Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Last updated on December 8th, 2020

Looking for the best mortgage rates? We’ve all heard about the super-low mortgage rates available, but how do you actually get your hands on them?

When it’s all said and done, it never seems to be as low as the bank originally claimed, which can be pretty frustrating or even problematic for your loan closing.

But instead of worrying, let’s try to find solutions so you too can take advantage of these remarkable interest rates.

There are a number of ways to find the best mortgage rates, though a little bit of legwork on your behalf is definitely required.

After all, you’re not buying a TV, you’re buying a home or refinancing an existing, probably large home loan.

best mortgage rate

If you’re not willing to put in the work, you might be disappointed with the rate you receive. But if you are up for the challenge, the savings can make the relatively little time you put in well worth it.

The biggest takeaway is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Many prospective and existing homeowners simply gather one quote, typically from a friend or real estate agent’s reference, and then kick themselves later for not seeing what else is out there.

Below are 10 tips aimed at helping you better navigate the shopping experience and ideally save some money.

1. Advertised mortgage rates generally include points and are best-case scenario

You know those mortgage rates you see on TV, hear about on the radio, or see online. Well, most of the time they require you to pay mortgage points.

So if your loan amount is $200,000, and the rate is 3.75% with 1 point, you have to pay $2,000 to get that rate. And there may also be additional lender fees on top of that.

It’s important to understand that you’re not always comparing apples to apples if you look at interest rate alone.

For example, lenders don’t charge the same amount of fees, so clearly rate isn’t the only thing you should look at when shopping.

Additionally, these advertised mortgage rates are typically best-case scenario, meaning they expect you to have a 760+ credit score and a 20% down payment. They also expect the property to be a single-family home that will be your primary residence.

If any of the above are not true, you can expect a much higher mortgage rate than advertised.

Are you showing the lender you deserve the lowest rate, or simply demanding it because you feel entitled to it? Those who actually present the least risk to lenders are the ones with the best chance of securing a great rate.

2. The lowest mortgage rate may not be the best

Most home loan shoppers are probably looking for the lowest interest rate, but at what cost? As noted above, the lowest interest rate may have steep fees and/or require discount points, which will push the APR higher and make the effective rate less desirable.

Be sure you know exactly what is being charged for the rate provided to accurately determine if it’s a good deal. And consider the APR vs. interest rate to accurately gauge the cost of the loan over the full loan term.

Lenders are required to display the APR next to the interest rate so you know how much the rate actually costs. Of course, APR has its limitations, but it’s yet another tool at your disposal to take note of.

3. Compare the costs of the rate offered

Along those same lines, you need to compare the costs of securing the loan at the par rate, versus paying to buy down the rate.

For example, it may be in your best interest to take a slightly higher rate to cover all your closing costs, especially if you’re cash-poor or simply don’t plan on staying in the home very long.

If you won’t be keeping the mortgage for more than a year or two, why pay points and a bunch of closing costs out of pocket. Might as well take a slightly higher rate and pay a tiny bit more each month, then you can get rid of the loan. [See: No cost refinance]

Conversely, if you plan to hunker down in your forever home and can obtain a really low rate, it might make sense to pay the fees out-of-pocket and pay points to lower your rate even more. After all, you’ll enjoy a lower monthly payment as a result for many years to come.

4. Compare different loan types

When comparing pricing, you should also look at different loan types, such as a 30-year vs. 15-year. If it’s a small loan amount, you might be able to refinance to a lower rate and barely raise your monthly payment.

For example, if you’re currently in a 30-year home loan at 6%, dropping the rate to 2.75% on a 15-year fixed won’t bump your mortgage payment up a whole lot. And you’ll save a ton in interest and own the home much sooner, assuming that’s your goal.

And as mentioned, if you only plan to stay in the home for a few years, you can look at lower-rate options, such as the 5/1 ARM, which come with rates that can be much lower than the 30-year fixed. If you’ll be out of there before the loan ever adjusts, why pay for the 30-year fixed?

5. Watch out for bad recommendations

However, don’t overextend yourself just because the bank or broker says you’ll be able to pay off your mortgage in no time at all.

They may recommend something that isn’t really ideal for your situation, so do your research before shopping. You should have a good idea as to what loan program will work best for you, instead of blindly following the loan officer’s opinion.

It’s not uncommon to be pitched an adjustable-rate mortgage when you’re looking for a fixed loan, simply because the ultra-low rate and payment will sound enticing. Or told the 30-year fixed is a no-brainer, even though you plan to move in just a few years.

