Take mortgage rate reports with mountain of salt
There are continuous reports in the news about a new average mortgage rate, usually once or twice a week and so on. Some people might think “oh my gosh, I gotta go out and buy a house now because loans are cheaper” but it is nowhere near that simple.
New mortgage rate report out
There’s a new mortgage rate report out. According to CBS, Freddie Mac, the mortgage backing company that screwed up so badly it needed hundreds of billions in loans from the taxpayers that we will never get back, reports the rate on a 30-year fixed mortgage is at an average 3.52 percent. It’s up 0.01 percent from last week – oh, heavens to Betsy; the poor children.
The 15-year fixed mortgage is at 2.76 percent. Both are near historic lows; in November, the 30-year fixed hit an average 3.31 percent and the 15-year fixed isn’t too far from it’s historic low of 2.63 percent.
Sounds good, right? Under 4 percent APR for a 30-year fixed and under 3 percent APR on a 15-year and it seems cheap.
It also has nothing to do with reality.
Beware the news, they leave much out
The American media sucks. Most business news is barely-concealed propaganda but since the news industry is wholly corporate-owned – save PBS and NPR – what else would you expect? Naturally, they’ll toot their own horn; you can’t blame news agencies for that.
As to mortgage rate reports, they only report the average rate. Repeating for emphasis – average. What your bank, credit union, etc., will offer might be higher or lower.
There is a host of stuff they left out.
The actual payment
The mortgage rate a person actually gets is only one portion of what makes up a mortgage payment. We’ll leave amortization schedules and the differences between a 15-year and 30-year fixed aside for the moment, but the fact is that every mortgage is an economy of scale – each house is unique, so is every mortgage and ergo, so are the payments.
First of all, the actual rate a person will pay depends on the lender and their credit score. It could be double the average, it could be below it.
Then, there are, according to The Truth About Mortgages and Bankrate, upfront mortgage points you’ll have to pay – origination fees, lender fees, where each “point” is one percent of the total mortgage. Some may count against interest or principle, some might not. Some points might be included in the loan principle. Then there’s the down payment against the principle. How much it shaves off depends on you and how much cash you got lying around.
So, after points are deducted or rolled into the principle, the down payment is applied and the loan is granted, you’d think it was over. Wrong! Mortgage payments, according to Bankrate, can fluctuate over time, even on a fixed mortgage. Insurance and taxes often have to be paid to an escrow account and escrow payments can fluctuate if any insurance or tax payments change. Maybe not by much, but they can.
About the only thing a mortgage rate report is good for is letting you know if mortgages rates are up or down nationwide, ball-park. That’s about it.