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Making Sense of Average Mortgage Rates


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November 18, 2005

Making Sense of Average Mortgage Rates

Peter Coy

It seems like a simple question: What's the national average rate these days for a fixed-rate, 30-year mortgage? But the answers are all over the lot. Here are three that you can find in a quick tour of the Internet:

5.83%

6.37%

6.44%

That's not too comforting for loan shoppers who are trying to decide whether they're getting ripped off or not. Keep reading and I'll show you where the numbers come from--and how to make sense of them.

The first, impressively low number, 5.83%, comes from the home page of Bankrate.com, which calls itself "the Web's leading aggregator of financial rate information." But if you dig deeper into the website you come across this press release, which says that the current rate is actually 6.42%, right smack between the other two averages.

What explains the discrepancy on Bankrate.com's website? I called and spoke with Greg McBride, a certified financial analyst. He said that the higher figure is based on a weekly survey of the biggest banks and thrifts in the 10 biggest metro markets. Fair enough. The low number, by contrast, is an average of the rates offered by lenders who advertise on the Bankrate.com website. Obviously, says McBride, the lenders with the lowest rates are the most likely to advertise. So 5.83% is more of a national floor than a national average.

The 6.37% number comes from the website of Freddie Mac Corp., the giant mortgage buyer. And the 6.44% number comes from HSH Associates Inc., which bills itself as the nation's largest publisher of consumer loan information.

Granted, 6.37% and 6.44% aren't all that far apart. Still, what explains the gap? Probably a difference in the average points paid. Freddie Mac says that its 6.37% rate comes with an average of 0.6 points paid, while HSH says its 6.44% rate has an average of 0.28 points paid. Other things that can affect differences in reported averages are the average commitment periods, loan-to-value ratios, and loan sizes (rates will be higher if jumbos are mixed in).

For my money, Freddie Mac is the best choice for a quick check. Its numbers are the easiest to find and to track over time.

02:28 PM

Mortgage Rates

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Tracked on November 20, 2005 12:35 PM

Peter,

Get everyone to take a truth potion and you will find that 6.375 from Freddie Mac is the real number.

David Porter

Posted by: David Porter at November 19, 2005 08:58 AM

Wow! So much incorrect information my head hurts! I just originated a loan for my mom and she got a 5.375 30 year fixed insured through Fannie Mae. Good thing I didn't take David Porters advice! And Pacesetter Mortgage is 50% correct. All prime or A paper loans are insured by the government. What about subprime loans? They are not insured by the government and that's why the rates are higher....

Posted by: Galleria Panhandler at January 27, 2006 12:46 PM

Dear Panhandler,

Congrats on 5.375% 30 year fixed for your mom.

At that rate, I am certain that she paid some points, which might make sense if she intends to stay in the home for a long time.

Without any points you should be suspect because that rate (without points) hasn't been available for quite some time.

In my conversation, I was assuming that no points were paid and closing costs at about $1,800.

I am not sure what you are trying to point out with the "50% right comment".

Conventional loans (A paper, prime, all the same thing) are funded through Fannie Mae and Freddie Mac. They are NOT insured however. If the loan goes bad, it will come back to the servicer to take care of. The actual owners of these loans are typically large insurance company's and mutual funds. Fannie and Freddie are conduits.

The only loans that are "insured" are FHA loans. If an FHA loan goes bad, it is owned by HUD and HUD is the one who is on the hook to dispose of it.

Subprime Loans go through a very similar process as conventional loans. They are packaged together in bundles, (mortgage back securities), and then sold on wall street typically through large banks.

The premium exists because these bundles a.) are much smaller than what Fannie and Freddie bundle and b.) the credit grade of these loans are lower and thus require a greater return to the investor for the increased risk.

I hope this helps. No incorrect information here, perhaps just confusion.

Thanks for your comments, however.

Posted by: David Porter at February 3, 2006 04:34 PM

Mortgage rates can fluctuate on a daily basis and nobody can be absolutely certain where they may head. And even if you think today’s interest rates on fixed rate mortgages are the lowest they’ll ever be, they are still more expensive than the interest on an adjustable rate.

Posted by: arthur mcbeth at February 7, 2007 12:15 AM


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