6. Consider banks, online lenders, credit unions, and brokers

I always recommend that you shop around and compare lenders as much as possible. This means comparing mortgage rates online, calling your local bank, a credit union, and contacting a handful of mortgage brokers.

If you stop at just one or two quotes, you may miss out on a much better opportunity. Put simply, don’t spend more time shopping for your new couch or stainless-steel refrigerator. This is a way bigger deal and deserves a lot more time and energy on your part.

Your mortgage term is probably going to be 30 years, so the decision you make today can affect your wallet for the next 360 months, assuming you hold your loan to term. Even if you don’t, it can affect you for years to come!

7. Research the mortgage companies

Shopping around will require doing some homework about the mortgage companies in question. When comparing their interest rates, also do research about the companies to ensure you’re dealing with a legitimate, reliable lender that can actually get your loan closed.

A low rate is great, but only if it actually funds! There are lenders that consistently get it done, and others that will give you the runaround or bait and switch you, or just fail to make it to the closing table because they don’t know what they’re doing.

Fortunately, there are plenty of readily accessible reviews online that should make this process pretty simple. Just note that results will vary from loan to loan, as no two mortgage loans or borrowers are the same.

You can probably take more chances with a refinance, but if it’s a purchase, you’ll want to ensure you’re working with someone who can close your loan in a timely manner. Otherwise a seemingly good deal could turn bad instantly.

8. Mind your credit scores

Understand that shopping around may require multiple credit pulls. This shouldn’t hurt your credit so long as you shop within a certain period of time. In other words, it’s okay to apply more than once, especially if it leads to a lower mortgage rate.

More importantly, do not apply for any other types of loans before or while shopping for a mortgage. The last thing you’d want is for a meaningless credit card application to take you out of the running completely.

Additionally, don’t go swiping your credit card and racking up lots of debt, as that too can sink your credit score in a hurry. It’s best to just pay cash for things and keep your credit cards untouched before, during, and up until the loan funds.

Without question, your credit score can move your mortgage rate significantly (in both directions), and it’s one of the few things you can actually fully control, so keep a close eye on it. I’d say it’s the most important factor and shouldn’t be taken lightly.

If your credit scores aren’t very good, you might want to work on them for a bit before you apply for a mortgage. It could mean the difference between a bad rate and a good rate, and hundreds or even thousands of dollars.

9. Lock your rate

This is a biggie. Just because you found a good mortgage rate, or were quoted a great rate, doesn’t mean it’s yours.

You still need to lock the rate (if you’re happy with it) and get the confirmation in writing. Without the lock, it’s merely a quote and nothing more. That means it’s subject to change.

The loan also needs to fund. So if you’re dealing with an unreliable lender who promises a low rate, but can’t actually deliver and close the loan, the rate means absolutely nothing.

Again, watch out for the bait and switch where you’re told one thing and offered something entirely different when it comes time to lock.

Either way, know that you can negotiate during the process.  Don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate mortgage rates!

10. Be patient

Lastly, take your time. This isn’t a decision that should be taken lightly, so do your homework and consult with family, friends, co-workers, and whoever else may have your best interests in mind.

If a company is aggressively asking for your sensitive information, or trying to run your credit report right out of the gate, tell them you’re just looking for a ballpark quote. Don’t ever feel obligated to work with someone, especially if they’re pushy.

You should feel comfortable with the bank or broker in question, and if you don’t, feel free to move on until you find the right fit. Trust your gut.

Also keep an eye on mortgage rates over time so you have a better idea of when to lock. No one knows what the future holds, but if you’re actively engaged, you’ll have a leg up on the competition.

One thing I can say is, on average, mortgage rates tend to be lowest in December, all else being equal.

In summary, be sure to look beyond the mortgage rate itself – while your goal will be to secure the lowest rate possible, you have to factor in the closing costs, your plans with the property/mortgage, and the lender’s ability to close your loan successfully.

Tip: Even if you get it wrong the first time around, you can always look into refinancing your mortgage to lower your current interest rate. You aren’t stuck if you can qualify for another mortgage down the road!

Source: thetruthaboutmortgage.com

Consumers Don’t Care About Low Mortgage Rates Anymore

Last updated on January 25th, 2018

As you’re probably aware, the latest move to boost the economy was another round of quantitative easing, known as QE3.

This most recent initiative targets mortgage-backed securities specifically, with the Fed pledging to purchase $40 billion per month, on an open-ended basis, until things improve.

