January 10th, 2013
Since about 2007, interest rates of all mortgage types have been on a steady decline. However, as mortgage rates have dropped, closing costs have soared. The required discount points on a mortgage and the loan’s associated costs have climbed over each of the last 5 years.
It’s a trend which is expected to extend into 2013, and beyond. Mortgage rate shoppers can expect low rates going forward, but with increased closing fees than before.
Yahoo News reported end of December that U.S. mortgage rates have declined to near record lows. The record was held in 1971 with 3.31%.
The average rate on the U.S. 30-year fixed mortgage last week dipped closer to the lowest on record, a trend that is making home buying more affordable and also enabling more Americans to refinance their loans.
Mortgage buyer Freddie Mac says the average rate on a 30-year loan declined to 3.35 percent from 3.37 percent last week.
The average on the 15-year fixed mortgage was unchanged at 2.65 percent. The record low is 2.63 percent.
The 30-year fixed mortgage rate averaged 3.66 percent this year, Freddie Mac said, the lowest annual average in 65 years.
Frank Nothaft, chief economist at Freddie Mac, said the average 30-year rate has fallen 0.6 percentage points this year. That would save a homeowner about $98,000 in interest payments over the life of a $200,000 loan, he said.
The Federal Reserve is purchasing about $85 billion each month in Treasury bonds and mortgage-backed securities in an effort to push down long-term interest rates.
Oddly enough, BankRate just posted news today that mortgage rates are at their highest in months:
Mortgage rates rose this week as optimistic investors were reminded that eventually, the Federal Reserve will have to stop buying mortgage bonds to keep rates low.
30 year fixed rate mortgage – 3 month trend
The benchmark 30-year fixed-rate mortgage rose to 3.67 percent from 3.58 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week’s survey had an average total of 0.32 discount and origination points. One year ago, the mortgage index stood at 4.18 percent; four weeks ago, it was 3.52 percent.
This is the highest rate for the 30-year fixed-rate mortgage in nearly four months. The last time it was higher was the Sept. 19, 2012, survey, when the 30-year fixed averaged 3.7 percent.
The benchmark 15-year fixed-rate mortgage rose to 2.92 percent from 2.88 percent. The benchmark 5/1 adjustable-rate mortgage rose to 2.77 percent from 2.76 percent.
Among the biggest factors in today’s higher costs is an increase in loan discount points.
1 discount point is equal to one percent of the borrowed loan size and the more discount points you pay to the lender, the lower your actual mortgage rate. For example :
- The 30-year fixed mortgage rate with 0 accompanying discount points may be 3.50%
- The 30-year fixed mortgage rate with 1 accompanying discount point may be 3.25%
- The 30-year fixed mortgage rate with 2 accompanying discount points may be 3.00%
There is often no limit to the number of discount points you can add to a mortgage quote but, eventually, it becomes cost-prohibitive. You likely would not want to pay 5 discount points, for example, to get a rate in the mid-2s.
Back in 2010, USA Today reported that mortgage closing costs were 37% higher because:
Some housing experts say costs are rising because lenders have had to hire more staff to comply with the requirements of the Jan. 1 rule. That includes auditors, inspection experts and others who make sure estimates are accurate.
“Lenders have had to hire compliance people,” David Leoncavallo, president of GFEazy, a Salt Lake City provider of compliance and other data for lenders. “To go up from $2,700 to $3,700 overnight is insane. Consumers should be upset.”
But, it was also reported:
But others say closing costs haven’t gone up. Rather, they say, the estimates simply seem higher because they more accurately reflect actual costs that buyers pay.
“Before, it wasn’t an accurate assessment of closing costs,” says Tim Dwyer, president of Entitle Direct, a direct-to-consumer title insurance service. “Now, it’s a more accurate portrayal. Actual closing costs have not increased. The estimates have gotten closer to the actual costs.”
The good-faith estimates also are aimed at protecting consumers by ensuring that lenders don’t lowball the numbers, says Vicki Bott, deputy assistant director of the Department of Housing and Urban Development.
“Consumers get more accurate estimates upfront,” she says. “It’s not an increase in closing costs.”
So, do your research, and work with a reputable mortgage loan officer who will help you find the best balance for your needs.