Here’s the inside scoop on how to do it right:
First: make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell? Here are four simple questions your lender should be able to answer correctly. If they do not know the answers… talk to a lender who does!
- What determines mortgage interest rates? The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with lenders who have their eyes on the wrong indicators.
- What is the next Economic Report or event that could cause interest rates to rise or fall? A professional lender will have this information at their fingertips. Our clients are always welcome to check with us for economic information that could affect their current or future mortgage financing.
- When the Fed “changes rates”, what does this mean? What impact does this have on mortgage interest rates? The answer may surprise you. When the Fed makes a move, they are changing a rate called the “Fed Funds Rate”. This is a very short-term rate that impacts credit cards, credit lines, auto loans and the like. Mortgage rates most often will actually move in the opposite direction from the Fed change, due to the dynamics within the financial markets. For more information and explanation, just give us a call.
- What is happening in the market today and what do you see in the near future? If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well as what is coming up in the near future, you are talking with someone who is still reading last week’s newspaper, and probably not a professional you should trust with your home mortgage financing.
Be smart, ask questions, get answers!
This is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life, but we do it every single day. It’s your home and your future. It’s our profession and our passion. We’re ready to work for your best interest.
Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you should know to “shop” effectively:
- If it seems too good to be true, it probably is. Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the “hook”. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?
- You get what you pay for. If you are looking for the cheapest price, understand that you are placing a hugely important and complicated process into the hands of the lowest bidder. Would you want to travel in a car or airplane that had been built using the cheapest materials, built by the cheapest labor? In a best-case scenario, if you go with the lowest bidder, expect to receive very little advice – and be prepared for that advice to be wrong or ill-informed. You won’t get someone with a great deal of experience and you won’t get personal service. In the worst-case scenario, expect that you may not be able to close at all. All too often, you don’t know until it’s too late that the cheapest lender is the cheapest because they’re not very good at what they do – and you pay the price by having your financing fall through and losing the home you had your heart set on. We are not the cheapest. Of course, our rates and fees are very competitive, but we have also invested in the systems and the team we need to make sure you get the top – quality experience that you deserve.?
- Don’t just look at the “bottom line”. Compare lender fees to lender fees, as these are the only costs that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees, they are often low-balled by a lender to make their bottom line appear lower, since they know that many consumers don’t know better than just to look at the bottom line! The “APR” is easily manipulated by unscrupulous lenders as well, and it is worthless as a tool of comparison.
- Understand that interest rates and closing costs go hand in hand. This means that you can have any interest rate that you want – but you will pay more in fees and other costs if the rate is lower than the norm. By the same token, you can pay less in fees, or even no fees at all – but this means you will pay a higher interest rate. Either of these trade-offs might be right for you, or perhaps you’re better off somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.
- Understand that interest rates can change daily, even hourly. This means that if you are comparing lender rates and fees, you’re dealing with a moving target. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.
We wouldn’t be encouraging you to shop around if we weren’t confident that we can give you a great value and give you the kind of expert service you want and deserve.
Please call us with any further questions you may have at this time – we are ready to work for your best interest!