Cool Information About How Rates are Quoted in the News

A buyer who is in the midst of obtaining a mortgage receives a 30-year fixed rate quote from his loan officer of 4% and then reads in the paper that the “30-year fixed average rate was 3.875%” for that same day.  Why is the average rate in the news almost always lower than the market rate quoted by mortgage professionals?   

I asked myself this same question; especially since borrowers are closely scrutinizing financial information during their mortgage process.  What’s the deal with how rates are quoted in the news?  The difference between actual market rates and the “average mortgage rate” quoted in the news is primarily due to “points” (also known as discount points) which are included in the “average mortgage rate.”   In a recent Chicago Tribune article published on February 16, 2018, the Tribune stated, “According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average shot up to 4.38 percent with an average of 0.6 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.)”   
 
That same day (February 16, 2018), the 30-year fixed market rate was:
 

Rate	Points
4.5%*	0
4.375%*	0.6

 

* Annual Percentage Rates (APR). 

Note:  This information was for an owner-occupied, single family home with a purchase price of $350,000, loan amount of $280,000, top tier credit score, with escrows.

 

There are other factors which influence rates such as:  property type (single family, condominium, 2 to 4 unit), property use (owner occupied, second home, investor owned), credit score, escrows, and down payment.  Annual Percentage Rates can also be affected by private mortgage insurance (PMI) for down payments less than 20%.   Each of these factors can result in as little as a 1/8% higher rate or might result in considerably higher rates.  Since the news does not report the variables included with their rates, it is difficult to compare one situation with the other.

 

Since the news articles do not always report the “points” included in their “average fixed rate,” the reader might conclude that their lender’s rates are not competitive!  Reporting about discount points, Bankrate.com states, “These are actually prepaid interest on the mortgage loan.  The more points you pay, the lower the interest rate on the loan and vice versa.  Borrowers can typically pay anywhere from zero to three or four points, depending on how much they want to lower their rates.”

 

In 2015, according to Freddie Mac, “The typical fixed-rate mortgage loan carried an accompanying 0.6 discount points.”  In previous years, particularly before zero-point mortgage options were available, everyone was quoting rates with at least an average of 1 discount point.  In fact, zero-point options were not available before the early 1990’s.

 

What’s the “point” of this article?  Avoid relying on news articles for your mortgage rate and pricing information!  Contact your mortgage professional to obtain reliable mortgage rate information!

 

Please contact Diane Pyshos for more details and your free consultation!

 

                                                                                

  

Diane Pyshos, Senior Mortgage Consultant

NMLS #137800 - Company ID #19291

A&N Mortgage Services

1945 North Elston Avenue, Chicago, IL  60642

312-909-9718

dianep@anmtg.com