Home Mortgage Interest Rates: Know The Facts

Jonathan	Nolan By Jonathan Nolan, 14th Jun 2018 | Follow this author | RSS Feed
Posted in Wikinut>Money>Mortgages

If you are either a future house buyer or an existing one then this article involves you to some degree. Do you know as much as you should about interest rates and home mortgages?

Get the basics down first

Unraveling the facts about interest rates can help future home owners make wise decisions when it comes to making one of the biggest purchases they will make in their lifetime. I sat down with the man in the know all about these things, Rick Ostley from the building company LondonEliteTrades. Get the lowdown on interest rates and buying a home here.

When a Home Loan Officer quotes me an interest rate, can it change?

Yes! Not only can the interest rates change daily but up to a few times in one day. The average time that interest rates change is every 3 hours in a work day. The only way to guarantee your interest rate is to have your Home Loan Officer or their assistant lock it in.

What can affect my interest rate on my home?

a. There are different types of interest rates for different types of homes: condos, town-homes, single-family residences, or attached single family residences. There are even different interest rates for manufactured and modular homes.

b. When an interest rate is offered to you, there are costs for each rate. These costs are usually known as points or discount points. For example, if you were quoted an interest rate of 7% and then another interest rate of 6.50%, the difference may be in the points or discount points on the Good Faith Estimate.

c. It also makes a difference if the home is going to be your primary home or an investment.

Beware: not all Lenders disclose on the Truth In Lending correctly, so it is always better to look at the actual costs on both Good Faith Estimates. This way you know what the fees are and who is really charging more in costs than relying solely on the APR.Understand that the rules and guidelines federally are in the process of changing.

When should I lock in my interest rate?

It is suggested to have you lock in your interest rate once you have a property address for the new loan. For example, if you are refinancing your current home, then lock in at the time of an approval. If you are purchasing a property, then you lock in your interest rate once you have an offer accepted on the home. When you look at locking in an interest rate, there is usually a timeframe that it is good for. This can vary from 10 days to 60 days. It does cost you more money the longer the interest rate is locked in. You must lock in your interest rate 7 days before loan closing. Your Home Loan Officer will advise you and answer any questions you may have about the right time to lock your rate.

Can I hold my Home Loan Officer to the interest rate if they have informed me that they have locked in the interest rate?

After your interest rate has been locked in, you will receive that rate based upon the following three factors:

a. The amount of equity in your home or the amount of money you are putting down does not change.

b. If you close on your loan within the time frame you locked your interest rate in.

c. If your loan approval is still the same and has not changed. If any of the above does change, then your interest rate may no longer be valid and will need to be relocked on that day’s interest rate pricing.

Do I have the option to not lock in my interest rate and hope that they go down?

You can, but you do take a gamble as interest rates can change up to several times each day. Our philosophy is this: If you are happy with the interest rate and payment offered, then inform your Home Loan Officer that you want to lock in your loan as soon as possible.

What’s the skinny on no closing cost loans?

Yes, there are loans that have no closing costs. You would probably agree with the adage: You can’t get something for nothing. You can receive a loan that has no closing costs, but your interest rate will be higher. Have your Home Loan Officer do an analysis for you to see if this loan is in your best interest verses paying closing costs for a lower interest rate.

For EXAMPLE: Let’s say Mr. Smith has a loan of $400,000. His payment on 7% for a 30 year fixed loan is $2661.21 and Mr. Smith has $6,000 in closing costs to obtain this loan. Let’s now look at Mr. Smith having no closing costs and an interest rate of 8%. His payment will be at $2935.06. This equals a payment that is higher by $273.85 per month. If Mr. Smith did not want to be in the home long, then a no closing cost loan would be best for him. Otherwise, let’s take the closing costs of $6,000 and divide it by his savings per month of $273.85. We come up with 21.91, which equals 1.83 years. If Mr. Smith were going to be in the home longer than 1.83 years, then he would want to pay closing costs. If he were in the home for 5 years and opted for a no closing cost loan, he would end up paying more money for the home.

Should I only refinance if I can come in with the closing costs?

This is a good question. Let’s say that it costs a person $4,000 to refinance, but they are saving $400 per month in their mortgage payment. If a person does not have the $4,000 to bring in cash at closing, it still makes sense for them to refinance since they may be able to add the closing costs to their new loan. Now let’s say that the person was going to sell the home in 6 months. In this instance, it does not make sense for them to refinance. It is also advisable to look at an amortization schedule on the current loan verses the proposed new loan. A good Home Loan Officer will ask important questions to advise you if you should or should not refinance.

Why is the interest rate on the Truth In Lending higher than the interest rate I was quoted?

This is not your true interest rate. This rate is your APR, also known as annual percentage rate. The APR was put in an Act to protect you from high cost lenders. For example, Lender A may state they have a rate of 6% and Lender B may state they have a rate of 6% as well. Lender A will have $4,000 in costs and Lender B will have $7,000 in costs. As a result, Lender B will have a higher APR that is on the Truth In Lending. It is a way to protect you from a home loan officer trying to quote you a lower interest rate but not inform you of the higher fees that they will charge you to obtain the loan.

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author avatar Lesa Cote
29th Jan 2020 (#)

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