A few months ago we posted on the effect your FICO (“credit”) score would have on your mortgage payment. Given turmoil in the credit markets we though it would be interesting to revisit that post.
Example 30 year mortgage rates (from myfico.com – see site for current rate estimates):
| FICO score | APR May | APR Aug | payment/mo May | payment/mo Aug |
|---|---|---|---|---|
| 760-850 | 5.86% | 6.27% | $2,362 | $2,467 |
| 700-759 | 6.08% | 6.49% | $2,419 | $2,525 |
| 660-699 | 6.37% | 6.77% | $2,493 | $2,600 |
| 620-659 | 7.18% | 7.58% | $2,709 | $2,819 |
| 580-619 | 8.82% | 9.32% | $3,167 | $3,311 |
| 500-579 | 9.68% | 10.31% | $3,416 | $3,603 |
Amounts shown for borrowing $400,000 and rates as of May 7th. For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.
Frankly I was expecting the rates to show the widely reported expanding of the risk premium (charging increasingly higher rates for riskier borrowers). For example, in May the difference was 382 basis points (9.68% for the lowest FICO range and 5.86% for the highest. However the current difference is just 404 basis points – hardly a big increase. The reason must be that the MyFICO page shows rates for homes with 20% down at the high end of scores and 20-40% down below there.
Related: 30 Year Fixed Rate Mortgage Rates – Learning About Mortgages
Comments
6 Comments so far
There are a number of other factors that determine interest rates, so you really can’t sum it up with one single table. Some programs don’t even hit you for credit score within a certain range, while others only differ by about .125% in pricing. Additionally, property type, transaction type, doc type, customer relationship, and many other issues factor in.
This looks like a case of myfico trying to sell their credit monitoring software by promoting the importance of credit scoring. This table has more entertainment value than anything else.
It is true other factors also effect the interest rate (and whether you can get a loan at all). However, this is a chart showing the case if all other factors remain the same. That is the standard way to show effects of one variable.
I strongly disagree that the table has more entertainment value than educational value. Most people do not understand the consequences of poor credit histories. Granted you do and you even understand more but do you know how many people don’t even know if the mortgage then have is a adjustable rate mortgage or a fixed rate mortgage? We need more obvious explanations like this table to help people become financially literate.
The table clearly shows for the same house you can be paying more than $1,000 a month more due to poor credit history. That is important personal finance knowledge that many people lack. They have an idea good credit is worth something but they don’t know it might mean more than $1,000/month in their pocket.
I stumbled upon a startling figure. survey says: 45% of those carrying house mortgages do not know which type they are carrying–adustable or fixed rate.
This is staggering. Think of it, nearly half have no idea of what level of risk they are taking.
I write on con games, schemes, and scams constantly. Is it any wonder the con men thrive?
In the last 6 months the premium for jumbo loans has increased from a very small premium to over 100 basis points for high credit scores…
“But now that person might have to pay a half percentage point more. With today’s rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%…”
Since February the premium for jumbo loans has decreased to 88 basis points (from 108) for all credit scores above 620..