Mortgage Interest Rates

Cape Cod Mortgage Rate Basics

How Do I Shop For The Best HARP Mortgage Rates?

Simply shopping interest rates will generally lead to a frustrating experience with your loan due the factors described in the video above.

Banks who promise one thing and then change their terms towards the end of a transaction through a bait-n-switch marketing approach give the mortgage industry a bad reputation.

The truth is that until a loan originator has all of your information and has had a chance to get an initial pre-approval by uploading your complete application for online approval, it is not possible to receive an accurate rate quote.

For conventional loans, LLPA and bank overlay hits to a rate are digitally calculated in most instances, which basically means that the lender’s complex computer systems will actually assign an interest rate to a file for that particular moment in time.

Instead, you should be shopping interest rates by “Qualifying A Lender” based on their understanding of how rates actually work, as well as their ability to articulate and communicate economic indicators to you that may have a positive or negative impact on the specific Interest Rate that makes sense for your scenario and budget.

Factors Impacting Mortgage Rates in Cape Cod

Credit Scores

Your credit score is a really important factor that directly impacts what interest rate you will be offered on your mortgage. If your credit score is below 620 you are likely considered as a “subprime” borrower. Anything 760 and above will give you a decent interest rate.

A borrower’s credit score is more crucial than ever before when it comes to getting a good interest rate on a home loan, in some cases it can influence whether you can be offered a loan at all. The mortgage industry restrictions has changed over the past few years. Just remember, the higher the credit score the lower the interest rate.

Federal Reserve

Many borrowers hesitate on locking in a particular rate in hopes that it will drop in a few days or so, but what many do not understand is the partial role that the Federal Reserve plays when it comes to the ups and downs of mortgage rates, the Fed’s responsibility is to monitor economic developments and to get the input needed for policy decision-making.

The Feds make the decision in whether or not to speed up the economy or slow it down. Therefore, if the economy is doing poorly, the Federal helps out by cutting rates in order to give the economy a boost. In opposition, if the economy is doing quite well, you can expect rates to go up due to an increase in inflation, an act of the Federal Reserve as well.

Mortgage Backed Securities (MBS)

A major impact on mortgage rates is actually a matter of cash movements. The stock market is in relation to this factor, mortgage rates act in accordance to a trade of what is called mortgage backed securities (MBS). Considered as a secured instrument in similarity to bonds, when people put money towards the equity of their home ( stock market), the funds that go into stocks is typically coming out of bonds and MBS to pay for the purchase of these stocks.

So when the stock market decides to sell them off, the funds then come out of the stocks and into a safety net and convert into a secured guaranteed hold, moving the funds into bonds or mortgage backed securities will in turn lower mortgage rates. When mortgage backed securities are sold it is for the purpose of generating cash flow, causing rates to skyrocket.

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Type of Loans

The understanding of what type of loan choices offered and what suits you best may take a little time in soaking up. Knowing the type of loan you are looking for and the type you do not want is an important knowledge to have when shopping for rates.

Some of the most common types of loans are listed below:

30 Year Fixed –

A mortgage containing an interest rate that remains the same for 30 years, allowing you that much amount of time to pay the entire loan off. Many who prefer a secure fixed monthly payment will likely go with fixed monthly mortgages.

The benefit of this loan type is easier to understand than others and provides the borrower a stable monthly payment. This is one of the best loans to go with if you can afford it and are planning to live in the home for 10 years or more. Keep in mind that your balance will not increase with this loan type, due to you paying both interest and mortgage rates monthly, the balance can only decrease with each payment.

15 Year Fixed –

In the same sense as the 30 year fixed loan with the exception of paying off the loan in 15 years. Containing an offer of a low fixed rate with higher monthly payments than others because of a shorter loan term. Many who are looking to speed up the equity building process are more likely to go with this loan option. Just keep in mind that higher monthly payments can restrict the inclusive price of the home that you can afford.

Adjustable Rate Mortgages (ARMs)-

Just like the the name of this loan type, adjustable-mortgage rates are mortgages with the interest rate adjusting at a specific time and recurrence. There are many products offered with ARMs, usually with a lower initial rate than fixed loan types and will adjust with the trending of the housing market conditions, making this a possibility of paying either more or less than what you started out paying initially.

