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Questions To Ask When Shopping Mortgage Lenders
Top Questions Your Massachusetts Lender Should Be Able To Answer About Cape Cod Mortgage Rates
One of the things you can do is simply check online for today’s current posted rate in Cape Cod, but this may not lead you to the rate that you had in mind since these numbers are greatly impacted due to many factors that can cause these rates and closing costs to fluctuate.
Because of the possible mortgage rates changing so frequently in a day, it is very important to choose your lender wisely by pre-qualifying him/her on their understanding of how competent they are in regards to Cape Cod mortgage rates.
Shopping For The Best Massachusetts Mortgage Rates
If your lender cannot answer a couple of basic questions or how to find out the answers for you, it is very likely that you may never be able to take advantage of the initial interest rate that you were quoted to begin with.
We can preach communication, education, and service throughout the whole day, but it is our main goal to earn your trust so that you can also be confident in our ability to lead you through this complex mortgage process successfully.
Good Questions to Ask Your Cape Cod Lender
1. “Who determines Cape Cod mortgage rates and what are they tied to?”
The prices determined on mortgage rates is due to Mortgage Backed Securities or Mortgage Bonds. The media often implies that mortgage rates are based off the 10-year Treasury Note, which is incorrect.
While the 10-year Treasury Note has been known to trend in the same direction as Mortgage Bonds, it is not out of the norm to see them move in completely opposite directions.
2. “How often do mortgage rates in Cape Cod change?”
Mortgage Rates in Cape Cod can change several times throughout the day, but they only change on the days when Bond Markets trade securities, because mortgage rates are based on the price of Mortgage Bonds.
The best way to think of Mortgage Bond’s sales price is similar to that of a Stock that trades up and down throughout the entire day.
For example – Let’s pretend that the FNMA 30-Year 4.50% coupon is selling for $100.50. The price is lower by 50 basis points compared to the previous day’s closing price of $101.00.
In a more simple term, the borrower would have to pay an extra .50% of their loan amount to have the same rate today that they could have locked the day before.
3. “What causes mortgage rates to change?”
Mortgage Bonds have a huge impact on various market forces that influence the change demand for bonds within the market. Unemployment percentages, inflationary fears, economic strength and just the overall movement of money that are in and out of the markets are some of the many key economic factors that have a large effect in mortgage rate changes.
Most causes for fluctuation of rates are caused by consumer and investor emotions, just like stocks.
4. “What do you use to monitor mortgage rates?”
There are many different great subscription based services that are made available that will allow you to monitor Mortgage Bond pricing.
The whole point is to make sure the lender is aware that they should be monitoring Mortgage Bond pricing, such as the Fannie Mae 30-Year 4.50% coupon… and not the 10-Year Treasury Note or the news media.
5. “When the fed changes rates, why do mortgage rates move in the opposite direction?”
It is commonly misunderstood that when the Federal Reserve decides on a rate cut that there is a correlation to a reduction in mortgage rates.
The policy of the Federal Reserve influences short term rates that are known as the Fed Funds Rate (“FFR”). By lowering the FFR, it helps to stimulate the economy and when increasing the FFR it helps to slow down the economy. When cutting interest rates (FFR specifically) effectively, it will cause a rally in the stock market, driving money out of bonds and also creating a potential for inflation.
There will be a high demand for a higher rate of return for Mortgage Bond holders if inflation increases, in the meanwhile cranking up mortgage rates in the process.
With the Federal Reserve Board that is held every six weeks, this may be a good question to ask. If your lender does not have a good firm understanding of this concept between the two, your rate may be left unprotected and can end up costing you thousands of dollars over the existence of your mortgage.
6. “Do different programs have different interest rates?”
A couple of the programs such as; Conventional, FHA, and VA loans can all carry different rates on a 30-Year fixed mortgage. In the event of possible defaults, the Federal Government helps to insure FHA and VA loans, making this a great reason to go with one of these programs.
Conventional mortgages on the other hand are insured by private mortgage insurance companies in case insurance is required.
The programs that usually carry the lower rates are FHA and VA loans, due to the investor’s perception of the government backings making this a less of a risk for them. Even though the rates are usually different for each program, it may be more considerable to examine both the monthly rate and the overall cost during the life of the loan in order to decide on which program may be beneficial to your needs.
7. “Why is an adjustable rate mortgage (ARM) rate lower than a fixed rate mortgage?”
Adjustable Rate Mortgages (ARM) are usually fixed for a specific period of time.The specific period is typically set for 6 months, 1 year, 5 years or even 7 years. The interest rate is usually lower initially if it is fixed for a shorter time period.
This is because the borrower is taking on the risk of interest rates increasing in the future. However, when there is an inverted yield curve, the short-term rates would then be higher than long-term rates.
8. “Why are rates higher for different property residence types?”
Monthly Mortgage interest rates are generally determined by risk-based pricing. Risk-based pricing allows adjustments to par pricing for risk factors such as; percentages in Loan-to-Value, property types (SFR, Condo, 2-4 Units), a person’s FICO scores, occupancy (Primary, Vacation, or Investment Property) and mortgage type (Interest Only, Adjustable Rate, etc).
This enables the investors who lend their money for mortgages to get back extra funds for taking an additional risk.
If the borrower should come across a financial hardship, are they going to be able to make the payment on their home that they currently live in, or the one that they rent out?
9. “Are my taxes and insurance included in the payment?”
This answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing.
If you include your taxes and insurance in your payment, you will have a higher monthly payment to the lender but then you also won’t have to worry about coming up with large sums of cash to pay the taxes when they are due.
10. “Will my payment increase at any point after closing?”
Most borrowers today choose fixed interest rate loans, which basically means the loan payment will never increase over the life of the loan.
However, if your taxes and insurance are included in your payment, you should anticipate that your total payment will change over time due to changes in your homeowner’s insurance premiums and property taxes.
11. “How do I lock my rate?”
It’s good to know what the terms are and what the process is of locking in your interest rate.
Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.
Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.
12. “How long will my rate be locked?”
Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.
The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.
