Archive for the ‘adjustable rates’ Category

Lowest mortgage rate: at what cost?

Wednesday, October 20th, 2010

“What are your rates today?”

Many years ago we established a policy we still live by today, “My goal is to be as honest and ethical with my answers as possible. While I could tell you ‘a’ rate, if you can answer just a few questions I can give you ‘your’ rate. Which would you prefer?”

Everything has a cost and nobody works for free. Banks, lenders and brokers alike all have to be profitable or they will cease to exist. Mortgages, meals and motorcycles are all the same: there is a cost of doing business.

Interest rates contain profits. For the originating company like a broker the profit is a one time payment at the funding of the loan. For the servicing lender or “note owner” the profit comes month after month as long as the mortgage is paid. The originating lender makes profit on the loan through something called Service Release Premium (SRP). Mortgage Brokers make profit on something called Origination Fees. Lenders and banks may or may not charge an origination fee based on how much SRP they are making from the interest rate on the loan.

If you talk to a couple of lenders and brokers and they tell you the interest rate, for example only, is 4.5% and you see an ad for an interest rate of 3.5% you really want to fill out the form or pick up the phone and call that advertiser. They just won. All they want you to do is fill out that form or call them so they can explain one of two things: (a) why you do not qualify for that rate or (b) how much it is going to cost you to get that rate.

There are still Adjustable Rate Mortgage (ARM) loans available. With an ARM you can get an interest rate (starting rate) at 2% or more lower than the rate on a fixed interest loan. Of course that will only last for 3 to 5 years or so then your rate adjusts … almost always upward. There is a time and a place for ARM loans – they are not “evil” but they can be used and advertised in a manner not consistent with the highest of ethics.

Mortgage interest rate buy-downs are widely available. If you insist on getting the lowest possible rate you are going to have to make an investment elsewhere. Either you will need to take a riskier loan, like an ARM, pay some discount fees or both.

Zillow Mortgage Marketplace Chart

Rate reports where the community can police quoted rates, like , are much more trustworthy than many of the advertisers you may find online. Since the community can give feedback to Zillow about the rates quoted by mortgage companies you are assured a higher level of accuracy on apples to apples comparisons.

If you want honest answers to questions as important as the question of rate be prepared to answer a few questions for the mortgage loan professional you are speaking with. If they demand/request an application before giving you an answer simply hang up and call someone else. But, in their defense, when you are asked questions about your income, assets and payment history answer honestly and know they are only giving you a quote based on the answers to their questions. If your answers are inaccurate you cannot hold them to that rate.

One of the easiest ways to tip your hat to the loan officer who would love to take advantage of you is to start out by asking, “what are your rates today?”

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