How do I know if I’m getting the best interest rate?
Interest rates are impacted by a borrower’s credit score, loan term, mortgage program, and a series of market factors that are outside of our control.
Unfortunately, many advertisers will offer a low interest rate in a marketing campaign for the purpose of creating interest in a specific loan program. This loan may only fit a unique type of qualified borrower.
However, by promoting a lower note rate that has a higher APR, lenders are able to control the flow of inbound phone calls or Internet leads.
Understanding how interest rates work will certainly help relieve a lot of unnecessary anxiety about the home financing process.
While loan programs, credit scores and outside economic factors tend to control mortgage rates, borrowers do have the option of paying more up-front at the time of closing. This allows you to benefit from a discount point or loan origination fee, in order to secure a lower interest rate.
Alternatively, borrowers currently have the option of taking a slightly higher rate in exchange for lower closing costs. This particular rate/closing cost scenario is sometimes referred to as a “No Closing Cost Loan” option, or the like.
Mortgage Rate Basics:
How Are Mortgage Rates Determined?
Many people believe that interest rates are set by lenders, but the reality is that mortgage rates are largely determined by what is known as the Secondary Market.
The Secondary Market is comprised of investors who buy the loans made by banks, brokers, lenders, etc., and then either hold them for their earnings, or bundle them and sell them to other investors.
When the Secondary Market sells the bundles of mortgages, there are end-investors who are willing to pay a certain price for those loans.
Market Factors That Influence Mortgage Rates
Timing gives us the best possible opportunity to lock-in a mortgage rate on a new loan. It is certainly a challenge, even for the professionals.
There are several generic, interest rate, trend indicators available on-line. The difference between what is advertised, and what is actually attainable can be influenced at any given moment by at least 50 different variables in the market. This includes each individual loan approval scenario.
The mortgage rate marketplace is a dynamic, volatile, living and breathing animal, and is outside the borrower’s control.
Lenders set their rates every day based on the market activities of Mortgage Bonds, also known as Mortgage Backed Securities (MBS).
On volatile days, a lender might adjust their pricing anywhere from one to five times, depending on what’s taking place in the market.
Inflation, The Federal Reserve, Unemployment, Gross Domestic Product and Geopolitics are a few of the items you can pay attention to if you’re trying to track rates for a
30 day lock.
Your Lender Should Be Able To Answer Basic Questions About Mortgage Rates
If you rely on today’s online posted rate, you may not reach your expected outcome due to many factors that can change individual rates and closing cost scenarios.
Since mortgage rates can change several times a day, it’s important to test your lender’s competency level with regards to mortgage rates. If your lender doesn’t know what to look for or can’t answer some basic questions, be cautious. There’s a good chance you may not ever see that interest rate you were first quoted.
What’s The Difference Between Note Rate and APR?
Low rates with a high APR may or may not be the best deal. Comparing apples to apples is the best way to determine which loan closing cost and rate scenario makes sense for your short and long-term financial goals.
How Do Mortgage Rates Move When The Fed Lowers Rates?
The traditional news media generally announces mortgage rate movement a few days too late, or when rates are moving in the opposite direction of where we need them to go.
One of the big misconceptions most people have about mortgage rates is that the FED and/or Federal Government control what mortgage rates look like every day.