There are many factors that go into the pricing of the interest rate on your mortgage.
It’s important to realize this because the rates that you see on the Internet or in the newspaper may not be the rates that you will ultimately be quoted.
The following risk-based pricing adjustments come from the rate sheet for a super jumbo loan that is marketed by one well-known lender. The types of adjustments are standard but the amount of the pricing adjustments will vary by lender and program.
Here’s a general overview of what’s covered in the risk-based pricing adjustments:
Loan amount: Loans from $417,000 to $1.5 million do not have any pricing adjustments. However, adjustable rate mortgage loans from $1.5 million to $2.0 million have pricing increases of .250 percent to .375 percent depending on if the loan is fixed for five, seven, or 10 years.
Credit score: To qualify for this program, you need a credit score of 680 or better. Then, there are pricing improvements as the credit scores rise to 700, 720, 780 or higher. A major factor that influences the pricing adjustments is the loan-to-value.
For instance, a loan at 80 percent loan-to-value might have a .750 percent pricing increase for a 680 credit score, .250 percent for a 700 credit score, and no pricing adjustment for a 720 or better credit score.
However, at 50 percent loan-to-value there would be no pricing adjustment for a 680 credit score, and a .125 percent improvement in price for credit scores of 700 or better.
Property type: Duplexes and condos have no pricing adjustments, but co-ops have a .250 percent increase in pricing.
Waive escrows: If you don’t have a monthly impound account for taxes and insurance, the pricing rises by .125 percent.
Cash out: If you are refinancing a property, and pulling cash out of the transaction at the close of escrow, the pricing increases by .250 percent.
Second home: If you are financing a second home, the pricing increases by .125 percent.
Subordinate financing: If you are going to have a second mortgage on the property, that is subordinated to (behind) the new first mortgage you are obtaining, there is a price increase of 1.000 percent at higher than 80 percent loan-to-value. This adjustment is .625 percent at 70 to 80 percent loan-to-value, .375 percent at 60 to 70 percent loan-to-value, and zero at 50 percent loan-to-value.
Interest-only ARMS: Pricing increases by .200 percent to obtain the interest-only feature on adjustable rate mortgages.
Rate locks: The base pricing allows 30 days to get your loan closed. If it can be closed in 15 days, the pricing improves by .125 percent.
On the other hand, if you need 45 to 60 days to close from the date the loan is locked, the rate will be higher by .125 percent to .375 percent.
It should be noted that there are a few major items that are no longer on this lender’s rate sheet because of the current credit crisis: There are no longer adjustments for stated income or no documentation loans.
When shopping to purchase or refinance a home, it would be a good idea to have your lender or loan broker explain the various pricing adjustments that apply to your particular loan scenario.
Mike Ferguson is with Windsor Financial Services in Granite Bay. His Web address is www.windsorFS.com.
