While we are sensitive to the nation being gripped by COVID-19, the pandemic has created a unique opportunity for those who have a need and are still financially able to buy a home or refinance an existing mortgage. Mortgage rates are at an all-time low, competition may have eased in some neighborhoods, and prices have steadied. And, the major portion of these transactions can be done over the phone and internet, with safe distancing and hygiene protocols when it is necessary to meet in person. Since these occasional meetings involve few people, enhanced health precautions are easier to practice.
How about lower than market fees too, when purchasing or refinancing? You can save a bundle with Keller Williams own Zero-Plus Financing!
What a drop in interest rate means
The biggest factor is a drop of about a full percentage point in interest. Of course the rate you will be offered depends on a variety of factors, but let’s first take a look at how a one percent difference in mortgage rate affects how much you would pay.
A one percent difference in mortgage rate on a $200,000 home with a 10% down payment decreases your monthly payment by almost $100. Although that might not seem like a big deal, over the life of the loan you’ll pay approximately $30,000 less in interest.
How lenders determine your interest rate
Your credit score is one of the biggest factors in determining your mortgage rate. The higher your score, the better opportunity for a good rate. You may need a FICO score of at least 700 to qualify, with a score of 740 considered good, and a higher score excellent.
The bigger your down payment, the lower the mortgage rate. If you put down 20 percent or more, you have lowered the risk for the lender, and the rate will reflect it.
The loan length also affects rate for the same reason. The shorter your loan, the less risk for the lender. If you can swing it, a 15-year mortgage will have a better interest rate than a 30-year mortgage. Just keep in mind your monthly payment will be higher on a shorter term loan. However, over the life of the loan, you will have paid far less in interest.
Your lender obviously wants to know that you have stable income so you can pay off the loan they are giving you.
If you’ve just changed careers, own your own business, earn your income mostly from freelancing, or have less than a consistent two-year work history, you’re less likely to get the best rates.
These scenarios demonstrate that your financial situation has been subject to change in the past. Even if you own your own seemingly stable business, this still makes you a greater risk because you have more to lose.
Where you live can have a bearing on your rate. Rates vary by state, and tends to be based on how well the housing market is doing in your state. Minnesota’s rate at the time of this writing is 3.72% for a 30-year loan, and is declining according to Bankrate.com.
Type of loan
There are different types of loans you may qualify for that impact your mortgage rate.
15-year and 30-year mortgages are the most common, with 20 percent typically required as a down payment. However, FHA loans (which get their name from the Federal Housing Administration) require much smaller down payments (as little as 3.5 percent). On the other hand, FHA loans may also require the homeowner to purchase private mortgage insurance– an extra fee– which protects the lender against default.
In the mortgage world, there’s these things called points. In the simplest terms, a point is an upfront fee paid to lower your interest rate by a fixed amount (usually 0.125 percent).
For example, if you take out a $200,000 loan at 4.25 percent interest, you might be able to pay a $2,000 fee to reduce the rate to 4.125 percent.
Paying points makes sense if you have the cash to pay them and you plan to hold the loan for a long time.
Interestingly, refinancing rates, at 3.78% for a 30 year loan in Minnesota today are close to the mortgage rates. Usually refinance rates are higher. If your current mortgage is one percent higher or more than current refinance rates, then you should consider refinancing. The same types of qualifications process for a mortgage loan applies to a refinance. However, lenders prioritize mortgage loan applications over refinance applications, so be prepared to be patient during this busy time.
Keller Williams Zero Plus Financing for Customers
KW customers benefit most by saving thousands with the ZeroPlus Loan. We eliminate traditional costs and pass the savings directly to the consumer, at the same low rate! Applicable on new loans and refinancing!
Zero Origination Fee
Zero Lender Fees
Plus $1,000 at Closing
*Towards 3rd Party Costs
Plus A Low Rate
*$1,000 closing credit on loans $150k +
With the super low interest rates we are seeing, what are you waiting for?
Ask us about a Zero Plus loan today!