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Interest Rate Question

Old 08-05-10, 04:04 PM
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Interest Rate Question

In the process of buying a house. Offer was accepted and my bank, the lender, is working up their paperwork. They came back with an interest rate of 5.89% fixed w/ 15% down.

Accepted offer was at 151k. For reference, the house is located in Canton, MI.

Seemed kind of high to me so I called Quicken Loans and talked to a broker. He said that he could do much better - 4.25 to 4.5%.

So, am I missing something? Why the discrepancy?

My real question is this, can I change lenders this late in the game or will this delay my closing. Currently they are estimating we will close August 31st.

I know little about how interest rates work so any comments are appreciated. Let me know if you need more details. Per the lender,

"You have excellent credit and are getting the best rate available for the amount you are putting down."
Old 08-05-10, 04:10 PM
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Re: Interest Rate Question

I was in my local bank yesterday and overheard a bank manager telling someone that they could not believe how low rates were, quoting 4.xx and saying that was with 0 points. So I'd say you're getting hosed with the 5.89%.
Old 08-05-10, 04:13 PM
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Re: Interest Rate Question

why the higher rate? because they thought they had you on the hook to pay it
try calling bank A back and telling them you were offered a much better rate by quicken loans, and if they cant match, you will be making the switch

i can't imagine it would delay closing.. but you can run it by your agent quickly
Old 08-05-10, 04:25 PM
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Re: Interest Rate Question

If you have good credit you should be in the low to mid 4s, no points. Watch for BS 'processing fees' too. When I refinanced, it was a flat $400 period.

You might need to pony up 20% instead of 15% to get those rates.
Old 08-05-10, 04:28 PM
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Re: Interest Rate Question

true, if you're doing 15%.. you'll probably get hit with PMI too
Old 08-05-10, 04:33 PM
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Re: Interest Rate Question

This is how the lender explained it:

If you were putting at least 20% or more down the rate is lower by .50%.. so you would have qualified for 5.39% fixed w/ 20% down.
Any time the down pmnt is less than 20% the rate is always going to be higher. Most financial institutions will give you a higher rate AND charge you what is called PMI ( primary mortgage insurance) .. this is extra money charged on top of your mortgage pmnt each month (75.00 or more depending on loan amount and credit) as an extra insurance for not putting 20% down. You are continually charged this PMI each month until you the financial institution decides you have at least 20% equity in the home. It is at their discretion.
The good news is TCF does not charge you PMI for not putting 20% down, the bank actually pays it for you. You still are going to have a higher rate for not putting 20% down but you don't have to pay the PMI. You have excellent credit and are getting the best rate available for the amount you are putting down.
Old 08-05-10, 04:56 PM
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Re: Interest Rate Question

Call other banks and keep in mind the difference between mortgage rate and APR. The APR includes refinancing fees, etc and is what you want to look at.

I refinanced a few weeks ago to 4.05% in a 15 year fix, APR of 4.11%. The rate is now under 4%. 30 year fix rate is about 4.4%.

www.ucbbank.com

Your bank is hosing you. Call the Quicken Loans broker and go through him but remember that quoted mortgage rate and APR are two different things, get the APR.

Edit: In the past you could put 15% down and take out a second mortgage for 5%, to avoid PMI. See if they will allow you to do that. Otherwise, talk to your parents, see if they will lend you the 5% to avoid PMI, but if you do this then of course pay them back.

PMI does absoluetely nothing for you, it is only to protect the bank.

Last edited by Heat; 08-05-10 at 05:02 PM.
Old 08-05-10, 05:03 PM
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Re: Interest Rate Question

why the hell are you putting so much down? don't FHA loans only still require 3% down?
Old 08-05-10, 05:07 PM
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Re: Interest Rate Question

Originally Posted by Deftones View Post
why the hell are you putting so much down? don't FHA loans only still require 3% down?
That's the other thing. Although she keeps saying we have excellent credit and very low debt, she said we were required to put down 15%.

Our pre-approval letter said we would be approved for the entire 151k (and could buy up to 179k with money down) so I don't get why we're being forced to put down so much.
Old 08-05-10, 05:18 PM
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Re: Interest Rate Question

Seems way high to me. Anyone in the military in your family? Pentagon Federal Credit Union has GREAT rates.

Also - you should be able to take out a second trust for the other 5% to avoid PMI if necessary. I put 10% down, 80% 1st trust, 10% 2nd trust.
Old 08-05-10, 05:37 PM
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Re: Interest Rate Question

I just bought a place and I put 20% down and was quoted at 4.875%. I thought that was high, so I went to another bank and they offered it to me at 4.75% for a 30 year loan. I asked what a 20 year loan would be and went with the 20 year loan at 4.50%. I then told my original broker about it and he went down to a 4.375% interest rate at 20 years. It's always good to get a 2nd opinion....
Old 08-05-10, 05:39 PM
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Re: Interest Rate Question

Originally Posted by orangerory View Post
Seems way high to me. Anyone in the military in your family? Pentagon Federal Credit Union has GREAT rates.

Also - you should be able to take out a second trust for the other 5% to avoid PMI if necessary. I put 10% down, 80% 1st trust, 10% 2nd trust.
You can get in with Penfed without being connected to the military. But I thought they didn't offer 30 yr fixed mortgages (could be wrong on that).