Since it was announced, mortgage rates have inched down to new all-time lows, not that they were anywhere close to high to begin with.

In other words, I don’t think anyone was pumping the brakes on buying or refinancing because rates were “too high.”

So now homeowners that may have qualified for a rate of 3.5% on a 30-year fixed can snag a rate of 3.25% instead. Pop the champagne!

On a $200,000 loan amount, we’re talking about nearly $30 a month in savings. And ideally this money is pumped back into the economy to get things chugging along again.

But are low rates the problem here, or simply the easiest out for the Fed?

Mortgage Rates No Longer a Popular Search Term

I decided to do a little test to see if the low mortgage rates were making a difference.

Sure, they made a difference over the past few years after dropping several percentage points, but now that they’ve been so low for so long, I wanted to see if pushing them even lower would make a material difference.

So I turned to Google, and more specifically, their Insights for Search tool. It shows you what people are searching for on Google, which can be a pretty powerful gauge of something’s popularity.

For example, if we look at the term, “NFL,” we can see that it’s very seasonal, and also very predictable.

In August, searches for “NFL” jump, and then remain elevated until January when the Superbowl takes place.

Search volume quickly plummets after the season ends, then rises briefly in April during the NFL draft, and remains low throughout summer.

What about the term “mortgage rates?” Well, if we look at the chart, search volume is now about the same as it was back in 2006, when the housing market was reaching its apex.

But it has fallen by nearly 50% compared to numbers seen in August 2011. And volume is only about a quarter of that seen in December 2008.

Since then, it has steadily fallen, aside from a couple blips in August 2010 and August 2011.

In both of the past two summers, mortgage rates fell rather significantly, which explains the boost in search volume.

Mortgage rates for 30-year fixed mortgages also fell from 6.09% in November 2008 to 5.29% in December 2008, per Freddie Mac data, which explains the spike in search volume then.

And even though mortgage rates are now about two percentage points lower than that, search volume is nowhere close to what it once was.

Why Did We Switch Off?

So what gives? Did most people refinance already, or do many people perceive the low rates as “old news?” Or is it that most people are aware of them, but realize they don’t qualify for one reason or another?

Whatever it is, it’s pretty clear that there is a lot less interest than there used to be, despite the housing market showing signs of improvement. If anything, volume should be up with home sales. But that’s not the case.

Could it be fatigue, or is it that it’s just boring at this point? How many straight weeks or record low mortgage rates do we need to hear about it on the local news?

Most people I speak to (outside the mortgage world) don’t seem too interested about the rates. They know they’re low, but don’t really care too much.

Even if they didn’t refinance, they’re usually pretty lax about the whole deal, which makes me wonder if pushing rates lower and lower is the solution here.

Perhaps the Fed should focus on getting the economy kickstarted another way, instead of pushing interest rates to zero.

Read more: Are mortgage rates negotiable?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Renters Beware: These Hidden Costs May Be in Your Lease

Utilities, pets, parking, amenities — there may be more to your rent payment than you thought.

By Leigh Raper

The rental market is extremely competitive in many urban markets right now. According to the Zillow Group Consumer Housing Trends Report 2017, renters account for 37 percent of all households in America — or just over 43.7 million homes, up more than 6.9 million since 2005.

This jump in the number of renters has put pressure on both tenants and landlords. Tenants are scrambling to find the right place, while landlords are trying to find the right price. And both parties are getting creative about how and when to spend their money.

Renters sometimes forget their landlord is running a business too — until they sign a new or renewed lease, that is. Renters may discover that while the rent seems reasonable, the landlord has included itemized charges for utilities or other amenities that add up to a sizable bottom-line difference.

Power play

Utilities are not exactly a hidden cost, but they’re often overlooked by tenants eager to move into a new apartment or renew their current lease.

Always factor utilities into the overall cost of the property. Landlord-tenant laws in each state govern how utilities can be billed, along with what recourse either party has in the case of missed payments or shutoffs.

Sometimes utilities are in the landlord’s name and included in the overall rent charge. Other times, tenants are required to place the electric or gas bills in their names. (Many municipalities require the water and/or sewer accounts to stay in the landlord’s name.)

Then there’s third-party billing: situations where master meters serve an entire building, in which case the landlord splits the charges among all the tenants and bills them individually. Third-party billing makes sense for the landlord, who can advertise a base rental price but charge the utilities as an add-on.

