Another week, and another headline screams how mortgage rates have plummeted to an all-time low. It is news that should have San DIego Realtors and home buyers dancing for joy.
Freddie Mac just published its weekly mortgage rate survey Thursday and found that the “average” mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.
But, if we look beyond the headline, we find that there’s another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not. That is news that should have San DIego Realtors and homebuyers frowning.
Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That’s up from 0.6 percent last week –and just 0.4 percent a year ago.
A “point” is a fee equal to 1 percent of the loan size.
Therefore, to obtain a 4.96 percent interest rate on a $200,000 home loan, lenders today would require an extra $200 versus last week–and and extra $600 versus last year. Today’s mortgage borrower might be subjected to an unexpected $1,400 closing costs in addition to the “typical” closing costs accompanying a purchase or refinance.
There’s little doubt that this is a period of historically low rates. However, the cost of getting access to low rates is increasing. The press doesn’t always tell that part of the story–and it’sjust one more reason to look beyond the headlines.
(Image courtesy: The Wall Street Journal)