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Shopping For The Best Mortgage Rate
How to Get the Best Cape Cod Mortgage Rate Possible?
Finding a good Cape Cod mortgage lender can be hard, but preparing yourself with a few top key questions to ask a mortgage professional may make shopping for a mortgage rate a lot less painful.
The best thing to do for first-time mortgage rate seekers is to learn how mortgage rates work before going out shopping for them.
It’s good to interview your lender as well, to make sure that they are able to not only give you the best answers but that they will try their best in helping you lock in the best rate possible.
How Are Mortgage Rates Determined?
Many of those who do not understand how mortgage interest rates are determined usually believe that it is the lenders who make these rates up and have control the changes. This is certainly not the case, these mortgage rates are actually determined by what is called the Secondary Market.
The secondary market consists of investors who purchase these loans in which the banks, brokers, lenders, etc. have created for them to do so. They would then either hold these loans for their own earnings or simply bundle them up and sell them to other investors.
When these bundles of mortgages are up for sell by the secondary market, there are the end investors who will pay a certain price for these loans.
The more investments made towards Mortgage Backed Securities (MBS), the lower the rates, this is what impacts mortgage rates.
Investors typically will accept a lower return on mortgage backed securities because of the safety of it in comparison to other investments.
Investors believe it to be safe, because of the government’s implications of backing up Fannie Mae and Freddie Mac, as well as the fact of the Mortgage Backed investments being based on the collateral of real estate. In case the loan does default there is real property pledged against potential losses.
In comparison, other investments are considered to be more risky, specifically stocks, which are based on earnings and profit vs. real property. The movement between the two investment vehicles often dictates mortgage rates.
Why Do Mortgage Rates Change?
The fluctuation of mortgage rates are impacted by the market’s viewpoint of how well economy is doing.
The rate of return is expected to be higher with stocks, due to the fact that it is a high risk investment. With the perception of the economy doing better, it is assumed that the
companies will do better as well, and when this does happen you can expect the rate to go up also.
When Stock prices does go up, MBS prices will usually drop because of it, think of it as a teeter totter effect. So when the economy is thought to be doing poorly, Mortgage Backed Securities tend to thrive. When investors are alerted a faltering economy, they worry that the return on stocks will be lower, so they frequently engage in a ‘flight to safety’ and would start buying more secure investments such as Mortgage Backed Securities. This is why mortgage rates change so often, it is actually based on the yield of those Mortgage Backed Securities.
Based on the value of the their relation to other available investments, Bonds are sold at a particular price. When a bond is sold, it yields a certain return based on that original price. When the investors are seeking safety, the MBS increases and the yield will then decrease. However, when investors seek the higher returns of stocks and the MBS are purchased in lesser quantities the price goes down. The lower results in a higher yield, and this yield is what determines the mortgage rates.
How Would I Know to Expect When Rates Fluctuate?
You can expect it to go up when:
When the economy is growing, or is expected to grow, stocks will likely become the more favored investment, and when investors buy more stocks, they purchase fewer MBS, which drives the price down.
When the prices of the MBS is lower, the yield increases.
Since mortgage rates are based on the yield of the 30 year MBS, you would expect rates to increase in this environment.
You Can Expect Rates to Go Down When:
When the economy appears to be slowing or doing poorly, investors typically move their money out of the stock market and into the safety of the MBS.
This drives the price of these investments higher, which will then result in a lower yield.
Since mortgage rates are based on the yield of the 30 year MBS, you would expect rates to decrease in this environment.
Since these market variables and expectations change so many times as economic reports are released throughout the course of the week, it is not uncommon to see mortgage rates change several times a day.
Being able to understand how the rates move is not necessarily as important as having a loan officer that is equipped with the technology and professional services to track and stay alerted at the precise moment rates can make a move for the better or worse.
How Do I Know If I’m Getting The Best Interest Rate?
The many different factors that can play a part in a borrower’s interest rate quote can be a borrower’s credit score, loan term, the mortgage program, as well as a series of other market factors that are beyond our control.
There are many different home loan programs in the housing market, making this a much more challenging decision to make when it comes to which interest rates to go with. There can be an advertisement on a low interest rate and this could be just based on a particular loan program that a borrower may not even qualify for, and this is unfortunate to many.
However, lending professionals are able to actually keep track of how many inbound calls or internet leads they may receive, and this is due to the advertisements on lower note rates, but with a higher APR.
Being able to get a better understanding on how interest rates actually work can definitely reduce the stress and anxiety on a homebuyer during a home purchasing process.
Even though these factors such as; an individual’s credit scores, loan programs, and other outside economic factors seem to be in control of mortgage rates, home buyers still have the option to pay up-front at the time of closing, just to be able to take advantage of a reduced point or even a loan origination fee in order to lock in the lower interest rate.
As opposed to that option, borrowers in the meantime have the option of taking a higher rate for lower closing costs. This entire scenario of specific rates/closing costs is usually referred to as a “ No Closing Cost Loan” option, or can be something in similarity to this reference.
With how the rates vary each day, it is certainly important to know the key factors and what plays a part in how these rates are determined. The only way to know when you are getting the best possible rate locked in is to be able to keep track of these things.
Locking in on rates and points might put forward a consideration that what you shop for is what you will most likely get.
What Is A Lock-In?
Also known as a rate-lock or a rate commitment, this a promise made by a lender to set aside a certain interest rate and a certain number of points for you, this request is usually for a specific period of time during the process of your loan application, so in the chance of a rate changing, yours would have already been locked in.
It can usually take your lender several weeks or even longer to prepare all of your documents and evaluate your loan application, making a lock-in offer very useful when applying for a loan.
When your interest rate and points are locked in, you won’t have to worry about your rate increasing. However, this may also prevent you from being able to capitalize in a lower rate than the one that is already locked in, depending on the leniency of your lender, he/she may be willing to try and lock in a lower rate for you if there is a decrease in rates during the time period of the loan process.
What is a loan commitment?
It is important not to confuse the two different terms of a lock-in and a “loan commitment” even though there may be a lock-in option for loan commitments.
With a loan commitment, the lender is making a promise in creating you a loan in a special amount at some point in the future.
Typically, the lender’s commitment is only given to you after your loan application has gone through the approval process. This commitment would usually state the loan terms that you have been approved for containing the loan amount, such as; how long the commitment is good for, and the conditions required of the lender for creating the loan, very much like a receipt of satisfactory title insurance policy protecting the lender.
How Does Loan-to-Value affect Mortgage Rates?
Your Loan-to-Value (LTV) is one of many risk factors that banks take into consideration when originating loans that are secured by real property.
LTV is a measure of the amount of equity in a property compared to the loan balance. Interest rates tend to be more favorable for certain mortgage programs based on loan scenarios where the borrower has more equity or a larger down payment.
