Interest Rate Shopping - It is very hard to get an accurate rate quote online or by telephone these days. There are some mortgage professionals that use very sneaky tactics in order to earn your trust. On the internet, there are several websites that disclose national averages or list the current rates from several lenders in your area. Have you noticed that there are several banks and lenders that quote unusually low interest rates on these websites? How are they able to do so?When shopping for interest rates, you should keep in mind that a Good Faith Estimate has 4 Sections:
800 – Lender Fees / Appraisal Fees
900 – Interest / Insurance Premiums
1000 – Reserves / Escrows Deposited With Lender
1100 – Title Fees / Title Insurance
1200 – Government Fees / Recording Fees
Unless you are not escrowing (paying your taxes and insurance separately) all of these sections should have fees associated with them. If not, you are not getting a fair Good Faith Estimate.
Smart mortgage shopping doesn't mean applying with 25 lenders. In fact, numerous inquires can hurt your score! Comparing quotes from two or three *honest* sources will give you a good idea of what rate, term, and payment to expect. How do you choose an honest broker? Ask your family and friends and don't be afraid to trust your instincts. Be particularly weary of quotes that seem to good to be true and always use caution when applying online.
When you are comparing multiple quotes be sure to compare the closing costs as well. Some lenders will quote you a very low rate, and charge you thousands in discount rates to get that rate. Since there are many factors involved in determining your interest rate, make sure that you are comparing apples to apples and take all factors into account.
When you are rate shopping don't just pay attention to the rates listed on websites and in the newspapers to make your decision as to who to who you decide to work with. The rates listed on websites and newspapers can be seriously outdated and not very accurate. The rates in the Sunday paper usually have to be provided early in the week in order to make it in the paper for Sunday and since rates change on a daily basis these rates may have changed considerably by the time you see them. On the internet there are many companies out there that do not change their rates on a daily or weekly basis so these rates can be seriously outdated as well.
When shopping for interest rates, be sure that you are comparing the same loan programs. You should not ask one company for a quote on a 15 year fixed rate, while asking several others for 30 year fixed rate quotes. Also be sure that you are not being quoted an interest only loan, or a loan with a prepayment penalty attached. Ask for a copy of the Truth in Lending (TIL), to compare rate quotes. The TIL will show the terms of loan and make it easier to compare loan between several companies.
You should also try to do all of your rate shopping at one time; ates can fluctuate from day to day and even in the same day.
Shopping Around - 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 ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY. IF THEY DO NOT KNOW THE ANSWERS…RUN…DON’T WALK… RUN…TO A LENDER THAT DOES!
2) What is the next Economic Report or event that could cause interest rate movement? (A professional lender will have this at their fingertips. For an up-to-date calendar of weekly economic reports and events that may cause rates to fluctuate, e-mail me and request a copy of my weekly newsletter, let me know if you want to be added to my weekly distribution list)
3) When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates? (The answer may surprise you. When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”. These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like. On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to the dynamics within the financial markets in response to inflation.
4) Do you have access to live, real time, mortgage bond quotes? (If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!)
Be smart... Ask questions… Get answers!
More than likely, 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 this 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.
1) What are mortgage interest rates based on? (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 a lender who has their eyes on the wrong indicators.)
Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.
First, IF IT SEEMS TO GOOD TO BE TRUE, IT PROBABLY IS. But you didn’t really need us to tell you that, did you? 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?
Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.
Third, MAKE CORRECT COMPARISONS. When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones 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 under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.
Fourth, 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 may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps 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.
Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. 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.
Again, our advice to you is to be smart. Ask questions. Get answers.
As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.
Please call us with any further questions you may have at this time – we are ready to work for your best interest!
