First a disclaimer. Mortgage rates vary by the type of loan you get, your credit, your down-payment amount and much more. This is just a post to open your eyes a bit to what to ask your Northern Virginia mortgage professional when you look at interest rates.
Somehow when the headlines announce new falling interest rates I’m reminded of the kmart blue light commercials where everyone is dodging falling prices. The problem? Falling interest rates don’t always mean that the deal you are getting on your mortgage is going to be any better than the previous advertised mortgage rate. The simple reason is that most mortgage rates also have “discount points” attached to them.
According to Fannie and Freddie Mortgage rates on a 30 year fixed rate loan dropped last week to 3.94% down slightly from the week before at 3.99%. Okay anything below 4% seems like a bargain but let’s see what that little drop really means. At the same time the rate dropped the discount points charged rose slightly. So do the falling rates mean you are really saving money?
To use a real life example from Dan Green at the Mortgage Report the numbers for a $300,000 loan are:
- Discount Points : Today, the homeowner pays $300 more to close on the loan
- Mortgage Payment : At the lower rate, the homeowner saves $8.63 per month for 30 years
It will take close to 3 years for the small discount in the mortgage rate to make up for the extra $300 upfront a buyer will need to bring to the table. Of course after 34 months it is a savings and that has to play into your thinking as well.
This is just a quick example of why you need to work with a local and trusted mortgage professional when you are buying a home. Make sure you understand how the discount points or buy down you are offered on your loan will affect you both immediately at the closing table and over the life of your loan. It could be that last weeks rates are just as good of a deal as next weeks “falling” rates are.
Before you head out hunting for your new home in Northern Virginia make sure you’ve talked to a mortgage professional about the current interest rates. If you need help finding a Northern Virginia mortgage professional give me a call. I’d be glad to pass along a couple of names for you to talk to.