Effects of Low Mortgage Rate

By Martin Lukac

Recently we have witnessed a boom in the mortgage industry. With increasing real estate values and a very low inflation, interest rates have touched an all time low. Since inflation is running extremely low at present, economists feel that mortgage rates will remain low in the near future also. As an obvious consequence homeowners are giving serious thoughts to the effects of low mortgage rate.

Usually, mortgage lenders offer a variety of combinations of interest rates and points. For example, 6.0% and 2 points, 6.5% and 1 point or 7.0% and no points. Points are a one-time upfront payment that the borrower makes to the lender at the time of closing the mortgage. It is a fee like the interest and not a part of the down payment. A drop in mortgage interest rates reduces the cost of borrowing and should logically result in an increase in prices in a market where most people borrow money to purchase a home (for instance, in the United States), so that average payments remain constant.

One of the direct effects of low mortgage rate is that the homeowners opt for greater savings through refinancing. Hence the cost to savings ratio is exceeded. Refinancing can be a boon in several situations since some of the main reasons to refinance are: - Lower interest rate - Consolidate 2nd mortgage loan - Lower loan term - Lower monthly payments - Payoff other personal loans and - Take cash out from equity

One of the most intriguing effects of low mortgage rate is the dilemma faced by the borrowers about whether to reduce their payments or the length of the loan term itself. Lower rates allow you to reduce your mortgage from say 25 years remaining to 15 years remaining with the same monthly payment. The next thing you would like to do is refinance again so that you will be able to reduce it to 10 years.

Another common rationale for refinancing and taking the equity out of your house as an effect of low mortgage rate is to be able to pay off credit card debt. You can also opt for a debt consolidation loan. By reducing your payment you will be able to pay off higher rate debt like credit cards. But try to eliminate interest payments wherever possible. The average credit card will have an interest rate of 18% to 25%. You can actually get rid of those high rate credit cards by taking advantage of the low mortgage rates. Also by lowering your debt you will be actually saving for the future.

It is also vital to understand that in most cases the loans are adjustable rate mortgages. The adjustment period may vary significantly depending on the loan program you are considering. You might not realize the effects of low mortgage rate unless you consider the stability and vulnerability of the interest rate that you are required to pay throughout the repayment tenure. Hence it is important to bear in mind that not only the current effects of low mortgage rate, but also effects of any future rise in interest rates should be considered when opting for a variable rate mortgage.

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Low Mortgage Rates and Closing Costs?

By Bob Freedman

This topic is extremely important because many people set out to comparison shop for mortgage financing without a well designed strategy. For starters, a borrower needs to create a level playing field. If you set out to shop among four Loan Representatives (LR), then make sure that all four have the same information, specifically a full application, appropriate documentation, and your credit report. It seems that many people will intend to see what's out there, but after speaking to one LR they will convince themselves that they are taken care of and “working with someone”. Now, if you have a trusted mortgage advisor that has your undying allegiance then I congratulate you. But most people do not have that kind of relationship and chances are that if you did you would not be reading this report.

To continue, many times you may speak to that first LR, who promises (verbally) a very attractive low rate, and makes a good enough first impression. So you might provide your information for an application and consent to have your credit pulled. Very often the LR will warn you not to have your credit pulled again because the scores will drop. This is just not true, but that is not the main point of this section. What happens all too often is that the applicant is reasonably comfortable with that first LR, becomes complacent, and does not stick to the original plan to shop around. I am not suggesting you should speak to 10 LR's, but speaking to more than one and commanding that they compete on a high level (as detailed in other reports in this series) can only help you get a suitable deal that serves your best interests. So this applicant has now committed two big mistakes which can often lead to getting ripped off. This applicant has:

1) created an un-level playing field
2) put all his/her eggs in one basket

What should the applicant have done instead?

1) give the application, documentation, and credit report to more than one LR
2) do some homework and thereby control the process
3) ask good questions and demand straight answers
4) “get it in writing”
5) understand the process and what to anticipate

All of these things are crucial, and we also need to examine the way many people “rate shop”. Way too many people think that the way to get the best deal is to speak to a number of LR's, asking “what's your rate?”, and request a Good Faith Estimate (GFE). The fact is, there is no way to accurately and reputably answer that question without knowing something about each individual borrower. If the LR blurts out a rate you should run the other way. Also, when you see or hear advertisements that seem to good to be true, they are just that. Predatory lending starts with false advertising, which is rampant. Don't succumb to wishful thinking. But all too often, borrowers listen to the siren song. Understand this, the “best” rate and the lowest rate are not the same thing. When you get qualified for a mortgage you are determining the highest payment you can handle, which does not entail the lowest available rate. And, the “best” rate is actually the highest rate that an LR can propose to you that you might agree to. I shed more light on this issue in another article, titled "How Loan Representatives Get Paid".

A borrower must understand the following regarding shopping rates and Good Faith Estimates. The lending industry is poorly monitored, so LR behavior very often does not adhere to regulations, verbal rate quotes mean absolutely nothing, and even GFE's (which are not standardized or enforced), are largely misleading and non-binding. In light of this, if you believe you are covered when you request a rate quote and GFE, you are sadly mistaken. Perhaps ironically, you may actually be creating the opportunity for an unethical LR to take advantage of you.

In another report focusing on "Understanding The Mortgage Process", I detail the method of how to truly determine your rate, fees, etc., before you spend a penny or commit yourself in any way. Shopping for suitable financing is not difficult, if you know how to go about it. The process requires organization and attention to detail, but does not have to be complicated. It just has to be done the right way. You need to have the playbook so you can apply the correct strategy and find a good LR who will get you the deal you deserve. Good defense is your best offense and will save you money. Please enjoy any of the other free reports in the series by visiting my web site, and I would be pleased to offer you a complimentary, no-obligation consultation to answer any questions or help you secure suitable financing that serves your best interests.

E-mail me, call the Toll Free #, or go to the web site if you would like more information. Thank You.

Bob Freedman is a Mortgage Banker with Ascent Home Loans, a Colorado-based corporation. Bob is also a licensed Florida Mortgage Broker, #447518.

rfreedman@ascenthomeloans.com

http://www.ascenthomeloans.com/rfreedman

Senior Mortgage Banker

Florida Mortgage Broker #447518

Toll Free: (888)551-5897

http://www.bobfreedmanmortgage.com

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