Section 2 _"What's
Your Rate Today?"
__Overview
by Robert T. Lord
A.
On the Road to Becoming an Informed Borrower
When you are considering
refinancing your current mortgage or searching for information
for a purchase, prepare yourself to be a knowledgeable borrower
as there are an abundance of programs with varying terms and interest
rates in today's marketplace...all credit-score based.
When an individual calls and asks, "What
are your rates today?" it signals that this person is not
aware that the interest rate is just one of the
many factors in a program that's right for them. Further, as credit-scoring
determines qualifying rates, arbitrarily quoted interest rates
have very little meaning in the absence of a thorough analysis
of the borrowers' qualifying status AND goals desired
to be achieved.
Calling different mortgage companies and asking
for "Today's rates" has very little importance in relationship
to the best program available for the borrower. It generally takes
two to three weeks from the initial loan application to the signing
of final loan documents when refinancing, so "Today's rates"
may not be the rates several weeks from now. They may be
even better! Borrowers should arm themselves with information
to discuss with their loan adviser to determine if he/she is an
experienced person in this field or representative of the telemarketing
blitz which has visited the Mid-South recently...telling folks
what they want to hear in taking little if no detailed information
from them to justify the promises being made.
When this happens to you, here's just a few
of the factors which must be known before your qualifying
rate can be determined:
- The percentage of equity available
in the property (if a refinance)
- Income and monthly debts
- Credit scores
- Rate and term goals or cash out loan?
- Amount of downpayment saved (if a purchase)
B. Power To The Borrower
We wholeheartedly
believe that knowing facts will empower you and separate you from
the crowd! If you've found yourself being a true "rate shopper"
in the past and believed that "Today's rate" was the
indicator of what mortgage company you would choose, you very
well may have been confronted with closing documents which were
entirely different than what was promised to you! Perhaps a pre-payment
penalty which was not disclosed earlier to you? A higher interest
rate than originally quoted? Being told to bring a considerable
amount of additional funds to closing than was originally indicated
to you?
What happened? In most cases you were
told what you wanted to hear to gain your confidence that they
were the best because they were the lowest.
As a result, borrowers are forced into
making long-term decisions at the closing table on a mortgage
they are not happy with. The choice is to leave the closing and
not sign and go through the several weeks process again with another
mortgage company or perhaps losing a dream house because the contract
has expired.
Leave this approach behind forever! It
may be of value in pushing a cart in a supermarket and comparing
the prices of breakfast cereal, but when it comes to your home,
a borrower needs to either educate themselves extensively or find
mortgage professional that is experienced and trusted. The following
LENDING TRUTHS for You! will help you gain the knowledge
you need should you or your family and friends ever find themselves
in this unfortunate situation. KNOW YOUR RIGHTS!
C. Here's
some LENDING TRUTHS FOR YOU! ...as you enter the mortgage
maze!
____Overview
by Robert T. Lord
This Section of THE LEARNING CENTER addresses
important specifics regarding seeking a home mortgage…check
them out; however, here's some additional facts to enable you
to approach the process…IN THE KNOW!
- "RATE" LOCKS are
a contractual obligation which entails NOT ONLY
a preferred interest rate, but solidifies the program TYPE
for which you qualify, TERM, discount points
paid (if any), and the Lock period. Think
about it! There must be something to lock! Submitted,
Underwritten, & Approved loan files can be locked.
Any rate lock that would be suggested to you prior to your application
& underwriting approval is not binding!
- Work only with mortgage professionals who,
upon reviewing your credit, review it with you! Data entry inaccuracies
are common on credit bureau information and only you can clarify
whether or not some of the information is incorrect. ALWAYS
work with someone who will NOT charge you for this, and
who will assist you with the process of getting the information
about you right!
- Work only with mortgage professionals who
have working relationships with licensed appraisers who can
provide an accurate estimate of your property…also
at no charge! The value of your property is a major
ingredient which affects the outcome of your mortgage goals.
- Should you wish to "buy down"
the interest rate on your mortgage, be aware that the closing
costs will be a bit more.
- Work only with mortgage professionals who
keep you informed each step of the way and make themselves available
to you in providing answers to any questions you may have during
the process.
- Work only with mortgage professionals who
will review all aspects of your file, prior to your loan
being locked! Question if there is any prepayment penalty;
fixed or variable; and final closing costs & pre-paids should
be fully disclosed to you prior to closing to allow you what
you deserve…A STRESS-FREE CLOSING! Make note
that there is a legal requirement in refinance mortgages that
a 3-day recission period must pass prior to the loan being funded;
purchase loans fund the same day, as do investment property
mortgages.
- Should you ever find yourself at a closing
and discover that the documents prepared for you to sign do
not reflect what was previously conveyed to you…do not
sign!
