.: Pacific Residential Mortgage

In order to know you are getting the best deal on your interest rate and costs, you need to understand how interest rates & costs work. Many lenders will intentionally try to confuse you on this subject. Some loan officers don’t really understand how interest rates and costs work, so they can’t explain it to you well. Either way, you don’t have the right company to get the best rate and lowest costs for your situation.

We will be covering interest rates, points, closing costs, pre-paids, locking and more, in detail. While a web site can provide you lots of information about how things work, you still need the help of an experienced loan officer to truly understand the entire process with all it’s nuances and get the best loan for you.

When you use an experienced loan officer from Pacific Residential Mortgage, LLC, you’ll know you are getting the loan you want, at the rate & costs you expect, saving money & time over going direct to banks or credit unions yourself. Read the rest of this web page to understand why.

Rate Graph

This chart is to show you two things. One, the average rates over the last 20+ years so you can see some trends and how rates have moved during different historical economic periods. Two, so you can see the Federal Reserve and it’s Federal Funds rate all over the news constantly, has little impact on mortgage rates.

Mortgage rates move up and down with long term inflation fears on a global scale. If fears of future inflation are going up, mortgage rates will increase. If fears of future inflation are under control and inflation may even be decreasing, mortgage rates will drop accordingly. On a global scale inflation has gotten better over the last 20 years and long term interest rates, such as 30 year fixed rate mortgages, have dropped overall as you can see. If you look at the years of the bumps in the mortgage rates on the above chart, you can tie that period to a time when the economy had higher inflation fears.

When the Fed raises or lowers the Federal Funds rate, they are usually trying to control the U.S. economy by watching inflation indicators. If you were to look at the above data on a detailed scale, you’d see that normally the Fed lags the long term rate markets with a rate direction, the opposite of controlling it.

Your best choice on deciding when to get a mortgage based on rate, is to get a mortgage when you need to. Then get the best rate you can. Trying to time the market on rate predictions in the future is just guessing.

Interest Rates

Do you ever wonder why so many different interest rates are available on a simple 30 year fixed rate loan but when you call the company with lowest rate, the closing costs seem to be really high? And secondly, when you get about the same closing costs quotes, the interest rates all seem to be about the same as well? It is because Interest Rates & Points are connected. In order to fully understand Interest Rates, you need to fully understand Points.

Points are Loan Fees (Part of your Closing Costs). Points of all types (Loan Origination, Discount Fee, & Mortgage Broker Fee) and Yield Spread Premium (YSP) are based on a percentage of the loan amount. If you pay 1 point on a $300,000 loan, you will have a $3,000 fee of some type. In simple terms, the more Points you pay, the lower your interest rate will be. Conversely, the higher your interest rate, the lower your points will be.

Loan Origination Fee (or Mortgage Broker Fee) and Yield Spread Premium, go to your mortgage broker or bank as their fee. There is no free lunch, and you are paying their fee somehow. If they tell you it is free, you are probably being lied to and should go elsewhere for your loan.

Retail Banks also get additional fees or revenue from charging higher interest rates above PAR like mortgage brokers, but call it different names such as “Service Release Premium” or say things like “we just keep the loan”, and do not have to disclose this additional fee or revenue to borrowers like mortgage brokers do. Common sense tells you they make more money charging higher interest rates to borrowers just like mortgage brokers do.

You can pay for a mortgage broker’s or mortgage banker’s fee in three basic ways:

“All as Loan Origination Fee (or Mortgage Broker Fee)” usually gets you the lowest interest rate or PAR rate. “All as Yield Spread Premium” usually gets you the highest interest rate as the lender your mortgage broker or bank is using, is paying your fee for you from getting a higher interest rate loan. “A combination of Loan Origination Fee (or Mortgage Broker Fee) & Yield Spread Premium” usually gets you the best value on your loan, or in other words a good combination of interest rate and fee. Much of this choice will be determined on factors such as how long you plan on keeping your home loan for cost recovery of any fees paid up front with lower payments based on lower rates, and your comfort level with the interest rate you choose. This decision is part science, part experience and part emotion. An experienced loan officer at Pacific Residential Mortgage, LLC can help you.

