Many factors impact Vail Valley mortgage rates
As most Vail Valley residents have heard, the mortgage market has been incredibly volatile of late, with rates sometimes fluctuating several times a day by as much as a half a point. As a result, there is a lot of confusion out there about when it might make sense to refinance.
While rates generally are below five percent for loans under $417,000, there are some elements out there that may be an unpleasant surprise if you start rate shopping. One of the fundamental changes that has come to the mortgage industry is what is known as risked based pricing. The second is the drastic reduction in what is known as premium pricing, which impacts what a lender makes when he delivers the loan to the secondary investment market.
Risked-based pricing is a series of adjustments to the lowest available mortgage rates to reflect elements that may add a layer of risk to the loan. For starters, credit score and loan-to-value are two of the biggest ones. If you have a credit score below 720 and a loan to value above 70 percent, you might get hit with an adjustment as much as quarter-percent to your rate. If you have a credit score of 680 and a loan to value of 80 percent (which a year ago would have made you a prime borrower) you might see as much as a half-percent increase in your rate.
If you have a second mortgage that you want to role into your first loan you might see as much as a quarter to a half percent add-on, on top of your credit score and loan to value adjustments above because this may be termed a cash out refi even if you don’t walk with a penny from the closing table..
New lending rules now define a “cash out” refinance as one that pays off anything other than the first mortgage, even if the second mortgage was a purchase money second mortgage. There is an increase to every mortgage rate that is a cash out refinance.
There are other possible adjustments to rates as well, depending on the individual situation. These might include the type of property and occupancy. If you rent your place out even a few weeks a year it will be deemed an investment property and increase your rate. If your property is in a condominium hotel expect to pay more as well.
Also, the loan amount can impact the rate. If your loan is under $417,000 you qualify for a conforming rate, which will be the lowest. If your loan is between $417,000 and $625,500 (formerly the limit was $729,750) you are in what is now called the “high balance” range, which carries a slightly higher rate. If your loan is over $625,500 you are in the jumbo range and all I can say is call for details.
Closing costs are not as negotiable as they once were either. In the past if you agreed to increasing your rate by about a quarter percent the lender could eliminate your origination fee of 1 percent of the loan amount as he made that much when he delivered the loan to the secondary market. If you agreed to a higher rate the lender would often waive many of the closing costs.
The current conditions in the mortgage markets do not allow this level of negotiation. Today, if you want a loan with no origination you would have to agree to a rate about 1 percent higher, which seldom makes financial sense.
Another change is that you should expect to give your lender lots and lots of information, including full tax returns and brokerage statements. The days of low doc loans are gone.
Nevertheless, it might be worth it to explore your options. If you have a loan at 6.25 percent for $417,000 and can lower your rate to 4.75 percent you can lower your payment nearly $400 per month. Your hard closing costs (exclusive of pre-paids and escrows) might run you about $6,800 total for the origination fee, title, appraisal, underwriting and filing fees but your payback would come in 17 months.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from local readers.