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SHOPPING RATES

SHOPPING RATES . . . A FEW COMMENTS! 

Often the first question asked by a potential borrower is "what is today's interest rate?" Interest rates change regularly and sometimes very rapidly. The actual rate you may expect depends on the "type" of loan you ultimately acquire. With the introduction of risk based pricing (see tip sheet section) rates are adjusted based on a borrower's credit scores, the loan-to-value ratio and other loan aspects that impact the interest rate obtainable. In other words. loan “pricing” is complicated and confusing. 

Buyers are advised to shop rates and negotiate the fees.  The media “suggests” that mortgage representatives will likely inflate both the rate and fees when given an opportunity. The problem for most buyers is “how would they know if someone is taking advantage of them?” The reality is that the buyer must ultimately determine if the person from whom they intend to acquire financing is trustworthy. 

SHOPPING RATES  AND POINTS . . . these are the two loan aspects that are perhaps most easily understood by prospective borrowers?  But, there are numerous other considerations when acquiring home loan financing.  Lenders make loans based upon their risk level and the “yield” on the mortgage over a period of time. Points (one point equals 1% of the loan amount) are the cost for acquiring a loan and are a part of the lender’s yield calculation.  For instance, one might acquire a loan at 5% with a one point loan cost or 4.875% with a 1.5 point fee.  The lender’s yield will be the same over a pre-determined period of time. Because this can be confusing, mortgage representatives could quote lower points as a “come on” and compensate for the yield with a higher rate and/or fees.               

The fact is that all lenders have the same loan programs at the same costs. The difference is whether the lender is charging an “overage” in the fees, a higher origination fee, etc.  Pricing depends on how long it might take to close the loan transaction.  If you are calling for loan quotes be sure that you are comparing apples with apples.  For instance, if one lender is quoting a 15 day rate (remember, it is highly unlikely that you will close a transaction from start to finish in 15 days) and the next lender is quoting a more realistic 30 or 45 day rate, the more honest loan representative will be at a disadvantage. So, think about the fact that you are not only shopping rates but need also to concentrate on shopping service, knowledge, expertise and the capacity to get the loan completed with the least hassle for you, the borrower.

If you still wish to only shop rates, don’t try to reach every lender . . . at most, select only a few lenders. A good rule of thumb is when you have called several lenders and received very comparable quotes, be very skeptical of the one “fantastically” low quote from some lender. Remember the saying “ if it is too good to be true, etc.” While you may feel that the higher rate quote is not competitive, it might just be the more honest approach to letting you know what to realistically expect.

Potential buyers have become more suspicious of what they sometimes view as "bait and switch" quotes. Local lenders try hard to quote as accurately as possible, based upon your individual loan needs and your current credit situation and the risk based factors that have to be considered. The more legitimate lenders will most likely tell you that they are unable to quote reliably without having your documentation information, including income information, bank statements, credit report, etc. Only then can a dependable rate quote be provided.  

DON’T RELY UPON THE INTERNET . . .The internet is notorious for misinformation.  There is little accountability by internet lenders so they can quote super rates.  Unfortunately, stories are numerous about those borrowers who, upon receiving their loan documents, find the rate different than that originally quoted.  The response is typically, “we exceeded the lock in period so the rate had to adjust upward”.  Usually, by then, the borrower is unhappy but the transaction is too far along to cancel and start over.               

Consider SERVICE . . . it’s an overused word but critical to any buyer. Will the lender . .             - help the buyer consider all the available options . . . Interview and counsel!

            - get the loan completed in a timely fashion

            - keep the buyer informed throughout the process

Buyers who shop too much . . .

             - can “shop until they drop” with confusion . . . result is often “to do nothing”

- can be dazzled by the fast footwork of some lenders . . . promising rates and terms that are impossible . . . The result is the loan takes longer or sometimes cancels.

Be Smart! Trust your intuition.  You can see that acquiring an interest rate quote is not as simple as it appears. When you find a mortgage lender who you trust, stay with them.  Stop shopping rates and enjoy the loan experience.

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