This is aimed at the government as well as mortgage originators and real estate agents. Stop selling rate!
The Federal Reserve keeps pushing for lower rates as if it is the answer to the riddle. Mortgage originators are now beginning to sell adjustable rate loans because it is easier to sell a lower rate. Finally every time I present a scenario to a buyer their agent says “is that the lowest rate”. To steal a line from ESPN “C’mon Man”. Seriously!
On a typical $175,000 loan the difference from 4% to 3.75% is $25.03 per month. If $25 a month is what is standing in the way of buying a home then homeownership is probably not the right choice. Selling a lower rate is not always fiscally responsible. In today’s financing environment with the IRS taking away the mortgage insurance deduction a higher rate may actually be fiscally responsible.
If everyone stopped selling rate and sold fiscal responsibility based on current policies the housing market might flourish again. Buyers want credible information not to be sold. The typical saving on the same $175,000 mortgage is a little more than $70 per month with an interest rate that is a quarter of a point higher. That does not take into account that a greater percentage of the higher rate loan is also deductable than the lower rate more expensive loan.
With Fannie Mae and Freddie Mac setting stringent debt to income limits the $70 provides a little more buying power.
So, no, that is not the lowest rate but the payment is lower and thus a benefit to the buyer!