Best mortgage interest rates
A big dilemma is whether to choose a fixed rate mortgage or an adjustable rate mortgage (ARM). With a fixed rate mortgage, your monthly payment is set at the beginning and will never change. If you opt for an adjustable rate loan, your initial interest rate may be lower, but the interest rate and monthly payment can climb quickly as interest rates rise.
If current rates are low, or if you expect to stay in your new home for at least five years, a fixed rate mortgage is probably your best bet. But if rates are high, an ARM may tide you over until rates decline and you can lock in a fixed rate.
If you are planning to sell the house in less than five years, you may choose an adjustable mortgage with a lower initial interest rate. Do this only if that rate is 2 to 3 percent lower than current fixed rates, and there is no prepayment penalty, which is a charge for repaying the loan early.
If you decide on an ARM, you need to know not only the initial rate, but also to adjust even though it occurs very often. Each lender may impose a different cap, or ceiling above which rates cannot rise. Generally, your interest rate should not increase more than 2 percent at any one time, or 6 percent for the life of the loan. Also, make sure you will be able to meet the higher monthly payments as they occur. Do not be caught off guard by high housing costs in the future and blow your budget or, even worse, lose your house.
Consider a hybrid mortgage, with a fixed rate for a few years and adjustable after that. The mortgage payment is calculated over 30 years, but is fixed for the first five years or so at a lower rate than a fixed 30 year mortgage. If you plan to stay in your home less than five years before moving on, the hybrid mortgage with a five year fixed rate will guarantee you a stable mortgage payment while you are there.
Locking in a Good Rate:
A lender will take some time to approve your mortgage loan application. You can protect yourself against a rise in interest rates by locking in a rate during the preapproval process. Be sure to get the lock in deal in writing and get a guarantee of at least 60 days. For a fee of about a quarter-point, you can also lock in a rate with a float down option, which means you are protected from rate increases for a specified period, and your rate will drop if market rates go down before you close.
Closing costs on your loan can add up to thousands of dollars. When you apply for a mortgage, your lender should provide a good faith estimate of these costs, including points, which are the lenders one-time charge for transacting the loan. Each point represents one percent of the mortgage amount, and the more points you pay up front, the lower the interest rate should be for the life of the loan. If you plan to stay in your new home for several years, it is to your advantage to pay an extra point up front to get an interest rate that is a quarter to a half percentage point lower. But if you plan to move after only a couple of years, paying extra points for a lower rate may not be wise.
You may want to hire mortgage broker to help you find a suitable loan. The broker can help you determine how much you can borrow; the best interest rates, an closing costs and can answer any questions along the way. The mortgage broker is paid directly by the financial institution that provides the loan, and your only cost will be a small application fee. If you do not use a mortgage broker, consult several financial institutions to search the best loan for you.
You can shop for mortgages online, and compare quotes from several different lenders from the comfort of your desk chair. Women especially are turning to the Internet for mortgage information, because they can shop at their own pace without feeling pressured by slick salesmen or condescending loan officers. The Internet allows you to deal with lenders that have the best options for you rather than confining your mortgage search to a local mortgage company or bank.
But arranging a mortgage this way requires a certain amount of financial savvy, since you will be shouldering much of the responsibility usually handled by a mortgage broker.
Before you buy online, make sure you understand the following:
How the loan process works
How to compare costs and lenders
Which loan product and rate combination is best for you
How lock-ins work and when to use one
Once the mortgage is set, though your parents might have kept the same mortgage for 30 years, todays fluctuating mortgage rates keep you on your toes. You go on thinking when to refinance. If you can get a no-cost loan at a rate that is lower than you are presently paying, you can opt for refinance.
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