Am I getting scammed on my mortgage rate?

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Topic Author
Hairfarm
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Am I getting scammed on my mortgage rate?

Post by Hairfarm »

Greetings,

Currently home shopping and had a question about mortgage rates. I have a FICO over 800. The loan company says that I will need to buy 2 points to buy down my rate to 3.625%. Those two points will cost me $5,641.65. Do I really need to buy down my rate $5,641.65 just to get it to 3.625%?

My question is what is the best rate a buyer can expect with a FICO over 800?

thanks!
sterlingcooper05
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Re: Am I getting scammed on my mortgage rate?

Post by sterlingcooper05 »

FICO is only one factor of your mortgage rate. I'm assuming you're purchasing with a 30 year mortgage. How big is your down payment? A large down payment and a 15 year mortgage will reduce your rate significantly. Points are not the only way to achieve a lower rate. 800 FICO is fine....but with a small down payment, high debt to income ratio, variable income, ect., your rate will be higher.
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RickBoglehead
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Re: Am I getting scammed on my mortgage rate?

Post by RickBoglehead »

Have you looked at sites that post rates, like Bankrate.com? Looks like 3.625% is the going rate for a 30 year fixed loan, but 2 points is high.
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MMMM
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Re: Am I getting scammed on my mortgage rate?

Post by MMMM »

Rate depends on a lot of factors, but I was able to find a very competitive rate at a local bank using Bankrate. Definitely shop around, don't use the first lender who gives you a rate.
dsmil
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Re: Am I getting scammed on my mortgage rate?

Post by dsmil »

Try https://www.mtgprofessor.com/ext/partne ... rLoan.aspx. I'm seeing rates hovering between 3.5 and 3.625. I personally don't like paying for points and giving money to the bank. I'd rather throw that $5k towards lowering the initial mortgage rather than giving it to the bank as basically a fee. I went the other way in 2018 and got a $1k credit from the bank when we bought our house, and then refinanced at a lower rate in 2019.
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dm200
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Re: Am I getting scammed on my mortgage rate?

Post by dm200 »

In my opinion, paying to buy down the interest rate is almost always much less of a benefit than it looks. The Annual Percentage rate (APR) disclosed/advertised assumes that the mortgage is paid off for the entire term of the mortgage (say 30 years), but that rarely actually happens. I believe the average length of a mortgage is about ten years - because folks refinance, sell the house or just pay early.
Topic Author
Hairfarm
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Re: Am I getting scammed on my mortgage rate?

Post by Hairfarm »

Thanks for the advice all,

The purchase price on the house we want is 315000
We have $40,000 to put down, around 12.82 percent. Our debt-to-income ratio is roughly %27. Household income $105k a year. No debt other than the mortgage payment.

Here are the options they gave me:

1.
Purchase Price: $315,000
Down Payment 12.82%: $40,000
Monthly MI $29.79
Closing Cost: $5,500-$6,500
At Par total PITI is $1,684.62

Total Closing Costs: $40,000 (Down Payment) + Closing Cost ($5,500-6,500)= $46,500

2.
Purchase Price: $315,000
Down Payment 10%: $ 31,500
MI Buyout $1,417.50
Closing Cost: $5,500-$6,500
Discount Points to buy down the rate to 3.625%: $5,641.65
Total PITI: $1,594.91

Total Closing Costs: $38,559 (Down Payment + Summit Single + Rate Buy down)+ $6,500 (Closing Costs)= $45,059

3.
Purchase Price: $315,000
Down Payment 10%: $ 31,500
MI Buyout $1,417.50
Closing Cost: $5,500-$6,500
Discount Points to buy down the rate to 3.875%: $2,477.79
Total PITI: $1,635.12

Total Closing Costs: $35,395 (Down Payment + Summit Single + Rate Buy down)+ $6,500 (Closing Costs)= $41,895

*Note - "The Summit Single" is their product for buying down (eliminating) the PMI insurance.

I would like to do option #1, but would like a monthly mortgage of $1600 max. Do these option look out of sync? Should I expect a better mortgage rate with out purchasing two points for $5,641.65 (Option 2)?
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Kenkat
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Re: Am I getting scammed on my mortgage rate?

Post by Kenkat »

The Savings and Loan that holds my mortgage is currently offering 30 year @3.59% with zero points, so I would shop around for a better rate.
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celia
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Re: Am I getting scammed on my mortgage rate?

Post by celia »

"Scammed" is an awfully strong word for something where you know all the details. To me, it means taking unfair advantage of someone without their knowledge. You are very knowledgeble on this situation, so I wouldn't say you were being "scammed" at all.

Just to see if you can do better, why not get loan information from another lender or two. The reasoning behind "points", as I understand it, is for the lender to make up for offering you a lower rate. They want the money one way or another. Since 30 years is a long time and something can happen to impact your finances during that time, you may feel a little better with a lower monthly payment. Else build up a bigger emergency fund.
MRMN
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Re: Am I getting scammed on my mortgage rate?

Post by MRMN »

How about not asking if you're getting "scammed," but rather "is this a bad deal" or "can I find a better deal elsewhere."

All this assumption of malicious intent isn't helping the business world. Yes, not everyone is an angel out there, but not everyone is a crook who is just trying to make a buck.

You aren't required to buy this mortgage deal, pressured probably, but with a little grit you can walk your wallet down the street to the next bank and find out their offer and make a more informed purchasing decision.
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Hairfarm
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Re: Am I getting scammed on my mortgage rate?

Post by Hairfarm »

celia wrote: Thu Nov 21, 2019 1:34 pm "Scammed" is an awfully strong word for something where you know all the details. To me, it means taking unfair advantage of someone without their knowledge. You are very knowledgeble on this situation, so I wouldn't say you were being "scammed" at all.
You're right. I guess I meant taken advantage of. And actually I know very little about this process and feel like my lack of knowledge is affecting my ability to trust.

