Now You Can Get a 30-Year Fixed at 3.25%

August 30, 2011 1 Comment »

low rate

We all know mortgage rates are low, but this is seemingly ridiculous.

The New Hampshire Housing Finance Authority is currently offering a mortgage rate as low as 3.25 percent on a 30-year fixed-rate mortgage.

And that’s with as little as 3.5 percent down (FHA loan). Of course, there are several strings attached. There are income and purchase price limits in place, and the property must qualify for the financing.

Only certain homes in certain areas are eligible, and underwriting is probably pretty darn strict, but it still illustrates how low interest rates have fallen in recent weeks and months.

But is the rate really as low as it appears?

While the NHHFA (possibly a made-up acronym) is pitching the 3.25 percent rate, the APR is actually significantly higher. In fact, it’s 4.158 percent.

What gives?

Well, there are a number of fees, including two mortgage points that must be paid to get that low rate.  The par rate is actually 3.50 percent.

So it’s not necessarily as low as it seems. But the APR does factor in private mortgage insurance, and likely everything else that you must pay at closing.

There’s a problem with APR though – it varies so much from lender to lender that it’s not always possible to get an apples-to-apples comparison when mortgage quote shopping.

[Mortgage rate vs. APR]

For instance, over at the Zillow Mortgage Marketplace, the best advertised quote delivered today was a rate of 3.875 percent on a 30-year fixed.

The APR was 4.018 percent, lower than the 3.25 percent rate offered by the NHHFA.

Why? Well, for one the mortgage discount fee is only 1.50 percent. And the loan-to-value ratio is 80 percent, meaning the borrower must come in with 20 percent.

The New Hampshire deal only requires a 3.5 percent down payment, and borrowers can even receive a grant so long as they bring in at least one percent of their own funds.

[Why are mortgage rates different?]

The fees on the Zillow quote are probably also smaller/fewer, which drives down the APR, but who knows exactly what’s being included.

Lowest Rate Not Always the Best Deal

So the takeaway here is that the lowest mortgage rate doesn’t always equate to the best deal.

And it’s only a matter of time before someone comes out with a 30-year fixed at 2.99 percent or something similarly outrageous.

Just make sure it’s actually a good deal for you. What I mean by that is that the super low rate actually benefits you.

If you don’t plan to pay off your mortgage or stay in your home long term, buying down an interest rate to a psychological level doesn’t make a lot of sense.

Sure, you can brag to your neighbors that you’ve got the lowest rate in history, but you may have wasted money obtaining it.

And a slightly higher rate may make more sense if your money is better invested somewhere other than housing, somewhere more liquid.

Finally, when you’re buying down your interest rate, be sure to find a certain point where the cost and the associated rate make the most sense (do the math!).

You probably won’t want to pay an extra or point or two to lower your rate just a .125 or a .25 of a point for bragging rights alone.

Read more: Will mortgage rates drop any lower?

One Comment

  1. Ferdinand J. Munoz September 25, 2012 at 9:20 am -

    I got a few questions, if anyone can please help me answer these questions. I want to know if I’m getting a good deal.

    I’m buying a house for $128,000.00, I went with JP Morgan Chase Bank. I’m getting a FHA 110 – FHA 30 YR. Fixed Loan. I currently have $8,977.99 in my saving account, not including my other two checking accounts. I am being asked to bring $4,769.92 to the closing cost but I’m already including the earnest money in there, so in fact I’m bring $3,769.92 to the closing. The bank is offering me a 3.25% interest rate with a 1.5% closing cost paid for me. Which is $1,890.00 – $3,769.92 which now all i got to bring is $1,879.92 to the closing cost, which should bring my savings to $7,098.07. Am I getting a good rate ? Should I work it out differently ? Please let me know how to produced with this problem.

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