Hi,
Hello!
This might sound like a strange question. What is the average interest rate for a mortgage these days?
That is definitely not a ‘strange’ question. If we are talking about a ‘low risk’ loan, i.e. best case pricing, you should be seeing rates at or just under 5% right now.
“best case” meaning 730+ FICO scores, 25%+ equity, you live in the house you are financing, have provable income that qualifies under your lowest gross ‘adjusted’ income.
So in 2008, the average interest rate was 5.7%, while the inflation rate was 3.8%. Assuming the bank borrows money from the Federal Reserve for free, lends the money at 5.7%, while the money depreciates by 3.8%, 5.7% minus 3.8% equals 1.9%. So the bank makes only a 1.9% profit on the loan?
Very understandable to view the profit margin as the difference between the rates. As an ‘end game’ investor in the bond market like Fannie Mae, that is more so the case, but even then it isn’t that simple.
For your standard mortgage lender, they are getting paid what equates to a lump sum delivery fee. If the loan amount is $100,000 the lender may be making something like 3.5 “points”. That would mean $3,500 in total revenue for delivering a qualified loan. So the bank provides $100,000 at time of closing and then sells that loan on the market for $103,500 making a tidy $3,500 in profit to be split amongst overhead and profits….. meanwhile, the end investor (typically Fannie Mae) is looking to make money in the long run from the interest generated from the actual loan.
Also, why would a bank invest money into mortgage loans at 4.78%, when 30 year treasury bonds have a 4.40% yield?
Again, it is the amount of profit in points per deal for the lender and the end investors desire for a ‘long term gain’ .
On the side, ALL mortgage rates go in increments of .125% if you see anything outside of that it is an APR and a reflection of how much you are paying to get the rate your loan is set at.
My final question, is about how real estate brokers, loan originators, and other people who do mortgages get paid. I see a lot of brokers showing people houses and working with customers for free and charging them a percentage of the house's price when the house is sold.
Realtors be they ‘buyers agent’ or ‘sellers agent’ are paid a total of usually 5% of the sales price. If there are two realtors, they split that amount and usually the office they work for takes a 50% cut.
Loan officers make a fraction of a percent per loan amount closed. When dealing with very small fractions of revenue in regards to commission we frequently call this ‘bips’. To make 65 bips on $100,000 loan means that you are making $650.
Are there any brokers who work on a per hour basis, that is they get paid for the number of hours they do work for you and then don't get a percentage or a fee at the end?
Short answer is ‘no’. If I made money for every question I answered off standard hours, or if realtors got paid for showing each house there would probably be a lot less stress in the real estate / mortgage industry. As it stands there was a small movement to enforce ‘flat fee’ realtors, but that was more of a movement to decrease the amount realtors could make per transaction.
Thanks.
Of course! Anytime. If the answers above don't provide enough detail, feel free to post here, pm, email or even call.
Thanks for posting!
