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Going Beyond "The Rate..."

Everything in the mortgage industry is geared towards the rate. What are your rates? Who has the best rates? What are the rates doing?

I'm here to tell you that the mortgage industry goes far beyond what the rate is. The rate is just a number! Yes, a number the ultimately determines the amount that a client will pay on his/her mortgage every month...but it still goes deeper than that. For example, "Does the rate really matter if you don't get the loan to begin with?"

The mortgage industry is about people. With that, it's about asking questions and understanding the goals, objectives and financial abilities of an individual client. What may be right for one client is completely different for another!

For example:

Family A: Mom and dad are "empty nesters." Their children, Jason and Michelle are out of the house and now they have much more space in their home than they needed before. Most of their "net worth" is in their home, because they have been focusing their money on paying down their mortgage and they have been realizing a great deal of appreciation on their home. The couple's intention is to move into a smaller condo in a few years, but they want to start investing in the stock market or they want to start traveling while they can. They sit down one night and decide to do a "cash out refinance" on their home. In this scenario, it makes sense for the client to be in a short-term adjustable product. Why? The couple's intention is to be in the home for a short period of time before selling and they can benefit from getting a lower interest rate on a short-term loan....not a 30 year fixed!

Family B: A young couple purchases a new home and their intentions are to raise their children in the home. For this couple, it makes more sense to protect themselves from rate increases by locking in on a long-term loan, such as a 15,20 or 30 year fixed. Why? Over the long term, rates will likely increase. Having the comfort of set payment, especially on a new home, will help the young couple set a budget and have a "game plan."

Working with a mortgage professional that understands this concept and works towards understanding your needs will make the entire loan process much more enjoyable. Purchasing or refinancing your home is one of the biggest decisions that you will make and knowing that you're in good hands is VERY IMPORTANT!

Scott Gormley
Broker/Owner
Oak Valley Mortgage
2006 Chico Assoc. of Realtors Affiliate Chairman
Direct: 530.592.8362
Fax: 530.267.5555
Website: http://www.caloan.com/

Blog: http://activerain.com/blogs/lendingmagician

"You find the perfect home, we'll find the perfect loan!"

Posted by Scott Gormley on 12/14/2006 11:56 AM

Comments (21)

mortgage, home, loan, refinance, people, understanding, goals, objectives, interest, rates, california, chico

This post has been included in California Information

21 Comments on Going Beyond "The Rate..."

DEC

2006

Great point Scott. The proper PRODUCT is often more important than the absolute lowest rate. A lot of people (including some lenders) seem to miss that.

A world record for blog commenting!

http://www.ThompsonsRealty.com
http://www.PhoenixRealEstateGuy.com

Good blog Scott. Especially for the LO's that came in when rates were at their historical lowest. Rates will always go up and go down....and still people will always buy homes and need money from the equity of their homes. It is the Mortgage Professional who walks the borrower through the loan process and provides product options that best fit the borrower's needs both now and in the future that just as, if not more, important.

Scott..... Now good... EXCELLENT blog.... Now, if you had written this by the 10th of December, I could have added this in the weekly review. I did make a comment back to you on that post. Then I came to this post... ;o)

In any case.... just the first 2 paragraphs or so tells it all....hitting the nail on the head. And trying to get clients to even think about this is hard. THEY STILL JUST WANT RATE... and nothing wrong with that.

Here is what you said.. "Does the rate really matter if you don't get the loan to begin with?" this is so true.... too many company's bait and switch, even if they do have great credit and equity. I just wish more clients would not jump at ever best deal they here, no matter what. One thing I will educate clients on is when they ask me... well, how do you know they can't do this? Me? "go to 5 other lenders and give them the same exact scenario. Typically.... typically, the average works. That one WAY below the average.... well, call me."

Again, good job.

Thanks Scott,

Most people looking for a loan whether purchase money or refinance really don't understand the variables involved in picking a loan. This is why it's not a good idea to pick a lender from the internet or classified ads based on their rates. I want a lender who will advise clients on the best loan for them and also put their fees in writing. Good lenders have no problems with being up front... the others.. well that's another story.

Often a target rate doesn't go hand in hand with the specific loan type/product that a customer really wants or can even qualify for. Great point,

I just think a consumer wants both. Good advice along with low prices. How many questions are necessary before you can tell me what my best options are? There probably should be some sort of computer program that can take answers to questions and spit out the best options. Is buying a loan product a subjective emotional buying decision or just making a good business decision?

