Tag Archives: interest rates

Many Couples Paying Higher Rate for Joint Mortgage

When you and a spouse or partner apply together for a mortgage, could you be leaving money on the table by paying too high an interest rate because of a poorly understood lending practice?

New research from the Federal Reserve suggests the answer could be a costly yes when one individual has a much lower FICO credit score than the other. That’s because lenders generally are required to price loan applications based on the lower FICO score, not the higher.

If you’ve got a 780 score — sterling credit on FICO’s 300 to 850 scale — but your partner has a subpar 630 score, the lender will likely charge an interest rate keyed to your partner’s lower score. The so-called “minimum FICO” rule is followed by mortgage insurers, lenders and major investors such as Fannie Mae and Freddie Mac, but is often not known to first-time loan applicants and others who have not participated recently in the mortgage market.

The net result of this risk-based-pricing practice, according to researchers, is that large numbers of joint borrowers have essentially paid more than necessary for their mortgages during the past decade. Examining an unusually large and detailed database of nearly 604,000 conventional home mortgages from 2003 through 2015, economists found that “nearly 10 percent of prime borrowers who applied for their loans jointly could have lowered their mortgage interest rate at least one-eighth of one percentage point if the mortgage was applied for by the applicant with a higher credit score and an income high enough to qualify for the mortgage.”

Among joint applicants when one partner had a score below 740, “more than 25 percent could have significantly reduced their borrowing cost by having the individual with a higher credit score apply,” researchers said. Though they estimated higher payments in such cases of up to $1,400 a year, current credit score-interest rate survey tables published on myfico.com, FICO’s consumer-facing website, illustrate how large loan amounts can lead to more money left on the table.

A 30-year fixed-rate $300,000 mortgage in Illinois, underwritten using a 760 FICO, might have qualified for a 3.3 percent rate quote and a $1,309 principal and interest payment at the beginning of April, according to myfico.com. If the application were instead underwritten using a score of 650, the rate quote might be around 4.3 percent with a $1,485 per month payment. Annualized that comes to $2,112 in higher costs — in this case solely because the couple opted for a joint application and the 650 score raised the rate.

read more at: http://www.dailyherald.com/article/20160408/entlife/160409229/

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Fed keeps interest rate unchanged

WASHINGTON (AP) — The Federal Reserve kept a key interest rate unchanged Wednesday against the backdrop of a slowdown in U.S. and global growth and provided no hint of when its next rate hike may occur.

In a statement after its latest policy meeting, the Fed noted that the United States is enjoying solid job gains but also that “economic activity appears to have slowed.”

The Fed said that such key areas as consumer spending, business investment and exports have weakened. At the same time, it expressed less alarm about global economic conditions than it had after its previous meeting in March.

In March, the Fed had cautioned that global developments “pose risks.” In Wednesday’s statement, it no longer mentioned such risks, though it said it would “closely monitor” global economic and financial developments.

The Fed repeated that it expects inflation to move toward its 2 percent target from persistently low levels as temporary factors, like sharply lower energy prices, fade.

read more at: http://www.usnews.com/news/business/articles/2016-04-27/fed-keeps-key-rate-unchanged-and-provides-no-timing-hints

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Thinking about taking out a mortgage? Don’t obsess over the Fed

For most people, trying to parse the intentions of the Fed should play nearly no role in a decision of when to take out a mortgage or other loan. You should make your borrowing decisions based on current market rates and whether they make a given home purchase or refinancing decision affordable or not. Assume that neither you, nor your mortgage broker, nor your Uncle Ned, who watches a lot of Wall Street sharpies on CNBC, has any predictive capacity to know whether rates will be higher or lower a month from now.

Why would this be? Doesn’t the Fed set interest rates? Well, yes. But there are a lot of complexities that stand between that basic fact and the reality of what it will cost you to take out a home loan.

The Fed indeed sets a target for overnight bank lending rates, and buys and sells securities in order to keep market rates at that level. It has kept that rate near zero since the end of 2008, and is now making noises about raising it later this year, perhaps as soon as September.

That’s all well and good, but there are two things to remember. 1) Mortgages are usually based on long-term interest rates, not short-term interest rates, and 2) The Fed is not on some preordained path; rather, its policy will adjust depending on how the economy evolves.

The first point is crucial. When lenders make you a 30-year fixed-rate mortgage, they are essentially making a bet on the value of money for quite a long time. And in practice, that rate is set not by the whims of the banker at your local strip mall, but by the $21 trillion global bond market.

read more: http://www.nytimes.com/2015/07/17/upshot/thinking-about-taking-out-a-mortgage-dont-obsess-over-the-fed.html?ref=realestate&abt=0002&abg=1

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