The SCOOP on Interest Rates:
Recently, a client asked me why interest rates for Re-finances are LOWER than Purchases?
Here are a few of the reasons:
Mortgage bankers/lenders lend … on Risk! The less risky a potential mortgagor is, the better the lender/mortgagee likes it.
Usually, when there is a refinance (re-fi), there is some payment history. This lets the lender know that the homeowner/noteholder has been making the existing payment for some time. This is sometimes called a seasoned loan (a good sign). Also, when there is a re-fi, there is equity (another good sign). The more equity a property has, the less risky it is to lend money on. The banks don’t want the property back, they just want to collect their interest and principal and get their loan paid off.
And, this is why FICO scores are so important these days. The higher the FICO score, the less risky the loan. Because, to have a high fico score, you have to have been making your payments… on time. FICO Scores are as follows:
Exceptional Credit: 800-850
Very Good Credit: 740-799
Good Credit: 670-739
Fair Credit: 580-669
Poor Credit: Under 580
If you have a high FICO score, a lengthy payment history on your current loan AND equity, you will be considered a ‘Good Risk’. And being a ‘Good Risk’ will help get you the best interest rate… whether you are refinancing your home… Or … purchasing.
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If you have any questions on this or any other real estate matter feel free to call me and REMEMBER, I’m never too busy for your REFERRALS!
Take care and be safe out there.
Sincerely, Ron