D. The True Mortgage Professional
To know your
rights you have to find out about them! This requires time and
energy and not all of us want to learn all about mortgages. However,
people still want the best mortgage available. Finding a trusted
and experienced professional in mortgage lending is the course
to pursue. This takes you out of the frustration of conversing
with a telemarketer or a person whose function is primarily that
of an application taker whose main purpose is signing up as many
people as possible. YOU CAN KNOW THE QUESTIONS TO ASK!
It would be wise to give information on yourself,
the property, and your goals. Allow the mortgage professional
to respond in discussing the various programs that may be of benefit
to you. No one can provide you with a viable interest rate until
they have reviewed your credit reports with you, taken monthly
income information, verified reported debts with you, and researched
the value of your property.
A thorough mortgage professional will
have access to property information and recent home sales in your
area; calculators for amortization purposes; payment schedules
for the different terms of a mortgage and the authority to tell
you the mortgage amount for which you qualify. The genuine indicator
that you have found the right mortgage source is not determined
in low-rate quoting (as most available wholesale programs are
used by all), but the KNOWLEDGE & EXPERIENCE level
of the mortgage professional whose analysis of your situation
& goals is straightforward and genuine. Knowledge of F.H.A.
and V.A. loans is invaluable.
E. What You Should Ask Yourself
- How long am I planning to live in this property?
If you are living in your first house it is a good chance you
will be purchasing a larger house within seven years. Your career
may prompt a relocation in the near future. These examples would
indicate an A.R.M. mortgage with a fixed period coinciding with
your future plans may be best for you and the most cost-saving.
- Can I improve my financial picture by refinancing?
There are three basic ways to save money when refinancing:
- Lowering of your interest rate
- Shortening the term of the loan
- Consolidating your debt
If you can reduce your current interest rate and you have
had your existing mortgage for several years, please keep
in mind that it is generally not advisable to return to the
original term of your existing loan. Yes, your monthly payment
may be lower, but you just forfeited the years you have already
paid for! Thus, a lower interest rate combined with a shorter
mortgage term may be a good plan if you are not planning to
move for at least 5 years.
Bill consolidation can make a lot of sense if the bills you
pay off are credit cards with high interest rates; plus, you
may experience an interest write-off. Write-offs on credit
card interest was allowed years ago, but was phased out with
the Tax Reform Act of 1978. None is deductible now. Should
you consolidate your debt, the result is usually a higher
mortgage payment (higher loan amount) with lower monthly
payments for bills. A person can set aside the money saved
and apply it to the principal on the mortgage for even greater
savings!
Take a look at Section
12's $AVINGS $AMPLES of debt consolidation.
F. UNBELIEVABLE! What You Should Know About
Interest Rates!
If you have a 7% fixed
interest rate on a 30-year loan, this should mean that if you
keep the loan for 30 years, the average interest rate is 7%. A
borrower should always look at an amortization schedule, as it
will become apparent that the interest rate they are paying is
well above the 7% rate. As an example, for the first seven years
on a $125,000 loan with a 30-year term and a fixed 7% interest
rate, the interest rate is 84%!
Yes, that is correct. The monthly mortgage payment
works out to be $831.63 and the yearly payment is $9,979.56. Multiply
that by seven years (average length of time of ownership of a
house) and the total mortgage payments are $69,856.92. The amount
of interest is $58,791.03 and the amount going towards the balance
of the loan is $11,065.89. Refinancing a home mortgage is about
restructuring your debt to most benefit you and your family.
G. Knowledge Will Empower You…Are You
an A or a Non-A Borrower?
Do you know if you
are an A borrower or a Non-A borrower?
Question: What's the
difference?
Answer: At least 2% to 3% higher
in interest rate than a Non-A borrower!
An A borrower is a person who has 40% or less
of his/her GROSS income (not NET/after
deductions) in payment of monthly bills; their credit scores average
in the high 600's and they've been in the same line of work for
two years or more. When refinancing, the interest rate for a rate
and term loan (no cash-out) will remain the same up to 95% L.T.V.
(Loan To Value; the relationship of the Loan to the Appraised
Value). Also, an A borrower can qualify for loans above the equity
(or, appraised value) of their property.
A Non-A borrower has a credit score from 500
to 640, usually a higher D.T.I. (Debt to Income Ratio, the
relationship of your debts to your income) and perhaps a Chapter
13 or 7 bankruptcy having been discharged within the last three
years. With this borrower, the interest rate is higher, and the
more equity that is left in the property, the better. For example,
if 20% of equity remains in the property, the interest rate will
be lower than a mortgage with 10% of equity remaining in the property.
Credit scores play a critical role in determining the loan amount
for which a Non-A borrower can qualify.
To assess your situation correctly, obtain your
credit scores and review their accuracy; calculate your monthly
income and compare that figure with your monthly bills (excluding
utilities) and decide what your goals are. Only then can you determine
if refinancing would benefit you and your family. Go to Calculators
and Tools to input your individual numbers. Keep
in mind that we're available to answer clarify any questions you
may have.