I agree its all about the benefit to the borrower!!!!!!!!! Rates depending on the situation arent always going to benefit the client. A short term ARM will yield a lower payment than a prolonged fixed rate.

Scott- Great blog !!

I'm currently working with a couple buying their first house. They were originally qualified for a max loan amount of $105,000 80/20. They have a small reserve for a downpayent....I asked them if they even wanted to use that because I would have the Sellers pay 3% towards the closing costs...

After looking around and not finding anything that they really like at that price point I called the loan officer and he was able to rework the numbers and we are now able to go with a higher loan and a different loan progam to keep the payments low.

I had emailed the property information to the Loan Officer and asked him what it would take to get my Buyers in this house...I got immediate response and the personal customer service I needed to work as a team to get this buyer in a home.

I just sold a home to another buyer who went with his bank for the home loan....It was like pulling teeth to get past the computerized phone system, the loan officer was buried somwhere in the building...After finally getting to the loan officer he wouldn't answer my questions. I felt like I needed therapy !! I don't understand why it had to be so difficult.

Well said! In these days of rate fluctuations, we all need to be advisors, not order takers.

Good stuff.

Great blog Scott! I hate this subject because I am just like you and the rest of the great loan officers who knows that you are going to be giving the best rate and service but then it just backfires when they shop you and someone else does the bait-switch with your client. It is unfortunate but it is part of the business.

This is so true of any component of the home buying or selling process - people make the difference, and it's never just a matter of numbers. Even in the investment brokerage world that I deal a lot with, and it's almost purely numbers driven, there's still no way for a computer to understand the nuances of a deal, like how much value it might add to upgrade the kitchens in an older multi-family building or put a new facade on an office building. Hooray for the humans!

You hit the nail right on the head Scott, working with a mortgage professional that understands this concept and works towards understanding customers needs will definately make everyone rest easier!

In this market Buyers appear to be more concerned with the bottom line "What's my payment" than they are with any other aspect of the loan. Buyer Beware!

Q: "What is your interest rate today?"

A: "Anywhere from 1% to 12%."

Can you imagine walking up to a Realtor and asking, "How much does a home cost?"

Thousands of homes, thousands of loans. One for each person.

I like this guy - how was Hawaii?

A very worthwhile read, for agent and buyers alike. Thanks for sharing your thoughts - well written, clear and concise.

Jeff

Hawaii was awesome, thanks for asking :)

Thank you all for responding to this post, I appreciate it!

Scott

DEC

2006

Scott, Thanks for the post. Needs assessment is the first step in the process for the real estate agent as well. Learning to listen to the consumer and satisfying their needs, results in a smooth transaction.

Suzanne, I actually start my intake session with a buyer, by asking what is a comfortable monthly payment (PITI). I find all to often that just because they can qualify for $800,000, doesnt mean they can tolerate the monthly note. For example, if the buyer says, I can comfortable write a check for $3500 a month, I will back out the average monthly real taxes ($500) for the area being considered, as well as the monthly insurance premium ($75). The balance of the money ($2925)is applied against the current thirty year fixed rate (6.5) to give me the estimated list price ($462,000). I then pull properties from the MLS that match the buyers requirements.

I learned from the first experience where the buyer wanted to look at homes based upon the value of her pre-approval, only to find out when we got back to the office and crunched the numbers, that none of the homes were well suited to her monthly budget.

Scott,

Great post. I agree that we need to realize that everyone is unique and that they will require different loans. What works for one person may not work for the next person. Thanks, Jim

Scott,

Good blog about the fact that rate should not be the driving factor. I would point out in the case regarding couple A, why not do an IO also and get the even more money available for their investments? Many other scenarios come to mind for them, but not enough room to post them here.

Regarding couple B, I would not necessarily say they need the long term fixed either. People talk about the fact rates will likely increase. As many will remember, when the rates dropped to their lows a few years ago, they talked about those rates being the lowest in 40 years. What they failed to mention is that for the 40 years prior, the rates were always lower than those in 2003. And historically speaking, rates have remained below 7 percent.

Noone can tell exactly where the rates are going to go, but even looking at the history of the Fed rate, they have always overshot, so if history repeats itself (usually does), then we may be seeing the Fed reducing rates in 2007. That would mean that even couple B would be better in a short term IO loan.

The bottom line is people need to seek a professional that has the knowledge, skills and expertise to know and implement the appropriate strategies for the borrower. Having a higher interest rate on the right loan program will far outway the costs of having a lower interest rate on the wrong loan program.

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