up their monthly payments have to expect that they will be quoted a higher interest rate. The last time mortgage lenders stopped doing a good job of those risk calculations, it triggered what we now call “the great recession”—and just about everyone paid a price for that.
So it may be inconvenient, but in order to really find out what your true interest rate will be for a specific real estate transaction, you have to go through the motions of applying for it. In this age of readily available instant information, that can seem like a run-around—but it’s necessary. We're here to make this and every other aspect of your Sonoma County real estate doings as easy as possible. Call us!