The New Rules of Mortgage Lending

Current mortgage rates and changes in loan underwriting standards have led some borrowers to make mistakes when applying for a mortgage loan.  One old adage that many borrowers fall into is not paying up-front points.  In previous real estate cycles, paying one percentage point was equivalent to shaving off approximately a quarter of a percentage point of interest.  In today’s market, one percentage point can lower the interest rate by as much as 1 percent, changing a 6 percent interest rate into one that is 5 percent.

Another common mistake some borrowers make is not locking in an interest rate, especially when the rates are at historic lows, as they are currently.  Many borrowers believe that if a favorable rate is available this week, a lower one will likely be offered next week.  Mortgage experts advise clients to lock in a rate if the numbers work and not try to wait for a better rate that may not come.

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Larger Mortgage Rates Still Carry Higher Rates

Some homeowners, especially in high-cost areas, are finding that the best interest rates are only available for conforming loans, those that are below $417,000.  In high-cost areas, many homes fall into the jumbo conforming loan category — $417,000 to $625,500 or the jumbo loan category – above $625,500.

Last year, Congress created the jumbo conforming loan category as the intermediate category of loans, hoping to stimulate the mortgage market.  Congress’ intent was to lower rates for loans below the jumbo loan limit of $625,500; however, that did not happen, and many jumbo conforming loans and jumbo loans still carry higher interest rates than true conforming loans.

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