This lender just launched a 1.99% mortgage
The lower your mortgage rate, the more affordable your home will be in the long run. In the recent past, a 30-year fixed mortgage with an interest rate of less than 4% was considered very competitive. In recent weeks, however, the 30-year mortgage has fallen below 3%, which now makes it a great time to lock in a home loan. But one lender is pushing the concept of low mortgage rates to an awesome extreme.
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Could you get a mortgage of less than 2%?
United Wholesale Mortgage announced earlier this week that it is offering mortgage rates as low as 1.99%. This applies to new home loans and refinances – but there is a catch.
In exchange for this low rate, borrowers pay more upfront in closing costs and points on their mortgage. If you’re unfamiliar with mortgage points, it’s basically a fee you pay a lender on closing to get a lower rate. Each point on your mortgage is equal to 1% of your loan amount and typically reduces your rate by 0.25%, so if you take out a $ 200,000 mortgage and pay two points for a lower rate, it will cost you $ 4. $ 000 at closing. This $ 4,000 is in addition to standard closing costs when you sign a home loan, such as loan origination fees, application fees, and application fees.
So a 1.99% mortgage might not be as good a deal as it sounds. This is a very low rate, but you could pay two or three times as much at closing than what you would pay for a higher rate – say, closer to 3%. And while you’re generally a winner if you stay in your home for a long time, if you buy a first home or a home you’re not sure you’ll live in for more than three or four years, then it might actually be smarter. ‘get a higher mortgage rate.
Imagine taking out a $ 200,000, 30-year, 3% fixed mortgage and paying $ 3,000 in closing costs. Your monthly principal and interest payment is $ 843. Imagine taking the same loan at 1.99%, but paying $ 9,000 in closing costs and points. Your monthly payment is $ 738 for principal and interest, or $ 105 in savings per month. But it will take you almost five years to break even with your higher closing costs. Therefore, if you plan to stay in your home for a long time, it might be beneficial to apply for the 1.99% loan from United Wholesale Mortgage. Otherwise, you might be better off with a higher interest rate which will cost you less upfront.
Finally, to benefit from a rate of 1.99%, you will need excellent credit. If your score isn’t in the mid-700s or higher, you might not get that rate. You should also expect to put down a 20% down payment on your home to get a rate close to 1.99%.
Should you take out a 1.99% mortgage?
When financial offers sound too good to be true, sometimes it’s because they are. While a 1.99% mortgage is extremely competitive, there are conditions in the form of higher closing costs and tighter borrowing requirements, so don’t count on a rate below 2%. On the other hand, if you are able to get a 30 year mortgage loan at around 3%, that is certainly not a bad thing.