Comparing Interest Rates
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Shopping for mortgage rates can be frustrating and the financing process can be very confusing with an array of jargon, products, guidelines and policies. Allow a Mortgage Broker to shop for you. A Mortgage Broker can find you the lowest rate in the fraction of the time it would take you to shop on your own. In general, it shouldnt cost any more to work through a Broker than it would to go to the lender yourself.
It is also important to obtain a mortgage approval or commitment letter from your lender about the loan for which you are applying. Your approval and subsequent dsiclosures should explain the terms at which financing will be delivered and what conditions you must satisfy.
If you do choose to shop make sure to compare "apples to apples". Since interest rates fluctuate daily you want to make sure you are comparing quotes from the same date to make sure that market conditions are the same for all quotes you receive.
Keep in mind that repeated credit report inquiries within a short time-frame can negatively impact your credit rating. A mortgage professional can usually give you a pretty solid quote based on your estimation of your credit and finances. However, to get an exact quote, he will need to look at your credit report.
When shopping around for interest rates and comparing interest rates, make sure you ask if the rates being quoted are fixed or not. If you are looking for an adjustable rate mortgage, make sure you ask specifically how long the rate is fixed before it adjusts. Also, if you are shopping for an adjustable rate mortgage make sure you know what index is being used to base your adjustable rate mortgage on and what the margin is. The index is the rate that your adjustable rate is based on and is the rate that actually fluctuates up and down, causing your mortgage interest rate to adjust. The margin is a fixed item that influences how high above, or sometimes even below, the index your interest rate will be. For example if the index being used to calculate your adjustable rate mortgage was Prime and lets say Prime was 8%, and the margin was 2% you would have a fully indexed interest rate of 10%. Then lets say 12 months later your interest rate adjusts again and now Prime is 7.5%, so your new interest rate would therefore be 9.5% (Prime, 7.5% + Margin, 2% = Fully indexed interest rate). Your mortgage professional can better explain this in person. This is why it is pertinent to compare "apples to apples". You could be quoted the same start rate on a mortgage, however one quote may be based on a loan where the margin is 4% and the other may be based on a loan where the margin is 1%. This could potentially be a huge difference to you in interest rate and monthly payment.
When comparing interest rates keep in mind that the lowest rate isn't always the best deal. Reducing the term of your loan from 30 years to 10 years will give a lower rate, but are the payments still affordable? Also remember that there are numerous closing costs to consider and the interest rate doesn’t matter if you don't have enough cash on hand for closing costs. While comparing interest rates is a smart financial move don't forget that the interest rate is just one facet of your new mortgage.
If you are shopping for a rate, you should try and do it all on the same day. Interest rates can change from day to day, rates can even change a couple times durring the day.
Mortgage professionals can give you only their best estimate for the day. Your rate is not guaranteed until the rate is locked. Your loan officer can lock your rate only after all the necessary borrower information is gathered.
When comparing interest rates, also pay close attention to fees.
In some situations it makes sense to have a lower origination fee and a higher interest rate.
Compare other fees as well. If .125% lower rate only saves you $15 a month, but the fees for that loan are $600 higher, it will take you 40 months to break even.
Keep i mind that you interest rate is generally tied to your credit score. If your credit score is low or you have collections and other negatives on your credit report do not expect the low rates you hear advertised on radio and Television.
Comparing interest rates is only part of the total mortgage evaluation process. It is also very important to compare payments, which can vary dramatically across mortgage types. For example, a $500,000 mortgage with a rate of 6.5% from one company may have a payment of $3160, while another company may offer a payment of $2700 at the same rate. What's the difference? The first company is offering a traditional mortgage, while the second is offering a more affordable interest only mortgage. Which is best for you? That depends on your personal financial situation, your monthly cash flow, your savings and disability insurance status. A growing number of people find that taking a lower payment each month with an interest only mortgage allows them the flexibility to pay more if necessary and achieve the same result as a traditional mortgage, or to benefit from the enhanced cash flow of the lower payment to increase savings or disposable income, and possibly an increased tax benefit.
Most interest rates you hear about in the media - in the newspaper, on the internet, on television, on the radio, etc. - are based on a best-case scenario. If you have excellent credit, you are financing no more than 80% of the value of the property, and you are willing & able to fully document your income and assets to meet standard underwriting guidelines, then you may qualify for those published rates. If any of these things don't apply to you, then you should understand that your actual rate may vary from that best-case scenario.
The best way to ensure you get a fair and accurate interest rate quote is to spend some time getting to know your mortgage professional, help them understand your personal situation and your goals, and most importantly, be honest with your mortgage professional. If you have less-than-perfect circumstances, those details will eventually be revealed. Once you've established that open rapport with your mortgage professional, they can custom-tailor a rate quote for you and even give you guidance on actions you can take to make yourself a better applicant and thereby qualify for a better rate.
It's better to spend an hour building that rapport with your mortgage professional so you get one honest interest rate quote for which you can actually qualify than spending that same hour calling or emailing 20-30 different mortgage companies and receiving 20-30 rate quotes which are not tailored to your specific situation.
Be careful of having to many companies pull your credit to give more accurate rates. This will lower your score and make the quotes you have not possible anymore.
This post has been filed under : mortgage broker, shopping for a mortgage
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