In most cases, the shorter the loan-term, the lower your initial rate can be. Adjustments can vary depending on what type of ARM you go with, your first initial rate period can be identified with the first number and how frequent the adjustment will take place is usually identified with the second number.

For example:

A 3/1 ARM means that you will be paying the initial rate for the first 3 years and will adjust once every year after. Other examples are; 7/1, 1/1, etc.

Interest Only-

With either an adjustable-rate mortgage or a fixed rate mortgage, this is an option of paying the interest only for a specific term, generally 5-10 years. Usually after the initial term, the mortgage will convert to a fully-amortizing mortgage for the rest of the loan term.

For example, if you had this option for the first 5 years of a 30-year fixed loan, at the beginning of the 6th year, you would have to pay the interest and principal for the full amount in the remaining 25 years.

In common cases, most homeowners would refinance instead of having to pay the remaining high monthly mortgage payments. Borrowers such as parents with children graduating from college (less expenses to pay) or doctors (who have a sense in the probability of an increase in income) and are expecting their financial situation to change in near future are more likely to go with this particular loan type.

Balloon-

The balloon option is a fixed-term mortgage acting accordingly to an amortization schedule like long-term fixed mortgages. The common choices of balloon terms are 3, 5 or 7 years while paying for both interest and mortgage. Usually by the end of the term you would then pay off the resulting balance by refinancing your mortgage.

Sometimes the balloon term will even allow a borrower to transition over to a long-term fixed rate when the initial term ends. Balloon terms are preferably for individuals who would like a stable fixed monthly payment, but are unable to afford a long-term mortgage. The balance of the mortgage on this loan type does not increase but will decrease with each payment since the borrower is paying for both the interest and monthly mortgage.

With all the many different options of loan types in existence and several factors involved in determining a mortgage rate to take into consideration, it is highly important to know and understand which one will suit you best before closing in on a home loan.

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More on Fed and Mortgage Rates

The Federal Reserve System is commonly known as the central banking system of the United States. It was established in 1913, along with the enactment of the Federal Reserve Act.

The responsibilities of the Federal Reserve System is to carry on the process of the nation’s monetary policy, meaning to oversee and regulate the many different banking institutions, uphold the stability of the financial system and supply financial services to depository institutions, as well as foreign official institutions and the U.S. government.

Its duties today, according to official Federal Reserve documentation, fall into four general areas:

• The conducting of the nation’s monetary policy by influencing monetary and credit conditions in the economy in pursuit of the maximum employment, stable prices, and moderate long-term interest rates.
• Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system, and protect the credit rights of the consumers.
• Maintaining stability of the financial system and containing systemic risk that may arise in financial markets.

Events such as the Great Depression were some of the major factors leading to changes in the system.

The Federal Reserve controls two key interest rates in this country:

1.The Federal Funds Rate

2.The Discount Rate

These are considered as overnight lending rates, these are used by banks in lending money to one another.

Money becomes lower costing for banks to borrow when rates are low, and that “cheap” money will then spread throughout the economy.

Mortgage rates are in connection with mortgage bonds, they are treated in the same sense as stocks when being traded in the secondary market everyday.
Bonds yield a constant rate of return making it a much safer investment than stocks.

When chaos strikes the market, investor will start selling their stock holdings and transfer it into bonds (called a “flight to safety” in financial jargon).

On the contrary, during times of wellness in the economy, these investors will transfer their funds away from bonds and into stocks for an opportunity to take advantage of the growth in the economy.

Now keep in mind, in order to boost up the economy, the Fed will cut interest rates.

When this is perceived by investors, they will start selling their bond holdings and start moving them into stocks.

In response to this, the rates on these bonds will increase as the bonds have to attract investors with a higher rates of return.

Resulting in an increase in mortgage rates.

Something to think about: the market does have the capability to move faster than most would expect, sometimes even at a lightning speed. When a short-term stimulus is spotted by investors, the safe haven of bonds (mortgage backed securities) are removed and transferred over into stocks.

When this occurs, we will see a massive activity take place in the stock market and a blowout sell of mortgage backed securities as well, both resulting in an increase in interest rates. The rate cut is intended to give the economy a push upwards, which moves funds from bonds into stock, and causes a spike in mortgage rates.

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Lock In That Rate

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. Many home buyers are not aware of how the mortgage rates system works, and not knowing before you decide to lock in the rate can cost you to miss out on a lower rate.