The Truth About Mortgage Rates
Just a few tips to keep in mind when mortgage shopping. See, most homebuyers kick off their mortgage shopping by looking at interest rates first, and the rest of the loan features second. Yes, I know it’s backward, but that’s just the way most people shop.
Because of this habit, it’s quite easy to be led astray when loan shopping if you’re not careful. Keep these tips in mind, and you’ll be far less likely to be led down the wrong path and connected to a loan that will cost you more in the long run.
Ready? Let’s get started
- Be Wary Of Low Rates
Banks and lenders are very aware of how attractive a low interest rate is to loan shoppers, and they’re not afraid to use this fact as a means to lure homebuyers through the front door like some creepy modern day version of the Pied Piper… Yep, we all know that those insanely low interest rates quoted in the paper, and on comparison sites are not realistic, yet people keep clicking on them by the tens of thousands per day!
Bottom line is this. Those rates rarely reflect what you’re going to be offered. The folks who are running the ads are well aware of this, yet they use them in their ads anyhow. Is that the type of company you want to hitch up with? Demand full transparency right out of the gate, and you’ll enjoy a better mortgage loan process with no surprises.
- Apples To Apples
Speaking of mortgage rates comparison sites… There is one more challenge in relying on these advertisements to compare one loan with another. The problem is that the rate offered changes (Sometimes dramatically) from one loan type to the next.
Even the time of day can and often will have an impact on what rate is quoted. There are hundreds of loan variations and conditions that impact what rate you will be offered. With this in mind, imagine how difficult it can be to do an “apples to apples” comparison!
Many homebuyers end up comparing two different loan products. To do an apples to apples comparison you’d need to make 100% certain that all of the conditions are the same when looking at the interest rate.
Another feature of interest rates that just might drive you bonkers is changeability. That’s right – Interest rates exist in a constant state of flux – Influenced by market conditions and indices that you have no control over. This means the rate you were quoted this morning just might be different from the rate you’d be quoted this afternoon or evening.
Really, the only way to know what rate is available to you from day to day is to lock it. Locking a rate is something that can only be done after you’ve submitted a full application to your loan officer. Locks are generally offered at short-term intervals all the way to progressively longer terms. For example – 30 days, 60 days, 90 days and so forth.
Once the rate lock expires though, your original rate is no longer guaranteed.
- Longer = More
Now that we’re talking about interest rate locks, let’s talk about the cost attached to those locks. No, you won’t be charged a fee in the traditional sense (At least not in most instances) – But you will “pay” in a manner of speaking in that the lender will charge a higher rate for longer term locks.
Yes, yes… I know that’s not exactly great news. However, it does make sense when you think about it. The lender is committing itself to providing you with a specific interest rate over an extended period of time. The longer the period, the greater the opportunity for rates to rise. If those rates were to rise, the lender would still be on the hook for providing that rate that could be significantly lower than available rates at that time.
In essence, the practice of charging higher rates (Or fees) for longer term locks is simply padding that serves as a buffer against rates rising in the future.
- Changes, Changes, Changes
This is something you’re likely already aware of, but a shocking number of homebuyers seem to ignore this truth – Sometimes costing themselves their loans! That truth is: “Do not change anything about your financial status, employment, or debt until after your loan is 100% closed and funded”…
See, any change you make must be taken into consideration by the lender. If they decide they are unhappy with those changes, they reserve the right to change their offer – AKA: Your loan.
Your rate, your terms, and even the required paperwork expectations can change. This is why I tell each and every one of my clients at least half a dozen times throughout the process: “Do not change a thing until you call me first”! This advice has saved a lot of homebuyers from disappointment or higher rates!
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