Home buyers and mortgage shoppers in Washington are sometimes surprised to learn that jumbo loans often have lower mortgage rates than their smaller “conforming” counterparts. Likewise, some find it surprising that FHA and conventional loans can have similar interest rates (with all other things being equal).
These are just a few of the things we can learn by looking at industry-wide rate surveys, like those conducted by Freddie Mac and the Mortgage Bankers Association (MBA). It also underscores the importance of getting an actual rate quote from a lender, instead of making assumptions.
In its latest loan application survey, the MBA offered some insight into interest rate trends across several different loan types. Their weekly survey includes results for the following:
- Conforming conventional loans
- Jumbo loans
- FHA loans
- 15- and 30-year mortgages
By analyzing these surveys, borrowers can learn some things about mortgage rate trends, and about how different loan products might affect the rate. Here are two interesting highlights from their latest survey published on July 18, 2018:
1. Jumbo loans had a lower average rate than conforming.
A “conforming” loan is one that conforms to the standards (including size) used by Fannie Mae and Freddie Mac. A jumbo loan, on the other hand, is one that exceeds the size limits for the county where the home is being purchased.
Borrowers sometimes assume that a jumbo loan would have a higher interest rate than conforming, since there’s a larger amount being borrowed. But that’s not always the case. In fact, jumbo products often have lower mortgage rates (on average) than smaller conforming loans. Counterintuitive, but true.
In their latest survey, MBA officials found that the average interest rate for 30-year fixed mortgages with conforming balances was 4.77% (with some points paid at closing). The average rate assigned to jumbo loans during the same period was 4.66%, ten basis points lower.
Granted, rates can vary from one borrower to the next for a number of reasons. Credit scores, discount points, down payments and other factors can influence the rate you receive on a home loan. But on average, jumbo loans in Washington tend to have lower rates than conforming.
2. FHA and conventional mortgages had similar rates.
Home buyers also wonder about the differences between FHA and conventional loans, as far as interest rates go. Which type of mortgage offers lower rates, on average? The answer is that the averages for these two products are usually pretty similar, with all other things being equal.
In its latest survey, the MBA’s data showed the following:
FHA — The average interest rate for 30-year fixed mortgages that were insured by the Federal Housing Administration (FHA) was 4.78%, during the week of July 18.
Conventional — The average rate assigned to conventional conforming mortgages was 4.77% during the same week. That’s nearly identical to the average for FHA-insured loans mentioned above.
As mentioned earlier, there are several factors that can affect the rate you receive on a home loan. Here are six of the main factors that can influence borrowing costs:
- The type of property you’re buying
- Occupancy (second home vs. primary residence)
- The size of your down payment
- Your credit score
- Fixed vs. adjustable mortgage loan
- Market rate movement and trends