Mortgage rates are rising due to more demand for mortgage products. Even though the Federal Reserve has tried to influence the home mortgage industry by leveraging the discount points charged to lenders, it’s not a one-to-one relationship. Mortgage rates are more susceptible to supply and demand of the actual mortgage products and competition between lenders, rather than some arbitrary rate the Federal Reserve charges bank who are borrowing money. So, there really isn’t a real way to time your entrance into the home buying market by waiting for interest rates to drop. Instead, they may rise no matter what the Federal Reserve does to try to influence the markets. On the other hand, they could drop but there’s no way to tell until after the fact. So, if you want to buy a home, don’t play mortgage rate roulette. Instead, take the long-term view and realize that no matter what happens this may be an ideal time to buy a home if you have great credit.
Historically Low Mortgage Rates
If you take a look at how the mortgage rate offered by lenders has changed over the years, Bankrate.com estimated that the average 30-year fixed rate during the last 22 years was 7.99 percent. That’s because in the decades of the 80’s and 90’s rates were much higher than they are today. We only started to see less expensive rates being offered in the years in the 2000’s. So, while you may not get the best rate possible (if rates drop), historically you will probably get a better deal than many in the years past. So, if the rate inches up a small percentage, it may cost you more in the long run to finance your mortgage, but you will still pay less than if you had done it in the 80’s and 90’s.
Locking in the Rate
In fact, there is probably more likelihood that mortgage rates might increase as the economy starts to recover and demand for mortgage products increase. Of course, this may be a few years down the line, but you can always lock in your rate when you qualify for the loan. This is one way people help to take the worry out of mortgage rates increasing while they are looking for a home. Instead, they qualify for a mortgage first, lock in the rate, and buy the house in the period of time allotted by the rate lock. It makes looking for a home a little less stressful when you already know what you will be paying and for how long.
You’re in the market for a home and it’s an exciting time. Your realtor may be pressuring you to go to a lender and get a mortgage quote so that you know in what range you can buy safely and prequalify too. You may even be tech savvy enough to hop online and find networking areas where you can get several mortgage quotes from various lenders, but then you’re left wondering which one is the best deal. How do you really know whether one mortgage quote is better than another? That’s where the good faith estimate comes in.
The Breakdown of a Good Mortgage Quote
If you really want to know how it all breaks down, you have to get a good faith estimate from a lender for your mortgage quote. You can get a good faith estimate from any number of lenders that you want and for different mortgage products too. Some people shop for the best deal this way and take the best offer and show it to other lenders to try to beat that one as well. Without a good faith estimate a mortgage quote may not be reliable. The Federal government insists that lenders provide a good faith estimate within three days of applying for a loan.
Some of the things you can expect a good faith estimate to show are the potential costs at closing of the following:
• Loan application fee
• Fees for pulling credit reports
• Title work
• Attorney fees
• Cost of appraisal
• Cost of inspection
• Survey work
• Document handling and processing fees
• Taxes
• Escrow accounts
• Your interest rate
• The terms of the loan
• The amortization schedule
Comparing Two or Three Mortgage Quotes
If you are trying to find a good deal, you will want to get the good faith estimates for the different mortgage quotes on the exact same product to fully compare them. If you get one that has a teaser interest rate that shifts after six months to a year, it may initially look favorable but in the long run will cost you more money. Make sure that they all have the same length of term because a 40-year loan will look like a better deal than a 30-year loan when it comes to the amount of the monthly payment you have to make. However, you pay significantly more money over the life of the mortgage with a longer term than you do with a shorter-term mortgage. So, always make sure that you are looking at very similar offers from different lenders and not two separate types of loan products.
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