City ordinances

Certain cities have clamped down on third-party billing, which they view as deceptive. In Seattle, for example, the third-party billing ordinance covers all residents living in buildings with three or more units. The ordinance was written to protect tenants from unscrupulous landlords who were fraudulently overcharging them.

The Tenants Union of Washington State, a nonprofit dedicated to education, organizing and advocacy for tenants, provides detailed information for renters about third-party billing and other important issues related to utility costs.

Many of the best practices they recommend apply to all tenants, regardless of location:

  • Ask questions about utility service before you sign a lease.
  • Set up your utility accounts quickly.
  • Pay utility bills promptly and keep documentation of all payments.
  • Take steps to protect yourself with the landlord.
  • Act immediately to resolve utility disputes.

Other “hidden” charges

There are other fees, besides utilities, that your landlord might charge. Some of these are optional add-ons determined by a certain tenant’s particular situation, but others apply to everyone. Landlords in a competitive rental market might even increase these fees based on supply and demand.

The add-ons can include pet fees or a separate charge for parking. Some properties charge an application fee — whether or not the prospective renter is approved.

Other properties, particularly condos or developments subject to homeowners associations (HOAs), charge move-in fees for tenant-occupied units. Amenities, such as cable TV or internet access, which are not considered utilities under most ordinances, might also be billed through an HOA or the landlord.

Of course, this is all in addition to a security deposit and any rent you might have to prepay, like first and last month’s rent due upon move in.

Have questions? Need help?

Advocacy organizations, like the Tenants Union in Seattle, operate around the country. These nonprofits offer help and information to renters.

State agencies also provide information for both tenants and landlords. For example, Georgia’s Department of Community Affairs publishes a Georgia Landlord-Tenant Handbook on its website. A quick internet search will yield similar results in most states.

Sometimes, though, problems and questions can’t be resolved with online information. That’s where consulting an expert can be a smart solution.

Lawyers who specialize in landlord-tenant law not only are familiar with the underlying law in a given geographic region, but also have experience with the systems and processes that can efficiently and economically resolve disputes. Often, spending money for expert advice early on can yield big savings in the long run.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published April 8, 2016.

Source: zillow.com

What QE3 Means for Mortgage Rates

As widely expected, the Federal Reserve announced “QE3” last week, a move taken to bolster the flagging economy by putting downward pressure on long-term interest rates.

More specifically, the Fed pledged to purchase even more agency mortgage-backed securities (MBS) in an effort to push mortgage rates lower than already are, via a method known as quantitative easing.

Their plan is to buy roughly $40 billion in MBS per month, with no set time period. In other words, it’s open-ended, which may have been unexpected.

And it will only come to an end when the economy and labor force have improved noticeably, and probably extend even further beyond that.

The Fed will also maintain an existing policy of reinvesting principal payments from its current agency debt and agency MBS in additional agency MBS.

Altogether, these latest actions will increase the Fed’s holdings of longer-term securities by about $85 billion each month through the end of 2012.

Just Tell Me How Much Rates Will Drop!

  • As the Fed makes the pledge to buy more mortgage-backed securities
  • Demand should rise, pushing MBS prices higher
  • Which means lenders will be able to make more and offer lower rates to consumers
  • Rates could drop .125% to .25% or more

Okay, okay, so what on earth does all that mean in layman terms? Well, with the Fed buying so many MBS, demand for them rises, prices rise, and the yield drops, and thus mortgage rates drop.

So the interest rate on your 30-year fixed mortgage goes down, though how much it will go down is the big unknown.

After QE3 was announced on Thursday, mortgage rates quickly sank back to record lows seen a month or so ago.

Unfortunately, mortgage rates have already fallen so much that the movement doesn’t mean a whole lot.

We could be talking anywhere from an eighth to a quarter point in rate, so instead of a rate of 3.625% on your mortgage, it might be 3.375%.

On a $200,000 loan amount, the difference in monthly payment is roughly $28. In other words, you can go to the movies or out to a modestly-priced dinner each month.

So before you get too excited, you may want to come to terms with the fact that it’s not going to change your life.

Granted, if you hold the mortgage for the full term, you’ll save about $10,000 in interest.

Rates Are Already Rock Bottom

  • The problem is that rates are already super low
  • And the lower they go, the harder it is to push them lower
  • So while perhaps a well-intentioned move by the Fed
  • It might not have the desired effect, especially if lenders are too busy to bother lowering rates

I’ve said this time and time again. Mortgage rates are already so stinking low that there’s not much room to move any lower.