I just don't know if I need to pay $5,641.65 to get my rate down to 3.625%. With todays current rate at 3.89% for 30 year fixed, then why would I pay $5,641.65 ($2800 per point) for two points to get it to %3.625? Especially with a high FICO/Vantage 3.0, and such a low Income to debt ratio. Does the fact that I don't have a 20% down affect my rate?

Currently I'm shopping around with another loan company.




thanks,
Kennedy
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Re: Am I getting scammed on my mortgage rate?

Post by Kennedy »

Check Costco affiliated mortgage lenders. There's a link right on the Costco website. Great rates. Low fees. I picked a random zip code and input $315,000 purchase price with 12% down. Looks like 30 year rates are at 3.918 with only $275 in lender fees, no points. (Of course, you'll still have to pay for the appraisal and title stuff, but you have to do that with all loans.)

Principal and interest would be at $1400/month. How much do you anticipate for taxes and insurance? Add that and then compare to what your lender is saying for PITI with paying points and what you would be saving by not paying points.
Last edited by Kennedy on Thu Nov 21, 2019 2:11 pm, edited 1 time in total.
Kennedy
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Re: Am I getting scammed on my mortgage rate?

Post by Kennedy »

And I agree that "scammed" is a harsh term. I think "being taken advantage of" is more appropriate, although it's just a softer version of scammed.

I was definitely taken advantage of for my first couple of loans. I used whomever the realtor suggested. Looking back, I paid waaay more than I should have for a much higher rate.

I chalked it up to inexperience and not realizing that some brokers were much more competitive than others. The higher interest rate you pay/more points you pay/higher lenders fee you pay, the more the lender or mortgage broker makes. It's like anything. The less educated get taken advantage of.

My advice? Educate yourself. Shop around. A lot. Check Costco.

Oh, and make sure you check the break even point if you pay points. Most people don't stay in a house for more than 5-7 years. It probably isn't worth it, but run the number.
dsmil
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Re: Am I getting scammed on my mortgage rate?

Post by dsmil »

Hairfarm wrote: Thu Nov 21, 2019 2:02 pm
celia wrote: Thu Nov 21, 2019 1:34 pm "Scammed" is an awfully strong word for something where you know all the details. To me, it means taking unfair advantage of someone without their knowledge. You are very knowledgeble on this situation, so I wouldn't say you were being "scammed" at all.
You're right. I guess I meant taken advantage of. And actually I know very little about this process and feel like my lack of knowledge is affecting my ability to trust.

I just don't know if I need to pay $5,641.65 to get my rate down to 3.625%. With todays current rate at 3.89% for 30 year fixed, then why would I pay $5,641.65 ($2800 per point) for two points to get it to %3.625? Especially with a high FICO/Vantage 3.0, and such a low Income to debt ratio. Does the fact that I don't have a 20% down affect my rate?

Currently I'm shopping around with another loan company.




thanks,
Definitely shop around and don't feel a need to give them extra money for a lower rate or to not have PMI. You'll pay a similar amount in PMI over those 4-5 years compared to paying it up front, so I just don't see the need to give the bank that money. That $1,400 would be more useful as part of your down payment. I'd expect that you can find a lower rate, considering that these guys want you to pay points just to get to 3.875%. I didn't find that having less than 20% down affected my rate at all.
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JoeRetire
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Re: Am I getting scammed on my mortgage rate?

Post by JoeRetire »

Hairfarm wrote: Thu Nov 21, 2019 12:00 pmDo I really need to buy down my rate $5,641.65 just to get it to 3.625%?
(shrug)

Hopefully you checked with more than just a single loan company?
What did the others say?

BTW, I see nothing that indicates you are getting scammed. You can either accept this tradeoff, reject it, or find another lender. To me, that's not a scam.
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JoeRetire
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Re: Am I getting scammed on my mortgage rate?

Post by JoeRetire »

Hairfarm wrote: Thu Nov 21, 2019 1:06 pm The purchase price on the house we want is 315000
We have $40,000 to put down, around 12.82 percent.
IMHO, you cannot afford this house, since you cannot put down 20%. You should either save more, or find a less expensive house.
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TropikThunder
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Re: Am I getting scammed on my mortgage rate?

Post by TropikThunder »

Hairfarm wrote: Thu Nov 21, 2019 2:02 pm Especially with a high FICO/Vantage 3.0, and such a low Income to debt ratio. Does the fact that I don't have a 20% down affect my rate?
A couple things: once your FICO is at or above 760, you’re getting the best rate for your situation. 780, 800, etc don’t matter, just >760.

DTI is a yes/no question and for most lenders refers to whether the loan is conforming to Fannie Mae standards (so the lender can sell it). Currently Fannie Mae’s cutoff is 50% (highest they consider conforming but not a good idea financially). So if you’re below 50%, you qualify.

Rates are local so it would help if we knew where you live because a good rate in Iowa may not be a good rate in Los Angeles or vice versa.

In your case, the down payment is likely the biggest factor. Down payment <20% means higher risk for the lender which means higher PMI fees and higher rate. Go to one of the online rate sites (AimLoan or LenderFI are my favorites), put in your numbers, and see what they say compared to your bank.
delamer
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Re: Am I getting scammed on my mortgage rate?

Post by delamer »

There is an option at some lenders to do 10% down, 80% primary mortgage, 10% secondary mortgage of either a fixed-rate home equity loan or a variable rate home equity line-of-credit. The secondary mortgage is in lieu of a mortgage insurance payment.

Check with online lenders or a local mortgage broker.
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