Here are some actual wholesale rate sheets from April 9th, 2007 that your mortgage broker or bank may use. These rates sheets tell your mortgage broker or bank what they pay for the money they offer you. They show interest rates and fee combinations available that day, for different lock periods, and the “adds” for different loans (the lender names are removed by broker/lender agreements, but you’d probably recognize the names). These are all standard conforming agency 30 year fixed rates. Once you understand how your loan officer determines your rate & costs, you will understand more why a fast rate quote of “the best rate” is not feasible and ethical experienced loan officers explain this. You’ll also understand how we shop loans for you and save you money over going directly to lenders yourself. We show you multiple lender’s rate sheets when you come in. You can see for yourself which is the loan to take. Knowledge with our help will save you money & time.

Example using “Lender C” Rate Sheet, 30 Yr Fixed, 30 day Lock, no adjusters:
Assume a $300,000 loan with your mortgage lender or broker netting a total fee of 1.5%

Closing Costs can be very confusing. Sometimes loan officers intentionally make it more confusing or don’t know themselves how to explain them. Either way this is a problem for you. Many customers call and ask what the costs are when shopping for a loan and don’t realize the different mortgage terminology used. What really goes into “Costs”?

Closing Costs are NOT everything you pay at close besides the downpayment (if any). Many shopping consumers think they are. There are “Closing Costs”, “Pre-Paids”, “Total Settlement Charges” & “Funds To Close” that all involve “Costs” from a customer’s point of view. The “Funds to Close” which should be the total dollar amount you need at signing, includes “Closing Costs”, “Pre-Paids” and “Downpayment” (if any). To make it worse, there is another term “Total Settlement Charges” which only includes “Closing Costs” & “Pre-Paids”, not downpayment. Again, education and information with the advice & help of an experienced loan officer at Pacific Residential Mortgage, LLC is critical to make a good decision.

You can shop around for the best “Closing Costs” but not “Pre-Paids”. Pre-Paids will be determined by the house you buy and your closing date, not the lender. You can see why once you understand what goes into Pre-Paids. Also, you will see that many of the fees are charged by outside third parties that your loan officer does not control how much the fee is. Your loan officer is supposed to estimate these outside third parties fees in “good faith”. If your loan officer under quotes the fee to these third parties to make their GFE look cheaper than the competition, you still have to pay the real fee at close which makes for a surprise at close with higher costs than you anticipated and told in writing on the GFE at application. Typical Bait & Switch practice. Some Bait & Switch loan officers just re-disclose the GFE to you a few days prior to close with much higher fees, to meet state compliance requirements. Sometimes it is just incompetence because the loan officer doesn’t know all the fees (happens with out of state or internet lenders all the time).

You can also learn more about all Costs by reading the HUD booklet “Buying Your Home, Settlement Costs and Helpful Information” available at any lender and online at HUD. Every lender is required to give you this booklet at application.

Locking the interest rate is important to understand. Knowing when you should lock in the interest rate can either save you, or cost you, a lot of money over the life of the loan. Most mortgage loans require a known closing date and an accepted offer on a purchase to be able to lock the rate. There are some “Lock & Shop” rates out there where you “lock” the interest rate, then buy a house, but they are at higher rates and have other problems. The loan officer you chose helps advise you on this. Again, choose your loan officer wisely. Make sure of the "Lock In" time in days, and the associated costs in points (origination, broker or YSP, as described above in Interest Rates) of the interest rate you locking.

Annual Percentage Rate (APR) is a Truth-In-Lending-Act (TILA) requirement, Regulation Z. This is regulated by the Federal Reserve Board of the government. It represents the total cost of borrowing as an annual basis over the term of the loan. In layman terms, the difference between the interest rate and the APR on a fixed rate loan, represents the other costs spread over the term of the loan on an annual basis. As an example, if your interest rate is 5.875% and the APR is 6.096%, the difference is 0.221% which represents the costs as a percentage rate, over the time period of the loan. Mortgage insurance is also part of the APR calculation. ARM loans get complicated with APR. You need to understand how ARM loans work to understand the APR. An experienced loan officer can explain ARM APR to you in person but it would be difficult here on a web page.