Yes, it’s possible that the 30-year fixed could dip into the 2% range if the economy takes another wrong turn. Or if Europe implodes. Or if something else unthinkable happens. Let’s not tempt fate.

But the lower mortgage rates are, the less upside there is of them getting any better. When rates are high, it’s easy for them to slip lower and lower.

However, once rates drop considerably, as they already have, it’s probably safe to expect only modest improvements, if that.

That’s pretty much what we’ve seen over the past year and change, modest improvements after much more sizable declines.

So perhaps it’s best to look at the Fed announcement more as a preemptive move to avoid a rise in rates.

In effect, QE3 might mean low mortgage rates for a longer period of time, despite improvements in the broader economy that normally dictate their direction.

After all, mortgage rates had risen a bit over the past month, and the new G-fee has also made mortgages more expensive.

This effectively puts rates back to their most recent lows. Anything beyond that is still a big question mark.

And even if they did drop any lower, I don’t know if it would have much of an effect.

Mortgage lenders are already swamped with refinance applications, and those looking to purchase a home certainly are not holding back because mortgage rates are too high!

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

4 Ways to Ensure Your Pet Is a Good Rental Resident

Yapping, chewing, howling, scratching … not in this home!

Nobody likes living next to a yappy dog — or even a howling cat. And while a growing number of rental properties specialize in pet-friendly apartments and homes, it’s understandable why both property owners and their leasing agents are skeptical about pets.

Here are some quick tips to help your pet be a neighborly renter.

1. Get them certified

To really show your future landlord that your dog is a good resident, consider getting a Canine Good Citizen (CGC) certificate. Offered by the American Kennel Association (AKC), this certification proves that a dog has received basic training and is well socialized around both people and other dogs — thus, less likely to cause disturbances.

If your dog is currently working with a trainer, ask about this certification, as many trainers are also CGC certified. The AKC provides details about groups in various states that also offer this certification.

Additionally, get a letter of recommendation from a previous landlord about your pet’s behavior. It can put you in a strong position to look at a wider variety of pet-friendly properties.

2. Keep them busy

Take your dog for a long walk or run before you go to work to leave them tired and happy — and content to snooze instead of scratching the front door or annoying the neighbors by howling nonstop.

Separation anxiety and stress often lead to bad behavior in your absence. Give your pets distraction toys to keep them busy, or leave on a TV or radio for a sense of companionship.

Consider employing a dog walker to come once a day, or send your pup to day care. Even if it’s only one day a week, it’s one day less of them being stressed because they’re home alone.

A variety of calming products — such as plug-in pheromone diffusers and anxiety wraps like the ThunderShirt — may help reduce your pet’s anxiety levels and prevent nonstop barking throughout the day.

3. Mind the felines

If you have a cat, get a large litter box and scoop it daily. Cats will go outside the litter box and pee on carpets if their box is dirty.

Similarly, keep a variety of scratchers around the home. Cats usually like to scratch soon after they wake up from a nap, so place scratching posts close to a favorite sleeping spot. This will deter them from permanently damaging your woodwork and carpets.

4. Prevent pests

Summer is the height of flea and tick season. Make sure your pet has the necessary protection so they don’t bring fleas indoors to infest your home.

Interestingly, fleas only spend 20 percent of their life span on a pet. They spend the rest of their time in your carpeting and furnishings — and they can be difficult to eradicate quickly. Plus, landlords will charge for this kind of pest control.

Like with so many other things in life, prevention is key.

Looking for more information about renting? Check out our Renters Guide

Related:

Originally published July 13, 2016.

Source: zillow.com

New Rule Aims to Demystify Mortgage Origination Costs and Fees

Posted on August 21st, 2012

Yet another proposed rule is being floated by the Consumer Financial Protection Bureau (yes, they’ve been busy) to help mortgage shoppers better understand the origination costs and fees associated with their home loans.

The group argues that in its current state, it’s difficult for consumers to compare different combinations of mortgage rates, points and fees.

So in reality, consumers can still wind up with a bad deal, or a not-as-good deal, unknowingly, thanks to the complicated nature of mortgage lending.

Additionally, without this rule, the Dodd-Frank legislation would essentially prohibit the payment of upfront points and fees, even if a borrower wanted to pay them to snag a lower mortgage rate.

[Watch out for low mortgage rates you must pay for!]

No-Point, No-Fee Mortgage Options Required

To clear things up a bit, the CFPB wants to make it a requirement for all loan originators to offer no-point and no-fee options alongside those where the borrower pays the fees.

