Interest rates are incredible, but I want to point out some recent limitations to these excellent rates.

Normally, in terms of points vs. no points vs. no points/no fees, interest rates tend to work in .25% increments. For example, you would be quoted in the following manner (this is a general example, not an interest rate quote):

• 4.75%: 1 point plus closing costs
• 5.00% : no points, all closing costs
• 5.25%: no points, no fees (fees are still associated with the loan, but you’re charged a higher interest rate because the fees will be paid for you, so that you’re not coming in with anything out of pocket)

You can see how this generally works in increments of .25% to the rate.  (And yes, you should always consider the overall cost to the rate you’re being quoted.  I help you determine the cost/benefit of paying fees and/or points versus no fees or points).

Lately, this has not been the case, and instead, rates have been all over the place. I quoted a client yesterday a 30 Year Fixed conforming loan at 4.875%, no points, but with closing costs of $2900 max (APR 4.936%) OR 5.375% no points/no fees (APR 5.375%). This half a percent difference in rate is pretty significant in comparison to how rates usually work.

In “Agency Jumbo” loans (loan amounts between $417,000 to $625,500), it is hard to find any rate that doesn’t carry some fraction of a point, in addition to normal closing costs.

But why is this happening?

Well, I don’t have a definite answer, but I do an have a strong opinion. The only reason that I can think as to why rates are being priced this way is because banks want consumers (you) to pay closing costs or closing costs plus points. By doing so, it will make less sense for you to refinance if rates drop further and this is more profitable for them because this way they keep your business.

Regardless of this discrepancy, these rates are incredible!  I haven’t seen them this low since the lows of October 2003.  To get a rate in the 4% range without paying points … wow.