Wednesday, July 30, 2014

How Does a Low Credit Score Affect My Interest Rate

A typical question that I am often asked in my line of work is, "what are your interest rates today?"  The answer to that question may seem simple but there are a lot of factors that go into determining a specific client's rate (loan program, credit scores, down payment, etc.).   For conventional loans, your credit score will can have a big impact on what rate you get and the closing costs you pay.  

Below is a short summary with an example of how credit scores can affect a borrower's interest rate and closing costs when applying for a loan.   

How Does a Low Credit Score Affect My Interest Rate

You Will Pay Higher Interest Rates
Conventional loan interest rates are priced according to risk factors and the biggest factor is your credit history which determines your credit score.  Of course, interest rates are determined by many factors but the bottom line is that individuals with low credit scores will pay nearly 3X more in interest than those with strong credit scores! 

You May Pay Higher Closing Costs
Consumers with lower credit scores may be subject to higher closing costs.  Known as rate add-ons, these are fees based on your loan amount, implemented by Fannie Mae and Freddie Mac in 2010 to accommodate for the risk associated with lower credit borrowers.  See the table below for sample rate add-ons based on credit scores.

FICO Score
Rate Add-On You Will Pay (% of loan amount)
Add-On Fee ($200,000 loan amount)
< 659
740 >

Most often, clients with lower credit scores will choose a higher interest rate to minimize the closing costs.  We provide our clients with a break-even analysis to determine if a higher cost for a lower interest rate makes sense for their goals and needs.

Friday, July 25, 2014

Mortgage Interest Rate Update

Below is a summary of an article on which goes over the recent rate hike ending this week. 

Mortgage rates moved higher today at the fastest pace since July 3rd as bond markets began backing away from more anxious levels associated with last week's geopolitical headlines.  Such headlines (Malaysian airliner and Gaza invasion) can motivate investors to seek safe-havens such as Treasuries and MBS (the mortgage-backed securities that influence mortgage rates).

…the movement wasn't exceptionally large in a historical context.  Sure, it's the biggest move up in 3 weeks, but only because the past 3 weeks have been historically narrow and generally moving lower.  Secondly, there were other reasons for rates to weaken today, including strong economic data overseas and at home.  

There was also one very weak piece of economic data in the US today as New Home Sales were much lower than expected, but because of the prevailing trend this morning, it merely served to stem the tide of rising rates as opposed to reverse it. 

Here is a historical interest rate chart provided by Freddie Mac.

Monday, July 21, 2014

Choosing the Right Mortgage for You: Fixed vs Adjustable Rate Mortgage

Below is an article from the Wall Street Journal about "Picking the Right Mortgage" which has a lot of great, current statistics about Fixed and Adjustable Rate Mortgages (ARM).  I added a few points which can be seen in bold.  
Fixed-Rate Mortgages

Fixed-rate mortgages are the most straightforward of all home loans. The interest rate remains the same for the life of the mortgage, which means the monthly principal and interest (P&I) payments never change.

Borrowers pay a premium for consistency. This year, the average interest rate on a 30-year fixed-rate mortgage has been 1.22 percentage points higher than on one popular type of adjustable-rate mortgage whose interest rate can change annually after the first five years, according to, a mortgage-information website. The premium is up from 1.12 percentage points last year and 1.15 points two years ago.  The fixed rate ensures that the borrower’s P&I never increases over the mortgage term; however, the average person moves every 7 years.  How long you plan to live in the house is very important to consider when determining the best loan program for you.

Most people are willing to pay the price for. Fixed-rate mortgages have accounted for about 90% of the total dollar amount of home loans originated annually since 2010, according to Inside Mortgage Finance, a trade publication.

Some fixed-rate mortgages have 15-year repayment periods, which typically carry lower interest rates but also tend to require larger monthly payments since the repayment period is shorter. A borrower signing up for a $400,000 mortgage with a 4.19% interest rate, the average for the week ended June 27, would pay about $1,954 a month for a 30-year fixed-rate mortgage, compared with about $2,826 for a 15-year note with a 3.33% interest rate, the average for those loans, according to If a homebuyer is comfortable with the higher principal payments, this loan term will have substantial interest savings due to the lower interest rate and less payments.    

Another option: Consider a 30-year mortgage and make additional payments toward principal when possible to pay down the loan faster. This is a great way to lower your overall interest expense and possibly shorten the term.  I often discuss additional payments with clients who are interested in a refinance to save on monthly payments and reduce or keep the same term.  

Adjustable-Rate Mortgages (ARM)

Most adjustable-rate mortgages have a fixed interest rate for three to 10 years before the rate begins to adjust annually. The most common ARMs are fixed for the first 5, 7, or 10 years before adjusting.

