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November 12, 2019
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Mortgage rate sounds too good to be true

By: Scott Sheldon
August 23, 2019

Mortgage rates are presently near their historic lows on 30-year fixed rate mortgage with the average 30-year fixed being between 3.375 percent and 4.125 percent. As such people are refinancing in droves and taking advantage of the dip in rates. Obviously, when deciding which lender to use for your loan you’ll want to make sure you do your due diligence. If the rate sounds too good to be true, it is because it probably is.

One of the things you will find is there’s no such thing as the lowest interest rate. You heard that right. The truth is if you really look you will always find something lower, guaranteed. Let’s say you’re getting an interest rate quote at 3.75 percent and the other lender is you’re looking at is offering you 3.625 percent supposedly with the same terms just for a better rate. What do you do?

Before you answer that, read on.

Big banks do mortgages and are notorious for buying the market e.g. offering extremely low rates and beating out the smaller non-bank lenders. They do this to generate volume knowing there is a small pull through rate anyway. These same big banks also offer banking products like checking and savings accounts and financial services. As such these big banks are diversified in multiple different types revenue streams whereas a non-bank lender is not. The non-bank lender usually only does mortgages.

Working with a big bank that can purchase the market by offering extremely low rates might not be a bad thing if you have patience, but otherwise if you have any kind of a timeframe you could be in a predicament as that loan might not close. Your loan with the big bank might sound like a better rate and price but may not close if you have any uniqueness on your loan. Banks, because they have multiple revenue channels, are more risk adverse. They have more layers of risk they must offset. They offset this risk by asking for more mounds of paperwork through the process. They also can and may place extra loan to value, debt to income, occupancy or asset requirements on you to insure they are only making loans to the strongest of borrower applicants. The none bank lender does not usually have such extreme levels of scrutiny so the process could be made easier.

Here is something to ponder “What good is it that competitors quote if they cannot close the loan?” The answer is that it is worthless. A 3.375 percent in a 3.625 rate market may sound attractive, but not if they 3.375 percent offer can’t close right?  Keep that in mind when you are looking at lenders and comparing rates vs ability to get the loan done.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.