What's Your Rate Today?

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 bearing in relationship to the best program available for the borrower. It generally takes several 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 advisor to determine if he/she is an experienced person in this field or a 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.  Your realtor will be put in the position to request the listing agent to extend the purchase contract; oftentimes the success of this approach depends on the plans and time frame of the seller.

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 a mortgage professional that is experienced and trusted. Read the following LENDING TRUTHS for You!  It will help you gain the knowledge you need should you or your family and friends ever find themselves in this unfortunate situation.

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 good planning!
  • 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 a Mortgage Professional and who will assist you with the process of getting the information about you right!
  • Work only with Mortgage Professionals who can assist you with a preliminary estimate of property value. 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!  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 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 range 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 all mortgage programs is invaluable.

E. What You Should Ask Yourself

  1. How long am I planning to live in this property? If you are living in your first home 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.
  2. 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.  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!

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: Up to 2% higher in interest rate than a Non-A borrower!

An A borrower is a person who has 45% or less of his/her GROSS income (not NET/after deductions) in payment of monthly bills; their middle cedit score is in at 680+ 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).

A Non-A borrower has a middle credit score under 680, 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 four 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 our Calculators and Tools to input your individual numbers. Keep in mind that we're available to answer clarify any questions you may have.

Serving the Great Mid-South Region
Offices: 901-388-1588 or 901-476-9100 |
Fax: 901-388-6202 | Email: info@1stophomeloans.com
1 STOP MORTGAGE | NMLS#215671 | TN Lic#108931 | 5909 Shelby Oaks Dr, Suite 129, Memphis, Tennessee 38134