The APR was designed by the government in 1972 and amended many times since, to be a shopping tool for the consumer. However due to the complexities of how it is calculated, many loan officers do not figure it correctly or figure it incorrectly on purpose to be lower than the next lender. Also not all of the costs of borrowing are included in APR by law. Some things like what day of the month you close on or how much you put down, effect APR. If you close near the end of the month, or put 15% down instead of 5% down, your APR calculation with be lower. Your costs and principle & interest payments aren’t lower but the APR is ??? You can see why it is not a good shopping tool. The Federal Reserve Board, Congress, HUD, NAMB, MBA and others are making recommendations to change how APR, GFE and other disclosures are done to make better tools for the consumer.

Everyone wants to get the best interest rate & lowest costs on their mortgage loan. Everyone. What most don't realize is they should be shopping for the best "value" overall in rates and costs. Just "lowest rate" or "no points" is not the answer to saving the most money. Even worse, many choose the “lowest payment” not understanding what kind of ARM loan they put themselves into and lose their home when the payment increases. Also, the lowest rate or costs many times means you've been lied to with a Bait & Switch offer.

Any offer that sounds too good to be true, probably is. Mortgages are a very competitive business and unscrupulous loan officers don’t mind lying, even putting it “in writing on a GFE”, to get your business. When the Costs are $2000 more or the Rate is .25% higher than you were quoted originally, and now you’re at escrow signing your final loan papers two days before close, it is too late. You’re stuck in order to close on time. You did not choose the person and company to help you wisely. Remember you are looking for a loan on probably your most important asset, your home. Take the time to do it right.

Getting multiple lenders to fax you Good Faith Estimates (GFE) so you can compare who is cheapest, is a waste of time. Education and information as I outline above is the best defense to get the best loan. Going with the cheapest Bait & Switch GFE quote won’t get you the best loan, just the best initial quote. There is a large difference. Plus no one can truly provide you with a real GFE, until they have your loan application, credit report, what type of loan you want, what cost structure works best for your situation, most times an AUS approval and more. Also, most of the fees on a GFE are for outside third parties that your loan officer is estimating for you. If the loan officer under quotes these fees or leaves one or more off completely, intentionally or not, you still pay the real fee at close.

Do you really want to trust a lender to deliver on their GFE quote and process your home loan that doesn’t follow basic Federal compliance issues? Be careful. Short-cuts in one area usually lead to short-cuts in other areas.

Three quotes from mortgage regulators about the pitfalls of shopping for home loans with GFEs:

Prepared Testimony of the Honorable Mel Martinez Secretary, Department of Housing and Urban Development, 10:00 a.m., Friday, September 24, 2004 - Dirksen 538

. . . "After agreeing to the price of a house, too many families sit down at the settlement table and discover unexpected fees that can add hundreds, if not thousands, of dollars to the cost of their loan. As a result, many homebuyers find the settlement process to be filled with mystery and frustration. " . . . .

H. James Krueger of the Oregon Dept. of Consumer and Business Services, wrote in the Homes & Real Estate section of the January 24th, 1999 The Oregonian,

"The most common problem reported to us is when consumers learn at closing that the terms and conditions of the loan are different from what they were told at the time of application and up to the day of closing. . . .Making major changes to the terms and conditions at closing is frequently referred to as a ‘bait-and-switch’ tactic. . . Consumers should also ask their friends and associates for referrals and do business with a lender who have a proven record of good and fair service . . . "

In testimony before Congress in July ‘98, Governor Edward M. Gramlich of the Federal Reserve Board said of the Good Faith Estimate (GFE),

"The agencies (Federal Reserve & HUD) are concerned, for example, that some costs in the good faith estimate are significantly lower than those actually charged at closing, and that other costs are left off the good faith estimate altogether. To the extent that discrepancies exist, the good faith estimate is unreliable as a shopping tool."

