15-Jan-18 – Wake up, home hunters and families who still have not refinanced that old, high-rate mortgage. Experts forecast the average interest charge on a benchmark 30-year fixed home loan soon will fly above four percent on its way to five percent by the end of 2018.

In mid-January, Freddie Mac’s Primary Mortgage Market Survey reported average mortgage rates are rising across the board. Benchmark 30-year fixed loans averaged 3.99 percent on January 11, up from 3.95 percent a week earlier. A year ago, after the election of President Donald Trump, the 30-year fixed loan average jumped to 4.12 percent.

On January 11, 15-year fixed mortgages averaged 3.44 percent, up from 3.38 percent a week earlier. A year ago, lenders were quoting an average rate of 3.37 percent on 15-year fixed loans.

“Treasury yields surged last week amidst sell-offs in the bond market,” noted Len Kiefer (left), Deputy Chief Economist for Freddie Mac. “The 10-year Treasury yield reached its highest point since March of last year. Mortgage rates followed Treasury yields and ticked up modestly across the board.”

With the Federal Reserve Board forecasting at least three or four quarter-point interest rate increases this year, analysts say lenders will be charging credit-worthy borrowers five percent for 30-year fixed loans by the end of 2018. But what rate will borrowers with less-than-perfect credit scores have to pay?

According to a new study by LendingTree, the average interest rates lenders offered to borrowers depends a lot on a borrower’s FICO score.

Generally, mortgage brokers quote interest rates for a hypothetical borrower with a prime credit score who places a 20 percent down payment, the LendingTree report said. However, most borrowers do not fit this profile.

The LendingTree report includes the average quoted annual percentage rate (including lender fees) by credit score, together with the average down payment and other metrics.

The consumer-oriented LendingTree report measures factors such as actual APR borrowers are offered, down payment amount, loan-to-value ratio, mortgage amount, and interest paid over the life of the loan.

In December 2017, the best interest rate offers for borrowers with the best profiles quoted an average APR of 3.8 percent for conforming 30-year fixed loans, up from 3.75 percent in November 2017. Refinance loan offers increased one basis point in December to 3.7 percent.

However, these attractive interest rates are only offered to the most qualified applicants, the report disclosed. Mortgage rates vary, depending on parameters such as credit scores, loan-to-value ratio, annual income, and type of property being purchased or refinanced.

For the average borrower, LendingTree’s report shows the APRs for 30-year fixed loans used to finance the purchase of a home increased 12 basis points in December to 4.42 percent, the highest interest rate since July 2016.

Lower credit rating can cost mortgage borrowers thousands

Consumers with the top FICO scores – over 760 – saw APRs of 4.26 percent in December, compared with 4.56 percent for borrowers with credit scores between 680 and 719.

This is a spread of 30 basis points. That’s more than a quarter of a percentage point on the interest rate, the widest gap since April 2016.

This could mean nearly $15,000 in additional loan interest costs for borrowers with lower credit scores over the 30-year life of an average loan amount of $233,586, the report noted.

LendingTree reported that average purchase down payments have increased for eight straight months to reach $63,740 on an average loan of $233,586.

Borrowers with the best credit scores placed a total down payment of $82,314 on an average loan amount of $252,033. Based on that down payment and a 4.26 percent APR, the borrower with the 760-plus credit score will repay $180,584 in interest over the life of the $252,033 mortgage.

Borrowers with mid-range credit scores – 680 to 719 – place an average down payment of $43,604 to take out a mortgage of $216,985. Those second-tier borrowers will pay $183,050 in interest over the life of the loan and be charged an annual interest rate of 4.31 percent.

However, borrowers with a lower-tier credit score of 620 to 639 are required to place a larger down payment of $59,962 to take out a smaller loan amount of $195,540. Those lower-tier borrowers will pay a whopping interest charge of $218,347 over the life of the loan and be charged a hefty APR of 5.01 percent.