They believe this will make it easier to comparison shop among different banks and lenders, because as it stands now, it’s really hard to get an apples-to-apples comparison.

Even if a consumer doesn’t shop around, the CFPB argues that they’ll be able to compare multiple loan offers from a single lender to better determine what rate and fee combination is best for them.

For example, a borrower could get the option of paying 1% of the loan amount for a 30-year fixed rate of 3.5%, or no origination fees at 3.625%.

The only time a lender wouldn’t have to offer these options is if doing so would lead to disqualification.

In other words, if a borrower’s mortgage rate jumped as a result of a no cost loan, making them ineligible for the loan to begin with.

My guess is that there will be a lot more no cost loans in the future, as most borrowers will prefer a loan where they pay nothing out-of-pocket, and only see their monthly mortgage payment rise by $20 or some other incidental amount.

Interest Rate Must Drop When Paying Upfront

In addition to that rule, the CFPB wants to ensure that paying mortgage discount points or loan origination fees at closing actually lowers a borrower’s interest rate.

So if a borrower pays one mortgage point, they should see their mortgage rate fall by a certain percentage, whether it’s a quarter of a point or just an eighth.

If the borrower’s mortgage rate doesn’t fall by some amount, upfront points or fees would essentially be disallowed.

After all, if a borrower is paying upfront costs for a lower interest rate on their loan, but doesn’t actually receive one, it’s arguably predatory.

All in all, it looks like there will be more transparency regarding interest rate buy downs and prepaid interest, which is a good thing if executed properly.

But there’s still some interpretation to the rule. A bank could charge a hefty loan origination fee and offer a disproportionate interest rate reduction.

More Qualified Loan Originators

Finally, the CFPB wants to beef up qualification and screening standards for the lovely people that originate our mortgages.

So no matter if an originator works for a bank, thrift, mortgage broker, or a nonprofit, they would be subject to the same character, fitness, and financial responsibility.

Additionally, they would be screened for felony convictions, and would all be required to undergo training to ensure they actually know what the heck they’re talking about.

Yes, there are scores of loan originators, mainly at the big corporate banks, who don’t know the first thing about mortgages. Instead, they rely on a computer to figure it all out for them, even if it’s not in your best interest!

Ideally, this will lead to more educated loan originators making better decisions for borrowers who need some guidance during the loan process.

The CFPB is seeking comment on these rules, and will finalize them by January 2013.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Pros and Cons of Refinancing Your Mortgage Right Now

Since April 1, 2009, roughly 16.2 million American homeowners have refinanced their mortgages, according to the latest Housing Scorecard released by HUD.

But as you may or may not know, there are still millions of homeowners who have not, for one reason or another.

Some may not be eligible, while others may be going through foreclosure or have simply given up on making payments.

[Reasons why you can’t refinance.]

And hey, some just may have procrastinated, or simply aren’t that interested in their mortgage.

For example, Obama hasn’t refinanced his mortgage in seven years, but Bernanke has been all about it in recent years.

If you look at the chart below, you’ll notice that refinancing has been pretty steady since the lull in 2008 (when lending came to a standstill), but it’s still nowhere close to that seen in 2003 when things were bubbling up toward implosion.

refinanced

Yet, mortgage rates are at all time lows, and continue to fall seemingly every week, month, etc., not that anyone seems to care.

So if you’re on the fence about refinancing, let’s look at a few pros and cons of refinancing now vs. later.

Con: Home Prices Rising

Home prices have been on the rise for a while now, and are expected to keep climbing nationwide.

The Housing Scorecard also noted that rising property values have brought homeowner equity to its highest point since the third quarter of 2008.

That pushed 1.3 million homeowners out of an underwater position. That’s great for those looking to refinance, as it should make it easier.

equity

But higher home prices also make refinancing even more attractive to those with equity because their loan-to-value ratio may fall to a lower threshold, pushing their qualifying mortgage rate even lower.

So for those who believe their home value will keep increasing, pumping the brakes on refinancing might be a good move, especially if you’re right on the cusp of a LTV threshold such as 80%, where you can ditch mortgage insurance.

Pro: Record Low Rates

On the flip side of that argument, one could argue that mortgage rates are at unprecedented levels, and you’d be a fool not to refinance now.

After all, what if mortgage rates tick higher and you “miss your chance” at snagging a 30-year fixed near 3%?

You might kick yourself a few times for missing the boat. And how low can mortgage rates really fall?

Con: Even Lower Rates

Well, the housing pundits have said that month after month, and week after week, only to grab their erasers and pretend they didn’t call a mortgage rate bottom.

