Home buyers have a myriad of choices when considering which lender to choose for their mortgage. Choosing the right lender is a very important part of the home buying process and should be done very early on before you even seriously start looking at homes. There are many considerations to take into account when evaluating lenders and their importance will vary depending on individual borrowers’ needs. 

Important questions you should ask when looking at mortgage lenders include how long they have been in business, their Better Business Bureau record and the experience of the individual mortgage professional. The range of products offered provides you with valuable options when evaluating your specific needs. Banks may not necessarily be the best choice as they may not offer the variety of products a licensed mortgage broker can. In fact mortgage brokers originate the majority of home loans annually.  

Some questions should include the following: 

Do you offer fixed rate mortgages, variable and hybrid mortgages?A lender should be able explain the differences between your options and work with you to create a satisfactory solution.  

What types of fees do you charge?

Remember to request a Good Faith Estimate, which provides in writing detailed closing costs including fees and interest rate.  

Is there an origination fee being charged to obtain the quoted interest rate?

Some lenders may charge an origination fee that the borrower pays at closing. This fee may be used to provide a lower interest rate to the borrower. You should ask the lender what the interest rate is without an origination fee.  Are there Discount Points being charged to obtain the quoted interest rate? A discount point is a percentage of the loan amount paid by the borrower at closing. The lender may provide a lower interest rate by charging the borrower discount points. You should ask the lender what the interest rate is without paying any discount points. 

Are there any prepayment penalties that apply to this mortgage?  

Prepayment penalties occur when you pay down your mortgage faster than expected. The lender’s profit expected over the term of the mortgage is reduced if the borrower pays the loan off faster than the original term. 

Can I lock in at the interest rate you just quoted?

The lender may lock in a quoted for a specific period of time allowing you to shop for a home without the risk of your rate increasing. If your rate is locked, you will be able to negotiate from a position of strength with a seller.  

Ultimately, choosing the right lender is an integral part of the home buying process. By selecting a professional mortgage lender that has an understanding of your situation you will set the stage for a smooth transaction and a financial relationship that could potentially last for decades. Home buyers should approach the choice with careful consideration and do what is in their long-term best interests.  

With many adjustable rate mortgages (ARMs) approaching a reset date, and recent interest rate drops, many homeowners have begun to wonder if this is a good time to refinance their mortgage. The answer is not always clear, but answering a few questions will help point you in the right direction. 

1.       Why are you refinancing? 

Whether your goal is to lower monthly payments, consolidate debt, or borrow additional cash, you should consult with a mortgage professional who can calculate if refinancing will meet your needs.  This is a free service that consumers should take advantage of. 

2.       What is the current fixed interest rate versus your upcoming ARM reset interest rate? 

Conventional wisdom says that you should refinance when mortgage rates are 2% lower than the rate you are currently paying on your loan. Refinancing may still make sense if the difference is less than 2%, depending on your specific circumstances, including how long you intend to remain in your home, as well as other variables. Your mortgage professional can help you determine the best course by providing customized individual scenarios. In any event if current interest rates are lower than the rate you are paying, it is certainly worth looking into. 

3.       How long to you plan to stay in your home? 

There are generally fees charged by the lender to refinance a mortgage. In many cases these fees can be absorbed by a slightly higher interest rate when you refinance. If you chose to pay the fees up front and receive a lower interest rate, you should consider how long you intend to remain in your home. If you will not be in your home long enough to recoup that charge, it may not be worth refinancing. For example, if the bank charges a $2,000 fee to refinance and you save $100 per month in mortgage payments, you would need to stay in the home at least 20 months to recoup the cost. These factors are part of the analysis your mortgage lender can help you calculate if refinancing is in your best interest.

Mortgage interest rates are one of the most important elements a home buyer must be aware of when considering borrowing money for a home loan. . In simple terms, an interest rate is the annual percentage that the borrower is charged on the loan they obtain. Mortgage rates vary based on several factors including the cost of funds to the lender, type of mortgage, term of mortgage and the creditworthiness of the borrower. 

There are generally three types of mortgages: fixed rate mortgage, adjustable rate mortgages (ARM) and hybrid mortgages.

1)      Fixed rate mortgages– have a specific interest rate established at the beginning of the mortgage and the rate remains the same throughout the term of the mortgage.

2)      An Adjustable Rate Mortgage (ARM) has an interest rate that adjusts periodically, according to terms mutually agreed upon between the borrower and the lender at the time the loan is made. Adjustment periods may range from months to years. Many ARMs have rate caps so interest rates can only raise a maximum percentage.  Additionally there are floors which prevent rates from declining below a minimum percentage. The intent is to prevent severe fluctuations in rates and the corresponding monthly payments paid by the borrower.

3)      A hybrid mortgage has elements of both fixed and variable rate mortgages. The hybrid mortgage may begin with a fixed rate for a period of time, generally in years. At some point in the future, the rate may become variable. However a hybrid mortgage may begin with a variable rate for a period of time and the borrower has the option to “fix” the rate at some time in the future for the remainder of the mortgage term. 

Evaluating interest rates associated with different type of mortgage products can be a confusing and time consuming process.  We strongly recommend that you invest the time to educate yourself by researching your mortgage lender and selecting someone who will take the time to explain in detail the various mortgage rate options available.  Rate is one of several important factors when selecting a home mortgage.