The Real Cost Of The Recent Jump In Interest Rates

I closed a $222,000 FHA streamline loan for a client last week at 4.25% for a thirty year mortgage. The client had no closing costs and received a generous escrow credit. The loan was locked on November 9. I priced the same loan on Friday, the 26th, and the cost has increased by over $4,100!

I was fortunate that this client was astute. He was smart enough to know that he could not predict interest rates, and looked at the numbers and wisely decided to take the money and run. Of course a borrower could still do a no closing cost loan, but the rate would now be at 4.75% for a similar loan. For some clients it no longer makes sense to do anything. Legal, tax free money is hard to come by. When the opportunity presents itself, jump on it.

Remember that loan pricing is impacted by many factors. The type and size of the loan, loan to value, credit score, etc. I priced one loan about three weeks ago and the difference in price was over $1,100 because the client’s credit score had declined to 657 from 670.

The worthless old rule of thumb that it does not pay to refinance unless you drop two full points is still around. I had a client who told me he did not think it was worth refinancing because he would only save a point and a half on his interest rate. When we did the math on his size loan, $388,000, we discovered that the pure interest rate savings were $295 a month. I favor a conservative approach and do not look only at the drop in the monthly payment. This approach is deceptive as you are adding on to the life of the loan.

Your comments and questions are always welcome.

Thanks, Chip

Chip Allen

Crestline Mortgage Bankers

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