I’ll admit that I’ve been one of those people.

Yes, rates are absurdly low, but no, they probably haven’t bottomed. There is still so much uncertainty out there that can push rates even lower.

Europe is still unraveling, and whether there has been much improvement locally is still a big question mark.

With the Fed pledging to buy mortgage securities until the cows come home, waiting could pay off.

Pro: Lower Payments Today

But, the longer you wait to refinance, the more you’ll pay each month in the form of a higher interest rate.

So if you keep riding it out, waiting for that perfect time to refinance, you’re essentially missing out on a lower payment during those months (or years).

Make sure you factor in all that money once you finally make the decision to refinance. The savings could be skewed as a result.

Con: Big Picture Savings

Of course, you might just say, “hey, I might be spending more each month now, but once I get a 2.50% 30-year fixed, I’ll be ahead in no time.”

That could be true, and someone who waits a bit longer could wind up with an even better rate and a lower monthly payment, which could spell bigger savings over the years ahead.

[Locking vs. floating]

After all, refinancing costs money (unless it’s a no cost loan), and serially refinancing isn’t always possible (nor fun), especially if your credit takes a hit or something else makes you ineligible.

Pro: You’re Eligible Now

Speaking of, if you’re eligible now, and the interest rate is dynamite, letting it ride might not be the best move.

What if something does bar your eligibility, such as unemployment, a mindless missed payment that leads to a lower credit score, or simple program changes?

There’s been talk about all types of stuff on the horizon, like a qualified mortgage, which Romney mentioned in the first presidential debate.

You wouldn’t want to be caught out by a future change or misstep, would you?

In summary, you can’t really go wrong by refinancing right now, assuming it saves you money, but yes, waiting could prove to be better.

In any case, take the time to really think it over!

Source: thetruthaboutmortgage.com

The Problem With Mortgage Rate Surveys

Every week, mortgage financier Freddie Mac comes out with a mortgage rate survey, which reveals the average interest rate (and points) charged by lenders for popular types of home loans.

About 125 lenders from across the nation, including thrifts, mortgage lenders, credit unions and commercial banks, take part in the survey that dates back to 1971.

The survey data is collected from Monday to Wednesday, and the results are posted on Freddie Mac’s website on Thursday of each week.

Come Thursday morning, the media goes nuts with the data in the report, known as the Primary Mortgage Market Survey (PMMS).

And just minutes after its release, you’ll see startling headlines like, “mortgage rates fall again,” or “mortgage rates climb higher.”

Mortgage Rate Surveys Use Old Data

  • The biggest flaw with the survey is that the rates are delayed
  • Because mortgage rates aren’t static
  • They are constantly in flux, both daily and intraday changes can take place
  • So you’re really just getting yesterday’s news at best

Unfortunately, whatever the message may be for a given week, it’s often old news by the time the media gets their grubby hands on it.

You see, mortgage rates can and will change daily, and sometimes swing dramatically, depending on what’s going on that week.

Lately, there have been plenty of swings thanks to all the uncertainty regarding the direction of the economy.

So a mortgage rate quote (yes, they’re just quotes in the survey) given to a handful of borrowers on Monday may be completely different by Thursday.

Sure, it could be exactly the same too, but chances are it won’t be. And the direction of rates often highlighted in news reports may be completely wrong as well.

Imagine opening up a newspaper on Thursday morning and viewing stock quotes from a few days earlier. That wouldn’t do you much good, would it? Especially if you had to act on it.

Assumptions Aplenty

  • Like all other rates you see advertised or surveyed
  • They make a series of assumptions
  • Such as a 20% down payment or a 740 credit score
  • Which may or may not actually apply to you

Okay, so the data isn’t as timely as the media might make it appear, even if it’s “weighted” and “averaged” and “algorithmically adjusted.”

Yes, I’m making up phrases here, but the point is the data is only as good as the day it is released, at least for the purposes of a prospective borrower shopping rates.

On top of that, the rates in the survey assume the world of you, the borrower.

The rates are based on first-lien (first mortgage) prime (great credit) conventional (non-government) conforming mortgages (small loan amounts) with a loan-to-value ratio of 80% (big down payment).

In other words, if you’re not putting down 20%, the rate in the survey isn’t for you. And if your credit score isn’t tip-top, you should also ignore the rates in the survey unless you want to be disappointed.

If you’ve got a jumbo loan, again, don’t bother reading the survey if you’re curious what rate you’ll actually receive.

