Lenders Leave Clues

The lenders are giving us clues. Within the past week or so, it’s been interesting that 15-year mortgages and 30-year Jumbo mortgages are coming with unusually high points – around 2 to 2.5% when it is typically less than 1%.  Lenders make their money not only with the interest paid over the life of the loan, but also with the upfront fees charged when you get the loan.  With these higher than usual points, the lenders are making more money upfront.  By collecting more at the start with a lower interest rate over the life of the loan, the banks are basically saying they expect rates will drop over the next 1 to 3 years and that these loans are going to be refinanced.  Since they expect the loan to be paid off in just a few short years, the lenders need to earn more on the front end of the loan.  The lenders have a lot of smart people trying to read the tea leaves, so I pay attention when they send these signals.