Saturday, 24 June 2017

Get a Better Mortgage Interest Rate

Written by Posted On Thursday, 12 November 2015 21:24

People will clip coupons and drive across town to save a few cents at the gas pump, but few will shop around for the best interest rate on their mortgages. Most buyers tend to go with the first lender they talk with, perhaps out of fear of losing the house if they don't act quickly enough. Paying one-eighth of a point too much can add up to thousands of dollars over the life of the loan.

You're smarter than that. Know you have the right to shop lenders and negotiate mortgage interest rates and fees. Here's how to do it.

First, you need to decide on which loan program you're going to compare. You need to decide between a fixed, an adjustable rate mortgage (ARM) and a hybrid. A fixed rate is fixed throughout the life of the loan, so it costs a little more. An ARM has an interest rate that can vary throughout the life of the loan, which would be cheaper now, but might cost more down the road. A hybrid is an ARM that is fixed for a predetermined period, such as five years, then it morphs into an ARM.

With interest rates still near historical lows, most people select a fixed rate because it's safest and protects you better the longer you stay in your home. An ARM or a hybrid loan is best if you plan to move in five years or less, but most people stay in their homes as long as nine years or more.

Next, you need to select a loan term, which refers to its amortization period. The most common fixed-rate term is the 30-year fixed-rate mortgage. Lenders also offer fixed rate loans in five-year increments beginning with ten-year loans, so you can select a 15, 20, and 25-year fixed rate. The advantage to doing that is that you'll pay the loan off faster, but you should know that the loan will cost more monthly because you're paying down more interest and principal at a time, even with a lower interest rate.

How do you decide which loan is best? By what you can afford. If you want the best rates, conventional loan-to debt-ratios prevent you from having more than 41% of your gross income used toward debt payments and mortgage payments. The ceiling for mortgages is about 28% of your income, with the rest of your debt payments going toward a car payment, student loan, or revolving credit card charges. If you have low debt, or are buying a modest home compared to your means, it's a good idea to get a shorter term.

Once you select the proper loan as well as the term you can start shopping. Give the lenders you call the exact same facts -- what kind of loan you want, how long the loan term will be, how much you want to put down toward the purchase price, and your credit score. According to the new loan disclosure requirements, which went into effect in August 2015, you have to provide six pieces of information to qualify for an "application":

  • Your Name
  • Your Income
  • Your Social Security Number
  • The Property Address
  • The Contract Price of the Property
  • The Mortgage Loan Amount

The lenders have to return a good faith estimate of what your closing costs will be within three business days. Then you can compare and choose the loan with the most favorable costs to you.

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Blanche Evans

"Blanche Evans is a true rainmaker who brings prosperity to everything she touches.” Jan Tardy, Tardy & Associates

I have extensive and award-winning experience in marketing, communications, journalism and art fields. I’m a self-starter who works well with others as well as independently, and I take great pride in my networking and teamwork skills.

Blanche founded evansEmedia.com in 2008 as a copywriting/marketing support firm using Adobe Creative Suite products. Clients include Petey Parker and Associates, Whispering Pines RV and Cabin Resort, Greater Greenville Association of REALTORS®, Better Homes and Gardens Real Estate, Prudential California Realty, MLS Listings of Northern California, Tardy & Associates, among others. See: www.evansemagazine.com, www.ggarmarketclick.com and www.peteyparkerenterprises.com.

Contact Blanche at: blanche@evansemedia.com

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1 comment

  • Comment Link Marie Haydock Tuesday, 29 December 2015 15:40 posted by Marie Haydock

    These are some good fundamentals for applying for a loan and shopping around for price, Blanche. Now buyers know what pieces of information they have to have ready if they want to start shopping. Thanks for sharing.

    I would add that the total cost of the loan is important, but also the rest of the terms and conditions and the quality of service you receive from the lender. In my experience, the number 1 reason contracts fall through is because of the Buyer's lender, so there's a lot to consider when making that choice.

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