Are the Mortgage Rate Surveys a Waste of Time?

  • Averages and old data don’t sound very useful
  • But the weekly mortgage rate surveys do have some value
  • In measuring interest rates over time for research and perspective
  • However for rate shopping they’re probably not all that helpful

I know I sound overly negative about the survey, but back in the day, I used to report on it just like every other major media outlet.

I stopped after I realized it wasn’t adding much value, not to mention the fact that 1000 other news outlets wrote about the very same stuff every Thursday morning.

The surveys aren’t inherently bad, they’re just not a very effective tool for borrowers shopping rates. If anything, they’re good to measure interest rates over time.

And a researcher may use the data to explain something that happened in the past, or to attempt to predict something that may happen in the future.

But for mortgage rate shopping, the Freddie survey (or any of the many, many other surveys out there) won’t do you much good. If anything, it could just frustrate you (and your loan officer) when the numbers don’t match up.

Zillow launched a weekly mortgage rate update a while back that is released every Tuesday.

They actually note that theirs isn’t a survey and the rates aren’t “marketing rates,” but rather are based on custom mortgage rate quotes submitted daily, reflecting the most recent market changes.

Again, take them with a grain of salt because there is no one-size-fits-all in mortgage lending.

So if you want the real skinny, get daily mortgage pricing from the bank or lender you’re working with.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

A Long Mortgage Process Can Be Your Friend or Your Worst Enemy

Posted on August 17th, 2012

Let’s face it, these days it takes a while to get a mortgage. And by a while, I mean months in some cases.

Why? Because everyone and their mother is well aware of the record low mortgage rates, and they all want a bite.

As a result, both purchase and refinance transactions are averaging 48 days to close as banks and lenders merely try to keep up with demand.

This means once you submit your loan application, it will take an entire month and a half to actually close the deal, if you’re lucky.

Obviously this is more important for purchase transactions, as they are more time-sensitive, but timing is very important when it comes to refinancing as well.

Mortgage Rates Subject to Change

When you see a certain mortgage rate advertised online or on TV, you must take it with a large grain of salt.

First off, it’s a perfect-scenario rate for someone that meets certain requirements, such as having a great credit score, a large down payment (or low LTV ratio), and a loan amount below the conforming limit.

Assuming you meet all those requirements (and more), that rate may still be out of reach for one reason or another, one being time. In short, a rate you see today may not be available tomorrow.

That brings us back to that 48 days to close situation. Per the latest Origination Insight Report from Ellie Mae, refis averaged 48 days to close in July, while purchases averaged 47 days.

These numbers have been inflated for the entire year now, and loan originators are swamped trying to get all those applications funded. While they’re working to fund your loan, don’t expect mortgage rates to stand still. Instead, expect a roller coaster ride at best.

Who’s Hurting?

Well, in the past couple weeks mortgage rates have been trending up after touching all-time lows.

As a result, those who submitted loan applications a month or so ago may be in for a rude awakening.

For example, they may have submitted their loan when the 30-year fixed was averaging close to 3.5%, only to find rates have climbed to 3.75% today.

If it’s almost time to close, they’ll have no choice but to take the higher rate (or buy down their rate). A higher rate could also jeopardize their approval if it swings their DTI ratio too high.

Clearly this isn’t ideal, but this is why savvy borrowers lock their rate instead of floating it when rates are attractive.

So those who got greedy or simply didn’t think to lock might be bummed out.

Is Now the Time to Wait?

Because mortgage rates have been climbing steadily on what appears to be no news, we’re probably due for a correction sometime soon.

After all, the economy hasn’t exactly proven itself, and Europe isn’t out of the woods. It seems their latest move is to just keep quiet and hope no one notices what’s really going on.

It certainly seems to be cyclical, with bad news and good (or no news) coming in and out, pushing mortgage rates up and down.

At the moment, we’re in an uptrend, so those who just submitted loans may want to wait it out until things improve again. Heck, you’ve got more than a month to decide.

Sure, you run the risk of mortgage rates climbing even higher by the time you close your loan, but with no great news out there, there’s a good chance rates could trend back down to where they were a month ago.

All that said, make sure you consider timing when submitting your loan. Ask your bank or broker how long it will take to close, and plan accordingly to ensure you get the rate you want.

For the record, the closing rate has been pretty dismal of late. Only 37.9% of refis and 58.7% of purchases actually closed(within 90 days), meaning plenty of loans are getting denied for one reason or another.

Read more: Reasons why your refinance was denied.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com