October 13, 2017
What are the interest rates on FHA mortgage loans? This is a question that can be tough to answer because there are variables involved. Some of those variables are with the lender, but some are associated with the borrower.
FHA Interest Rates Are Not Set By The FHA
One very important aspect of FHA loans to be mindful of; the FHA and HUD do not set or regulate the interest rates on FHA mortgage loans, refinance loans, or loan assumptions. Interest rates will be negotiated between the lender and the borrower.
FHA Mortgage Loan Interest Rates Are Not The Same For All Borrowers
FHA loan interest rates, like other mortgage loan rates, are determined in part by market forces, but also by the borrower’s financial qualifications. The greater credit risk an individual borrower might be, the higher the rates which may be offered. Well-qualified applicants with good FICO scores will be offered more competitive rates. Financial qualifications and market conditions are the only legal basis for determining the terms of your loan with regard to interest rates and other costs.
FHA Mortgage Loan Interest Rates May Change Daily
The actual interest rates you are offered may vary depending on market factors and related conditions. You may read about a home loan interest rate on a given day that is no longer available the next (or even later that day, depending on circumstances). This may be due to changing rate environments, breaking news or investor reaction to it, changes in regulatory matters, or a host of other factors.
You Can Protect Yourself Against Interest Rate Changes
Borrowers who have found a home they want to purchase with an FHA mortgage and want to move into the most committed phase of the FHA mortgage loan process can, at the appropriate stage, make an interest rate lock agreement with the lender. This means that the borrower and lender agree to lock in a specific interest rate for a specified amount of time agreed upon between borrower and lender.
The rate lock protects you from further adjustments of the interest rate in the meantime.
A fee may be associated with this procedure. FHA loan rules in HUD 4000.1 state:
“The Mortgagee may charge the Borrower lock-in and rate lock fees only if the Mortgagee provides a lock-in or commitment agreement guaranteeing the interest rate and/or discount points for a period of not less than 15 Days prior to the anticipated closing.”
You Don’t Have To “Lock” Right Away
Some borrowers are tempted to “float” rather than lock in an interest rate commitment on an FHA mortgage loan. Floating is where the borrower chooses to delay the interest rate lock in hopes that rates will improve.
Floating carries a degree of risk and is not appropriate for all FHA loan transaction, depending on circumstances. But for those who choose to float, it’s advisable to decide how high rates might climb (in the event rates get worse instead of better) before cutting the losses and committing before mortgage loan interest rates go even higher.
There’s no guarantee that rates will go lower, or higher, in the time a borrower might normally consider making the interest rate lock agreement with the lender. It never hurts to ask the loan officer what advice they might have with regard to the timing of your interest rate lock based on current market trends and other variables.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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