Utah Home Mortgage Specialist

Interest rates can affect the type of home mortgage you choose and dictate when its wise to make a change. Here are a few of the factors that can be affected by a swing in interest rates:

Choosing a mortgage

When interest rates are rising, a fixed-rate mortgage is usually a good choice, since it locks in the current rate and protects you from the higher rates to come. When rates are falling, an adjustable-rate mortgage (ARM) becomes more attractive, as its interest rate changes periodically (usually every one, three, or five years), allowing you to benefit from the new, lower rates.

Some people choose an ARM even when rates are rising. This is because the interest rate on an ARM is substantially lower — as much as two percentage points lower than that of a 30-year fixed-rate mortgage. That means you’ll pay less until mortgage rates have increased a full two percentage points. After that, you’ll pay more than a fixed rate.

There are also hybrid ARMs, which have a fixed rate for a certain time period — typically three to 10 years — and then become adjustable. (A 5/1 ARM, for example, has a fixed rate for five years, after which the interest rate is adjusted annually.) Hybrid ARMs can be the right choice if rates are likely to rise in the short-term but then flatten or fall. However, these long-term trends can be difficult to predict.

Refinancing

A change in the interest rate trend can make it worthwhile to switch to a different type of mortgage. When rates are falling, you can save money by moving from a fixed-rate to an adjustable-rate mortgage, so you can benefit from the lower rates. If interest rates appear set for a sustained rise, switching from an ARM to a fixed-rate mortgage can lock in a lower rate and protect you from higher payments. However, you should make sure that any closing costs don’t offset the benefits of refinancing.

For more information on mortgages and interest rates, contact me now.

Analyzing APR during a home mortgage refinancing or second mortgage loan shopping can be a very tricky proposition.  Many people have come to believe that a loans APR, or “Annual Percentage Rate”, is the single most important factor in comparing home mortgage loans.  However, this is rarely the case, especially in today’s marketplace. 

Annual Percentage Rate is defined as “the cost of consumer credit as a percentage spread out over the term of the loan. Most consumers have no idea what makes up this elusive number.  APR is a valuable tool in comparing various mortgage loan programs, but it should never be relied upon as the sole determining factor in choosing a loan, for the following reasons:

1)  Not all closing costs are calculated within the APR uniformly.  There is a huge variance among lenders, mortgage loan officers, and even states on which fees they include in their APR when calculating the loan.  There is no standard among the mortgage industry, let alone among competing mortgage companies.

2)  The costs themselves can be manipulated within the loan.  For example, prepaid interest (the amount of pro-rated interest a consumer pays at closing for interest which will be earned from that date until the end of the month) can be represented as anywhere from 1 to 30 days, a potentially huge difference, especially on larger mortgage refinancing loans.

3)  Manipulation of the title fees.  Ordinarily, the title company’s settlement, or closing fee is an APR fee, while their title insurance cost is not.  Recently, in order to minimize the effect to the APR, title companies began simply decreasing their closing fee, while subsequently increasing their title insurance fee by the same amount, thereby reducing the APR.

4)  Lack of industry awareness of what is accurate.  Most mortgage loan or refinancing officers do not intentionally try to mislead, but inaccurate information could result in the consumer making a poor decision.

As opposed to APR, consumers would be better served by asking the following simple questions.

1)  What is the mortgage interest rate?
2)  What is the total mortgage loan amount?
3)  What is the monthly mortgage payment (principal and interest)?
4)  How much are the closing costs?

Generally, a written estimate covering all of the above can be generated by the mortgage loan-refinancing officer and provided to you in the form of a “Good Faith Estimate” and/or a “Truth In Lending Statement”.  Then, you can compare these documents between mortgage lenders in order to determine the authenticity and accuracy of your quotes. 

For further mortgage financing or refinancing information, contact me now.

Over the last few years, many people squeezed into new homes using adjustable rate mortgages. As interest rates move up, you need an interest rate strategy Adjustable Rate Mortgages (ARMs) Adjustable rate mortgages carry a bit of a gamble for home owners. Essentially, you trade smaller interest rates and lower initial payments on the gamble rates will not increase over time. If rates stay low, you make out like a bandit. If rates increase, you need to consider your options to avoid getting stuck with a high interest rate loan and resulting cash flow problems from increased monthly mortgage payments. For the last several years, adjustable rate mortgages have been offered with incredibly low interest rates. Many people used these low, low, low rates to buy homes that would otherwise be beyond their means. The Federal Reserve Chairman Ben Bernanke has started making noises about increasing money borrowing rates. Eventually he and the Fed will follow through on these hints.  Although mortgage rates aren’t tied directly to the Federal Reserve Bank, they are heavily influenced by it. As a result, many people are now facing tight finances.

Avoid Rising Rates

There are really only two solutions for avoiding the increase in interest rates on adjustable rate mortgages. The first strategy is to immediately convert to a fixed rate mortgage product. Fixed rates are still at historic lows when compared to rates offered over the last 50 years. By flipping to a fixed rate, you will be able to solidify your budget and finances since you will know exactly what you have to pay each month. If rates decrease in the future, you can always try to flip back to an adjustable mortgage loan. The second option, unfortunately, will occur when you realize you simply can’t afford to make the monthly payments required by getting a fixed rate loan. In such a situation, you are going to have to sell your home and downsize. In most situations, it is better to do this now since you’ve probably built up a sizeable chunk of equity over the last few years and want to avoid a loss of that equity as the market cools down. While this may sound like a disaster, it really isn’t. Yes, you have to downsize, but you still save your credit. Interest rates are going up whether you want to acknowledge it or not. The time to deal with your adjustable rate mortgage is now, not when you straining to make payments.

While shopping for home mortgage options online is certainly easy and convenient, you should consider completing the application process either in person or over the phone instead of relying on an automated system. While the Internet is good for research purposes, you can take advantage of face to face meetings or telephone conferences to ask all of you relevant questions. Asking all of these questions will help you to ensure you fully understand the loan terms as well as all available options.

Completing the home mortgage process in person or over the phone can also prevent being surprised by any elements of the new home mortgage. This may include additional fees which are tacked on during the processing of the application, rates which are only available in certain situations or other elements of the home mortgage agreement which could significantly impact the end result.

If you are using the Internet to research home mortgage options and obtain quotes should carefully consider their sources when making important decisions regarding the subject of home mortgages. You should stick with well known lenders and established websites and will not likely encounter problems. 

If you are unsure about the reliability of a particular resource or lender should do additional research on the company. One of the easiest ways to do this is to consult the Better Business Bureau (BBB). The BBB may be able to provide you with valuable information regarding the number of previous complaints against the company. A company who has a large number of unresolved complaints should be considered an unreliable company. However, you should not assume companies without a significant number of complaints are reputable unless the company has been in existence for a number of years.  See Academy Mortgage’s BBB report