First and foremost in order to shop effectively you need to make sure you are working with a professional, someone who is interested in your goals and plans for the future. This is very likely your largest asset as well as your largest debt.
Ultimately what we are talking about here is a lien against your income – and what is the best way to manage that? You are looking for someone who can advise you not just quote rates and payments over the phone. Get a recommendation from your Realtor they often have professionals they like working with and have completed multiple transactions with in the past. Or it is always nice to have a warm introduction from friends or family especially when you are dealing with your personal financial well being.
Here are four simple things your Mortgage Lender MUST KNOW the answers to otherwise you need to seek another opinion.
What are mortgage interest rates based on?
Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. Often times the 10-year Treasury Note trends in the same direction as Mortgage Bonds, other times it moves in the completely opposite direction.
What is the next Economic Report or event that could cause interest rates to move?
A professional lender will have this at their fingertips.
Do you have access to live, real time, mortgage bond quotes? Mortgage Bonds and interest rates are moving in real time several times a day and you need to make sure you are talking with someone who will warn you in advance of a costly intra-day price change, Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? Of course not.
When The Fed “changes rates”, what does this mean… and what impact does this have on mortgage interest rates? The answer may surprise you. When the Fed makes a move, they can change a rate called the “Federal Funds Rate”. This is a very short- term rate that impacts things like- credit cards, Home Equity Lines of Credit, auto loans, etc… On the day of the Fed announcement, Mortgage rates most of the time will actually move in the opposite direction as the Fed change. Typically this is due to the dynamics within the financial markets in response to inflation.
FYI: PRIME is made up of the The Federal Funds Rate plus a margin of 3%. Today PRIME is at 5.00% = federal funds rate of 2.00% + a margin of 3.00% = 5.00%
I hope this helps you understand a little more about how interest rates work. Keep in mind rates are currently at 40 year lows now is an excellent time to learn more about purchasing.
Look forward to your comments.
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