Friday, January 2, 2009

The sudden drop in mortgage rates just before Thanksgiving was an early Christmas present to homeowners with good credit who are able to refinance to a lower rate and save some money. Likewise, the rate drop was welcome news to all of us in the business. Mortgage companies, lenders, appraisers, title companies and the like are enjoying the spike in business after a near-crippling three-year dry spell.

I am cautiously optimistic that these low rates will continue through much of 2009. A refinance boom is certain to help the overall economy by infusing cash into the economy. Low rates, to a lesser degree, also should help the stagnant housing market.

I want to focus today’s column on my observations from the past three weeks. The media has made the recent interest-rate drop very public news. Unfortunately, the news often comes out late. While there had been two significant rate drops since Thanksgiving, mortgage rates, as of this writing, while still low, are indeed higher than the lowest point.

Of the $12 million in mortgage loans I have locked since Thanksgiving, many received a lower “float down” rate in response to the changing market.

I caution folks who listen to the media and are looking for a 4.50 percent rate. I received dozens of calls from homeowners who relay the same message to me over and over. The words get changed around, but the theme is the same:

“I saw a mortgage company advertising 4.50 percent on the Internet.”

“I read in the paper that the government lowered rates to 4.50 percent.”

“My neighbor just locked in to a 4.50 percent rate. I want the same thing.”

My response is the same to everyone: An interest rate quoted without the fees and points is meaningless. I have had this conversation at least a dozen times in the last week:

Customer: “I went to a lender on the Internet that is offering a 4.50 percent fixed rate. I’d like to get that from you.”

Me: “OK. Did you receive a good-faith estimate so you know what the fees are?”

Customer: “No. I just saw the rate on the Web site and saw on TV that rates were down to 4.50 percent.”

Me: “Well, at 4.50 percent, you would have to pay all the closing costs plus three points. Your loan balance is $300,000. The sunken costs required for a 4.50 percent fixed rate would exceed $12,000. This is not something I recommend.”

Customer: “You’re right. That’s far too expensive. Why do these lenders advertise such low rates without disclosing that it would cost $12,000 in fees?”

Me: “I don’t know. Perhaps they’re trying to lure in customers by touting a seemingly low rate and think they can sweep the fees under the rug.”

Customer: “Hmm … I guess you’re right. Let’s proceed with the refinance. You have me locked in at 5.25 percent with no points, right?”

Me: “Yes. And your closing costs are guaranteed not to exceed $1,500. This is a much better alternative than a 4.50 percent rate with $12,000 in sunken costs.”

If you are in the market for a refinance, be wary of loan officers who are not absolutely upfront in giving crystal-clear quotes that include interest rate, fees, points and lock period. If it sounds too good to be true, it probably is.

Alexandria. Send e-mail to

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