What To Ask When Shopping For A Mortgage

By
Mortgage and Lending with Infinity Financial Group

Research is an important component of any large transaction.  I'm sure you'll agree that a home mortgage is one of, if not the largest financial investment a person will make in their lifetime.  I'm sure you'll also agree that given the importance of this investment you would want an industry professional that, quite frankly, knows their industry!  With that in mind here are a few questions to ask a potential mortgage professional to assure yourself that they indeed have a handle on their industry and, directly, your best interests.

What are interest rates based on?  Mortgage interest rates are based on the yields of Mortgage Backed Securities or Mortgage Bonds.  These bonds are bought and sold daily by large investors.  Bond prices, just like stocks, fluctuate by the minute.  Mortgage professionals like to see bond prices rising.  If your mortgage person states that rates are based on Fed Funds rates, i.e. the Prime Rate or Treasury rates, they are dead wrong and this should be a cause for concern.

What's the next economic event that may cause interest rates to move?   Bond Markets are concerned with the pace of economic growth and inflation, generally speaking mortgage bonds move opposite the stock market.  So as the stock market improves, mortgage bonds generally drop in price (bad for interest rates).  Probably the most important report is the Employment Report issued on the first Friday of every month by the Bureau of Labor Statistics.  Stronger than expected employment growth would be bad for interest rates.  A second report may be the Consumer Price Index issued monthly by the Bureau of Labor Statistics.  Again, strong economic growth shifts money out of the bond market into stocks.  This shift would cause bond prices to drop (bad for interest rates!).

When the Prime rate goes up, what happens with mortgage interest rates? The Federal Reserve Bank only controls the Discount Rate and the Fed Funds Rate, components of the Prime Interest Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.    Again, the mortgage bond market controls mortgage interest rates.  In fact, very often mortgage rates travel in the opposite direction of the Prime Rate.

What's happening in the market now and what do you see ahead?  There is more than sufficient market information on a daily basis that allows a mortgage professional to recognize trends and to act accordingly.  For instance, as noted above, if the employment numbers are to be released tomorrow and you are not locked in on your interest rate for your new mortgage loan it would be imperative that the proper research be done to determine potential market direction and determine whether to lock or float your new loan rate.  A response such as "Gosh, if I could predict the future I wouldn't have to work for a living" would be a huge red flag that your mortgage professional is not engaged in their industry.

Comments (6)

Christina Williams. REALTOR® TN property search & local insights
First Realty Company - Crossville, TN
John, Thanks for the information. Much needed as a new agent.
Apr 01, 2007 02:56 AM
Randal Keberlein
Weichert Realtors, Precision - Kenosha, WI

I hate to be picky but..... the home is the asset thus the investment and the mortgage is "the conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt." Thus the mortgage is the largest debt you probably will incurr. 

I might also add these questions:

  1. How does he length of my lock affect my rate?
  2. What percentage of loans taken actually close?
  3. If I lock and the interest rates go down what happens?

I could go on but, I won't

You obviously are engaged in you business and I wish you much success!

 

Apr 01, 2007 03:13 AM
Kathy Vaughan
Ryan Taylor Homes - Annandale, VA

Great advice, but nice try! How many borrowers really ask all those questions. All they really want to know is the rate? And most will follow whatever lender promises them the lowest, without ever understanding all the variables. Do you have an easy way to put this in plain English so that real estate agents can set the stage in our consultations or home buyer seminars?

Apr 01, 2007 04:49 AM
John Caylor
Infinity Financial Group - Post Falls, ID
Post Falls, ID Mortgages

Randal,

Thanks for responding and those are very valid questions that I agree should also be asked. But as I stated in my original post I said "here are a few questions" not "here are the only questions." I apologize if I wasn't clear on that.

 

Apr 01, 2007 04:54 AM
Jacob Morales - Arizona Mortgage Planner
US Bank - Scottsdale, AZ
I love seeing posts like this. It amazes me how many loan officers don't know this kind of stuff and tell their clients incorrect information. Thanks for the post! 
Apr 01, 2007 09:15 AM
John Caylor
Infinity Financial Group - Post Falls, ID
Post Falls, ID Mortgages

Kathy,

I agree with you that most borrowers don't ask these questions. But our job as mortgage planners is to educate our borrowers/clients so we can more effectively manage their mortgage for as long as they choose to have it. Also, I insist that my clients do understand the variables because after all a mortgage is the largest debt most people will ever incur. Don't you agree that its more important for a client/borrower to be fully educated about interest rates than just to be promised the so-called "lowest rate?" Because as you know, in regards to interest rates, a promise means nothing. I think we have all heard the horror stories about promises being made and they get to the closing table and all those promises are broken and backed up with excuses.

 

 

Apr 01, 2007 11:00 AM