Although one could take the extra out in a second loan to avoid PMI, it doesn't necessarily work in your favor to do so. The second loan is at a higher rate, I believe PMI is now deductible just like mortgage interest, and lastly, the only way to get rid of the higher rate 2nd mortgage is to pay it off or refi, whereas PMI can sometimes be wiped clean with an appraisal if your property gains equity. I did an 80/15/5 loan a few years ago and have since refinanced, but if I were to do it all over again I would just pay PMI.

To the OP, how did you pick this bank/broker? Did you shop around? For ex., Charles Schwab's 30yr fixed with 0 pts rate is 4.72% right now. Sounds like they are "paying your PMI" by charging you a higher rate. You owe it to yourself to take their Good Faith Estimate (you did get one, right?) and shop it around.
Old 08-05-10, 05:46 PM
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Re: Interest Rate Question

Originally Posted by Deftones View Post
why the hell are you putting so much down? don't FHA loans only still require 3% down?
They have toughened up. You now have to put 3.5% down. That'll keep people committed.

Make sure you just compare APRs because banks do funny things with what they call your rate, but they can't mess with the APR. I was doing a refi for 15 years at 4.25%. I recently saw one dip under 4% on a 15 year. Even though people thought rates couldn't go any lower, they have.

If you have not had an appraisal done yet, you have time to switch. Based on the rate differences, it is worth waiting and getting an extension if you want.

www.compareinterestrates.com is a good place to look.
Old 08-05-10, 06:21 PM
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Re: Interest Rate Question

I've been hearing ads around here for 5% down and a rate in the mid-4s. I don't know what the points are though.
Old 08-05-10, 09:59 PM
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Re: Interest Rate Question

Originally Posted by auto View Post
This is how the lender explained it:

If you were putting at least 20% or more down the rate is lower by .50%.. so you would have qualified for 5.39% fixed w/ 20% down.
Any time the down pmnt is less than 20% the rate is always going to be higher. Most financial institutions will give you a higher rate AND charge you what is called PMI ( primary mortgage insurance) .. this is extra money charged on top of your mortgage pmnt each month (75.00 or more depending on loan amount and credit) as an extra insurance for not putting 20% down. You are continually charged this PMI each month until you the financial institution decides you have at least 20% equity in the home. It is at their discretion.
The good news is TCF does not charge you PMI for not putting 20% down, the bank actually pays it for you. You still are going to have a higher rate for not putting 20% down but you don't have to pay the PMI. You have excellent credit and are getting the best rate available for the amount you are putting down.
You are gettting hosed! I wouldn't even stay with them. People are getting HARP loans (stimulus subsidized) with rates of 5.375% and lower; and they are underwater on their homes!
Old 08-05-10, 10:15 PM
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Re: Interest Rate Question

Right now, looking at wholesale rates, you should be somewhere in the mid-4s, assuming your FICO is 660 or so. If it's higher, you may be able to do low 4s.

This should cost you no more than 1% in fees (not counting underwriting/title/taxes).

Last edited by The Bus; 08-06-10 at 11:19 AM.
Old 08-06-10, 09:43 AM
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Re: Interest Rate Question

Thank for all the info. I'll call around today.
Old 08-06-10, 11:18 AM
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Re: Interest Rate Question

Sorry, in the above I meant should cost you no more than.
Old 08-06-10, 11:19 AM
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Re: Interest Rate Question

Originally Posted by The Bus View Post
Sorry, in the above I meant should cost you no more than.
It took a minute but I figured.

Also, my credit score is 817. My wife's is around 700. More sense to put it in my name?
Old 08-06-10, 11:28 AM
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Re: Interest Rate Question

Originally Posted by auto View Post
It took a minute but I figured.

Also, my credit score is 817. My wife's is around 700. More sense to put it in my name?
What I would ask is to have each lender show you their "rate sheet" (might be an online system only) along with all of the adjustments. This will detail what you are being charged and how much they are making on the transaction.

From what I can see from one lender's wholesale rate sheet, is that at 3.750%, the lender/broker is making 0.5-1% revenue on your loan. That means they are likely to add another 1-2% (in fees); the process is much more complex now than it was years ago, so margins may be larger.

Bottom line, it means that you should be at 4% or below for a 15-year lone at 85%, paying no more than 1 to 1.5% in fees.

Keep looking.
Old 08-06-10, 02:12 PM
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Re: Interest Rate Question

Aren't points included in the APR? For my recent refinance, there were no points (4.05% 15 year fix, about 4.11% APR).
Old 08-06-10, 02:23 PM
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Re: Interest Rate Question

No points on my recent refinance, either, although I came in at 4.25% for a 15 year fixed, and I think a 4.38% APR. Total "fees" (and I am including appraisal, underwriting, etc.) were just over 1%.
Old 08-06-10, 04:21 PM
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Re: Interest Rate Question

Closing on a house right now and was offered 4.5% on a 30 year. Wanted a 15 and with 3/4 of a point, went down to 3.75%. You should be at least around 4.5% for a 30 year.
Old 08-06-10, 04:50 PM
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Re: Interest Rate Question

I thought he was doing a 15-year. 15% down, 15-year, etc.

Rate should still be 4.500%.

And unless your rate is fixed and equal to the APR, you paid something.
Old 08-08-10, 01:46 AM
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Re: Interest Rate Question

I just bought myself, first time w/ FHA... It was 3.5% down and we locked in at 4.5% Of course we have PMI added until we pay it down 20%, but no huge down payment was required.

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