Here are some questions and answers for why is it that the average mortgage rate can be so hard for an actual borrower to get?
Q: First of all, what is the average interest rate been lately?
A: Average interest rates on 30-year fixed mortgages reached 4.78 percent the week of April 2.
Rates began falling last winter, and slid again after the Federal Reserve said last month it would buy $1.2 trillion in mortgage-backed securities and $300 billion in long-term government debt, which traditionally influences rates on 30-year home loans.
Q: What's the benefit of having a lower mortgage rate?
A: Low rates result in less interest that borrowers have to pay on top of their principal loan balance.
Low intrest rates have spurred refinancing activity — First Fidelity estimates that borrowers who refinanced during this year's first quarter reduced their mortgage payments by about $2.5 billion over the coming year.
Q: So, can you get a mortgage with a 4.78 percent rate?
A: Not necessarily. There are several reasons that borrowers may not get the low rates they want or need.
First, consumers must realize that most reports average rates, which should not be thought of as a standard, industrywide number.
Second, a rate can change several times during the day due to fluctuations in the market — it could be 5.2 percent in the morning and increase to 5.5 percent later in the afternoon.
Keep in mind that loan rates also vary by type. For instance, Freddie Mac's survey showed Thursday that the average rate on a 15-year fixed-rate mortgage was 4.48 percent this week, lower than the 30-year fixed mortgage. And the size of the loan can affect the interest rate — "jumbo loans," ones taken out for expensive homes, are becoming harder to get and carry higher rates than loans for $729,000 or less.
Q: Let's say all those things work out in my favor. What else can keep me from getting a low rate?
A: For one main thing, mortgage lenders look closely at credit scores.
If you have a FICO score — a commonly used credit score — close to 800, you're more likely to get an attractive rate. A borrower with, say, a 600 credit score can't expect an interest rate comparable to the record lows reported by Freddie Mac.
Also, it can be hard to get the lowest rates if you want to borrow very large a percentage of your home's equity value. The cutoff varies from company to company — sometimes you can get the best rates by keeping the loan to less than 80 percent of the home's value, but sometimes the threshold can be as low as 60 percent.
Q: What if I manage to snare a mortgage rate in the 4.78 percent range — are there other costs to worry about?
A: There most certainly are.
One aspect of mortgages that can confuse borrowers is points, or fees. Points vary by lender: Some are paid at the time of application, others at closing. Higher fees mean more cost to the borrower, and could outweigh the benefit of a relatively low interest rate.
Some fees, like title insurance, are negotiable, so don't be afraid about trying to get them reduced.
Q: So should I be looking elsewhere, besides these average rates that come out each week, as I try to figure out what kind of mortgage I'll be able to get?
A: Freddie Mac releases its survey of mortgage rates for a given week on Thursdays, so reports about it are backward-looking and not a best way to determine what rate a borrower can get right now.
Home buyers or owners seeking to refinance should do their own research. Web sites such as the Mortgage Bankers Association's and Yahoo Finance provide updated rates on all types of loans.
Q: What should I do if I'm looking for a mortgage and I don't have a particularly good credit score?
A: Consumers should shop around and compare rates and fees, even if you have credit problems. There's no shortage of mortgage brokers out there who want to help you provide home loans.
Another option: You should wait for refinancing or buying a home, and spend some time trying to improve your credit score by paying your bills on time and paying down your credit card balances.
