Part 1: Learn About Mortgages BEFORE You Sign Up

Written by Posted On Wednesday, 01 February 2023 00:00

The question is no longer "Will interest rates increase?," but "When?"

I wrote that statement in my Realty Times column titled, Can You Win The Mortgage Rate Guessing Game? in September 2015.

Here we go again in 2022, so I repeat: “The ongoing ‘Will it? Won't it?’ debate about when the Fed will raise interest rates continues, however, for individual real estate owners and buyers, the important question is, ‘So what?’”

How well did you anticipate the interest rate pattern back in 2015? What would you like to repeat and what should be avoided? Or, is this your first time (but not last, I’ll bet) on the interest rate see-saw?

So what would higher interest rates mean to you and your real estate ownership plans now and in the future?

Clarify exactly what is at risk for you, so that you can accurately strategize how to minimize that risk.

  • If rates creep up gradually over months, even years, would this have the same affect on your financial present and future as if rates jump up significantly over shorter time frames?

Freddie Mac reports that 2021 interest rates stayed in the historically low 3% range even though rates rose from 2.6% to 3.12% last year. Mortgage pundits predict 2022 interest rate increases “in the upper 3% up to 4%” by year end. They forecast this rise in response to supply-chain-pressured escalating inflation, to Federal Reserve increases of the federal funds rate, and to Federal tapering off from asset purchases.

On the other hand, mortgage rates are tied to 10-year Treasury yields which are not expected to increase as much, so some experts forecast rates may not climb as significantly as others predict. Also, if another Covid-19 variant pushes the economy backward, rates may stabilize or even decrease.

If your plans include the purchase or sale of property, how would increased rates influence what you buy and where, or effect your profit taking from a sale?

  • If you're in your "forever home" and faced with mortgage renewal, how tolerant of a significant rate increase will you be?

What “Plan B” strategies, like creating a rental suite, do you have if interest rates overwhelm your current income situation or your employment takes a turn for the worse?

  • Will your non-mortgage debt load make you financially vulnerable as interest rates climb?

Are you going into what might be a period of interest-rate increase carrying a low credit-card and personal-loan debt load? The last two years of constrained spending have trained many to enjoy saving more than they spend.

  • How accurately does the current consumer price index (CPI), which, on an economy-wide scale, indicates the rate of inflation related to the cost of consumer goods and services, reflect your personal war against rising living costs and expensive borrowing?
  • So what?

Five Smart Mortgage Steps

A mortgage is the largest debt most real estate buyers and property owners incur and a debt that most of them know the least about, so many may miss out on opportunities to save on interest as they borrow:

1. Beyond Interest Rates

Yes, it matters which rate is used to calculate the mortgage interest you have to pay the lender for the privilege of using their money to purchase or own your real estate. Yes, a rate that is 1% lower may save you thousands over the life of your mortgage. However, factors that determine your mortgage qualification, like your current debt load, may give rise to significant differences regarding the mortgage features you are eligible for and, therefore, how much you spend in interest over the years.

For instance, mortgage contract features like prepayment may offset or override fractional differences in interest rate to reduce overall interest cost. Experiment with an online mortgage calculator to arrive at estimates of how much what you don’t understand may cost. Your mortgage professional will help you decide which contract features will be most useful to you.

2. Start Now To Prepare For Mortgage Decision Making

Until you understand the criteria involved in selecting a mortgage lender and negotiating a mortgage contract, you cannot make smart money-management decisions. You may choose to attain this knowledge yourself or to invest time in finding the best possible mortgage advisor. The more you understand about mortgages, the more effectively your professional or team will be able to communicate with you.

If you are a last-minute person, you’ll wait until rates definitely start to increase before you begin to act in your own best interest. Not a productive strategy.

Media hype, financial services marketing pitches, and high-pressure sales will increase your stress levels, but they won't prepare you to take sensible financially-sustainable action. Your choice? Tackle interest-related issues now, on your own schedule, or delay until big decisions are forced on you.

Pat on the Back: Congratulations if you are already working with a certified mortgage, housing, or financial professional or team. Searching out individuals who spend their careers helping consumers uncover answers and alternatives for essential financial planning issues like mortgage financing is time and effort well spent. Mortgage brokers, HUD-certified housing counselors, real estate professionals, and financial advisers are among those trained to help you determine the impact of higher interest rates on your finances and future before rates rise!

3. The More You Learn, The More You’ll Want to Know

Where did you learn what you know about mortgages? Since you left school, what efforts have you made to raise your personal financial literacy level?

Financial literacy describes the skills, knowledge and tools that equip people to make individual financial decisions and actions to attain their goals; this may also be known as financial capability, especially when paired with access to financial products and services.”

For instance, do you know what principal and prepayment mean to borrowers? (See definitions in Part 2.) These basic concepts should be part of your vocabulary, so you can understand and retain more from the professionals you talk to and the financial material you read. Expanding your vocabulary will also enable you to ask solid interview questions, so you can determine which professional can genuinely help you and not just shoot you a great sales pitch or con you.

Here are reliable no-charge places to start:

  • The Consumer Financial Protection Bureau (CFPB) ( is “a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.”

• Visit CFPB on mortgages and on the CFPB blog regarding lenders: Seven examples of unfair practices and other violations by mortgage servicers: CFPB supervision activities uncover red flags

• Explore the range of topics on the CFPB site and blog: New rule ensures mortgage servicers provide options to potentially vulnerable borrowers exiting forbearance

• HUD sponsors housing counseling agencies in your state that can provide advice on buying a home, renting, defaults, foreclosures, and credit issues. You can also search for a reverse mortgage counselor or, if you are facing foreclosure, for a foreclosure avoidance counselor. 

• HUD Exchange - Resources and assistance to support HUD's community partners 

Freddie Mac’s HUD-certified housing counselors can assist you “if you are struggling to make your mortgage payments and help you prepare for successful homeownership.” Free phone assistance is available through the national Freddie Mac Borrower Help Network at 877-300-4179 or one of the Borrower Help Centers listed on the site.

  • US Department of The Treasury

•  Interest Rate Statistics 

•  Financial Literacy and Education Commission and its national financial educational website: and also in Spanish


Steps 4 and 5 will continue in Part 2: Five Smart Mortgage Steps Continued

  • • How to avoid mortgage scams and fraud.

  • • How expanding your mortgage vocabulary can save on interest.

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PJ Wade —       Decisions & Communities

Futurist and Achievement Strategist PJ WADE is “The Catalyst”—intent on Challenging The Best to Become Even Better. A dynamic problem solver and author of 8 books and more than 2800 published articles, PJ concentrates on the knowledge, insight, communication prowess, and special decision-making skills essential for professionals and their clients who are determined to thrive in the 21st-Century vortex of change.

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