With all the holidays and all the talk about the tax plan, our clients shouldn’t forget that some of the mortgage decision comes down to interest rate. Most mortgage loans are sold on the bond market, and on a percentage basis few loans are retained by the lending institution. Loan types are underwritten to specific investor guidelines. For example, 30-year “conventional” loans are underwritten to Freddie Mac or Fannie Mae guidelines, and “government” loans are underwritten to a specific program such as FHA, VA, or USDA.
A borrower’s potential rate begins to morph into a personalized rate influenced by both the particulars of your transaction and your financial situation. Factors such as type of transaction (purchase, refinance), loan amount, credit score, debt-to-income, and down payment influence your mortgage rate as well as how much you pay at closing to qualify for a certain rate.
Each factor is weighed to assess the risk associated. Investors look at what contributing factors would cause a loan to more likely default. For example, purchasing a primary home is less risky to an investor than a rental property or second home. If you have saved 20% as a down payment, you are committed financially 20% stronger than if you put 10% down. The bigger the potential risk, the more interest rate adjustments you will find on your personal rate.
Once your loan is closed with Opes Advisors, it is often purchased by a large investor (as mentioned above) and usually placed in a grouping, or “pool,” of similar loans. These pools are known as mortgage-backed securities (MBS). The MBS are made available on the open market for which the mortgage investor guarantees to make payments to the bond buyer each month for interest and principal. Each bond is then priced based on movement in the market. And it is the price of these bonds that “circle back” and determine the rates that borrowers pay.
Not a commitment to lend. Programs available only to qualified borrowers. Subject to credit approval, underwriting approval, and lender terms and conditions. Programs subject to change without notice. Restrictions may apply.
While Opes Advisors, a division of Flagstar Bank, Member FDIC, uses all reasonable efforts to ensure that this information is current, accurate and complete on the date of publication, no representations or warranties are made (express or implied) as to the reliability, accuracy or completeness of such information. Opes Advisors, a division of Flagstar Bank, Member FDIC, therefore, cannot be held liable for any loss arising or indirectly from the use of, or any action taken in reliance on, any information appearing in this email.
Opes Advisors, a Division of Flagstar Bank | Member FDIC | Equal Housing Lender