Large "club" type discount stores are a great place to get breakfast cereals, soda or other groceries cheap, but do you want to get financial advice from them? While home loans are not rocket science, they are too complicated to get your advice on loan types and interest rates from anyone but a true professional.

The Internet or newspapers are great places to get information about loans but do you really believe you will get the loan rate promised when after looking at hundreds of rates, you choose the lowest one? If so, you probably also believe the diet pills on TV work as advertised.
Another highly advertised approach is from companies that promise you 3, 4 or 5 different competing mortgage offers from the minimal information they collect on you. These are just lead generation companies that advertise to the public on radio, TV and the internet, and sell the information the consumer gives them, to mortgage brokers and banks. The mortgage brokers and banks PAY for these “leads” from the lead generation company regardless if they close the loan or not. Who do you think really ends up paying for these extra costs? You do. Plus there is no guarantee you won’t be Bait & Switched anyway as all 3-5 of the lenders giving you those “offers” know you are getting “competing offers” from 3-5 others as well. What do you think they are going to quote? They just want to suck you in, and they’ll deal with reality later with excuses and re-disclosures at signing, as you will.

A lot of advertised interest rates are at 10 day lock ins (or plain lies) and impossible to get anyway as you could never close the loan that fast. You don’t end up at close with the original low interest rate promised at application. They make up excuses like "The lock expired before we were ready" or "The lender we locked with turned you down but this other lender approved you" or even worse they didn’t lock in your loan, or even tell you it was an option to lock in. Some tell you there is a fee to lock in to talk you out of locking in. Some try to talk you out of locking when you want to. If you don’t lock in at their below market quote (Which they won’t do) then you are at their mercy when you do lock 2-4 weeks into the loan process. Then once your loan is approved and ready for signing, they lock you in at a higher interest rate. Standard Bait & Switch practice.

Getting a referral from a relative, co-worker or friend of a good mortgage loan officer they have used is the best bet. This is how we get most of our business at Pacific Residential Mortgage, LLC. Repeat customers and referrals from them.

Some mortgage loan officers harm their customers unintentionally with their "zest" to save the last nickel in fees for their customers. They lock your loan with a lender that is a few hundred dollars cheaper on fees that day than every other lender in the country. Then that lender continually delays your loan with asking for additional conditions multiple times. Sometimes delaying your closing and expiring your lock. What have you saved if the loan doesn’t close? (Read an article from The Oregonian dated 08/24/2003 about Capital Commerce). They went out of business leaving many borrowers with locked & approved loans that did not fund at all (people that had to pay higher rates to get their loans and/or close 3-4 weeks later).

Another example, the loan officer chooses the absolute cheapest appraiser on your loan. Usually the cheapest appraisers are the slowest and do poor work that lenders don't accept or the underwriter keeps asking for additional information from the loan officer about the appraisal. Sometimes you end up having to get a 2nd appraisal which costs more and causes delays. Now what have you saved? And you didn’t even have a say in picking the appraiser, your loan officer did.

It's hard to compare "apples to apples" in rates, costs or service. You pick your loan officer, they pick the lender they use. You're stuck with their choice in service. You have to trust your loan officer to get you a good deal, while at the same time going through a lender that will close the loan in a timely fashion without problems. Not to mention one that will approve the loan and not deny it 4-6 weeks into the process after rates have gone up and you can't go anywhere else. Are you sure your loan officer has the expertise and won't mess up your loan unintentionally, but messed up all the same?

You need to pick your loan officer wisely the first time. Choose an experienced loan officer from Pacific Residential Mortgage, LLC, and know you are getting a great rate and costs combination for your home loan.

Daily National Average Interest Rates

PLEASE NOTE: These are NOT our rates today - We can get you substantially better than the average rates shown by being a broker and seeing almost everyone's rates daily. We'll place your loan with the best. A "must" read before shopping for a loan is our explanation of Rates & Cost Shopping Basics below. These statistics are what the media and government agencies use when you hear about "average rates did such and such today". Averages are just a good way to track the market and use for hypothetical loans.