ARMs are considered riskier than fixed-rate loans because the interest-rate adjustments can push borrowers' monthly payments up by hundreds of dollars or more, depending on the size of the loan and the change in the interest rate. Nearly a million homes with ARMs fell into foreclosure during the financial crisis, often because the homeowners couldn't keep up with payments that were higher than they had been originally.

ARMs accounted for 18% of the total dollar amount of home loans originated in the first quarter of 2014, up from 9% in the same period a year prior, and the highest quarterly share since 2008, according to Inside Mortgage Finance.

The appeal is comparatively low initial interest rates. The interest rate on the most popular ARM—which has a fixed rate for the first five years—averaged 3.16% during the week ended June 27, according to

Before signing up for an ARM, borrowers should find out how its interest rate can change over the life of the loan. In most cases, the interest rate on such a five-year ARM can increase or decrease by as much as five percentage points over the life of the loan.

In other words, borrowers who get a 3.16% interest rate could see it rise to a maximum of 8.16%, and their monthly payment on a $400,000 mortgage could go from about $1,721 to $2,790 overnight. The increase can come all at once at the start of the sixth year or over a period of years, though after the sixth year the interest rate typically can't change by more than two percentage points each year.
ARMs can be a better bet for borrowers who plan to sell their home before the fixed-interest period ends. The initial interest rate is typically higher for ARMs with longer fixed-rate periods, though still cheaper than regular 30-year fixed-rate mortgages.

Friday, July 18, 2014

Oregon Home Appreciation - CoreLogic May HPI Report

CoreLogic’s latest Home Price Index (HPI) report, which measures home appreciation, showed that the average home in Oregon appreciated 1% from April to May this year.  In the last 12 leading up to May 2014, we have seen 10.1% appreciation in Oregon according to the HPI report.  

CoreLogic is forecasting that appreciation will slow down as the weather warms up and more houses are listed for sale.  Homes typically appreciate at a higher rate during the summer when demand heats up but because tight inventory is loosening up slightly this summer (more supply of homes for sale); home appreciation will slow down some.      

The latest report can be downloaded here:

Wednesday, July 16, 2014

July You Magazine - Lower Rates Spur Home Purchases and Refinances

Below is the newest edition of You Magazine.  Topics include mortgage interest rates, refinances are back with low rates and increased home values, uptick in home purchases, 9 tips for summer trips, 25 hot summer activities, and how to save money on vacation rentals. 

Follow Me On:  
YOU Magazine
Clayton Scott     Clayton Scott
Branch Manager/Mortgage Consultant
Phone: 503-497-5060
NMLS ID 754407
License WA-CL 713524, OR-ML 5271
July 2014

June 2014
May 2014
April 2014
March 2014
February 2014
January 2014

Rates Spur Refinances as Buying Season Begins
In early June, rates for 30-year fixed home loans were at their lowest in seven months, according to Freddie Mac. Rates had been on the decline for five weeks straight before hitting this year's lowest yet.
   Rates Spur Refinances as Buying Season Begins

Burger Meister
Mastering the World's Most Perfect Sandwich
By Kirk Leins

When you think of American cuisine, the dish that most likely comes to mind first is the hamburger. It's not only our country's most iconic staple, but when done right, it is also one of the most delicious and satisfying meals you can eat with your hands.
   Burger Meister - Mastering the World's Most Perfect Sandwich -  By Kirk Leins

The Worst Thing to Say to Someone You Love
How To Fix Negative Self-talk
By Jason Womack, MEd, MA

When did you first learn about the importance of the way you "talk" to yourself?
   The Worst Thing to Say to Someone You Love - How To Fix Negative Self-talk - By Jason Womack, MEd, MA

9 Tips for Summer Trips
Summer vacation is in full swing. Whether you’re camping, road tripping or taking to the air, plan ahead. Consider these 9 packing tips before you go.
   9 Tips for Summer Trips

25 Hot Summertime Activities
Here is the prepared parent's preemptive strike on summer boredom! Keep this list of fun and inexpensive activities handy and you'll never have to wonder what to do next.
   25 Hot Summertime Activities

How to Save Money on Vacation Rental Properties
Pay less for an apartment, condo or house when you travel.
By Cameron Huddleston,

When I travel with my family, we tend to stay in vacation rental properties rather than hotels. Why? They offer more space and a kitchen to cook our own meals at a price that’s typically lower than a hotel room.
   How to Save Money on Vacation Rental Properties - Pay less for an apartment, condo or house when you travel. - By Cameron Huddleston,