Advertised Mortgage Interest Rates are Never Right

Not being a mortgage professional, I don't know the exact reason why this is, but whenever you see mortgage rates quoted, they are never the actual rates you get for your loan.

Here's a headline from Inman News, a big real estate news publisher and aggregator.

Real estate rates sink overnight
30-year fixed rate at 5.7%; 10-year Treasury yield at 3.91%

This will never be the rate you'll get on a loan in many Chicagoland areas.  Rates vary by geographic location as well as some other factors, including:

• Your credit score (the lower the score, the higher risk you are to the lender, and higher risk means a higher rate)
• Type of loan (a cash-out re-finance of an existing loan carries a higher rate than a straight purchase)
• Amount of your loan (a jumbo loan interest rate will be higher than a conforming loan interest rate)

It would seem apparent that many, many single family homes in the Chicago areas we specialize in (Lincoln Square, Lakeview, North Center, Old Irving Park, etc.) would require a jumbo loan, even with a 20% or 30% downpayment, so that 5.7% rate that is quoted isn't going to happen.  Do the math...

$417,000 (the conforming loan limit) is 80% of what number?  Just divide $417,000 by .8, and you get $521,250.

I'm sure there are some other factors I have left out.  Perhaps Peter Thompson can clue us in with some of the more subtle details.

Comments

[PeterT]

Dave, Great post, and you are absolutely right. Advertised rates are way too general, and too easy to manipulate. There are actually a few things at work here.
1 - When Inman posts the latest interest rate, it is usually a ntional average assuming a 1 point origination fee in the pricing. Chicago is one of the few areas that doesn't customarily charge origination fees, so the quoted rate is always slightly higher.
2. Some companies advertise artificially low rates in order to make the phone ring. This is classic bait and switch, but if you are comparing advertised rates, it happens all the time.
3. Since the mortgage market got credit crunched this summer, it is harder than ever to quote a rate. The quote has to be personalized to the buyer's situation because there are so many factors which go into the pricing including credit scores,loan to value, documentation type... and the list goes on. I think I see a blog post here!