Choosing the Best Mortgage Rate

2010-09-21T15:37:00.000-07:00

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Finding the best mortgage rate may not be as easy as simply identifying the lowest interest rate available. The criteria a mortgage shopper should apply must begin with the question of how long they plan to hold onto the mortgage and retain ownership of the property. There is no reason to consider the option of paying points and fees to buy down the interest rate when a borrower does not plan to own the property long enough to re-coup (or at least break even) on the closing costs. The second criteria that should be used in determining whether to buy the interest rate down by paying point and fees, is whether a borrower is refinancing (refinance mortgage rates) or purchasing the property in question. When refinancing, points and fees have a different tax treatment than if the transaction involves a purchase. Deducting points and fees typically has a more favorable tax treatment in a purchase transaction rather than in refinancing when the deduction of points is normally amortized over the life of the loan and not deducted in the year they are paid as is typically the case in a purchase.

Another criteria frequently used to determine the best mortgage rate is APR or the Annual Percentage Rate. The purpose of the APR is to give the mortgage consumer a basis of comparing several loans by examining the total cost of the loan, including some specific costs, over a period of time by reflecting some of those costs in the interest rate (30 year mortgage rates). The problem with the APR is that it is not required to be calculated the same way across the board, for instance one area were lenders can differ dramatically when it comes to quoting APR, is the number of days of pro-rated interest they use when arriving at their APR calculation. Pro-rated interest is the number of days remaining within a month that you will pay interest after your new loan closes, for example if your loan should close on the 15th of the month then you would have 15 days (or 16 if the month has 31 days) interest remaining to pay on the new loan. The problem with lenders including the pro-rated interest in the APR is that there is no uniform requirement for how it is quoted. Some lenders use 15 days in their calculation and some may use 30 days, a few may even use zero days of pro-rated interest in their APR calculation so it will appear (somewhat deceptively) to be the lowest among their competitors.

What type of loan would be best mortgage for you? With so many sub-prime borrowers having been burned recently by adjustable rate mortgages, ARMs are being avoided like the plague in this new post-mortgage meltdown era. It’s unfortunate that all adjustable loans are being written off by many consumers and are now being presented in the same negative light. In fact, given the right circumstances, an adjustable loan can be a wonderful tool for managing one’s personal cash flow if a borrower is both responsible and educated in maintaining their own finances. Risk tolerance, along with personal confidence and skill, in controlling one’s finances is critical in determining whether an ARM might be right for a particular borrower. ARMs can also be useful for borrowers who have a short term ownership horizon, perhaps of less than 3-5 years. Of course given the soft real estate market currently experienced throughout the country, buying a home with such a short term time horizon would likely be a foolish strategy. Fixed rate mortgages (30 year mortgage rates) are always a safe bet and in many cases borrowers are better off taking a 30 year term versus the shorter 15 year term. Borrowers opting for the 30 year can always make additional payments to shorten the term of the loan (assuming they take a recommended no prepayment penalty loan), this way they remain in control of managing their mortgage payment and cash flow. A 15 year mortgage can be a terrific, less costly option for the more mature borrower who does not have as many competing demands for their cash (i.e. saving for retirement, kid’s college education, etc.).

As you have now seen, determining what the best mortgage rate for you may be is not as simple as it sounds. There are many considerations to take into account and the key to making accurate loan comparisons is to be certain you are truly comparing loans on an apples-to-apples basis and not looking at two loans that have completely different rate and yield equivalencies.

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Mortgage Refinance in California?

2010-09-21T15:07:00.000-07:00

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During these times of crises, let´s be more practical. Feeling stuck in one´s comfort zone or being paralized by fear of taking risks will lead to nothing. Something must be done with your home mortgage or something unpleasant might be already happening and later go out of control. Or let´s put it this way: you want to live more comfortably or less anxiously and be less concerned with mortgage issues that have been haunting you. Well, I have been through this sojourn and indeed, it is not easy. So, let me suggest some practical steps you might need urgently. First, save more. Right? Your monthly payments will be lighter if you get a lower interest rate or when the term of the loan is extended. Yet, with the term extension, you will end up paying more in interest for your loan. Second, you want to ease up on you and your family by paying down

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your mortgage the quickest way possible. Why should you prolong your agony when you should have been avoiding it and investing in something else? You can cut the duration of your mortgage by shortening the term of the loan. Although your monthly payments increase, you will be able to save more in interest payments. And you will be relieved from debt sooner. Third, you need extra cash to pay off credit cards. If you have enough equity in your home, you can refinance and borrow beyond the current loan balance. Once you have the extra money, you can pay off high interest debts. Fourth, you want to consolidate two loans into a single mortgage. Obviously, your monthly payment on the new loan will be lower than the two payments. Finally, you can convert an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM) to prevent the lender from increasing your monthly interest payments. It will then hold your monthly payments on the same level.

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Choosing the Best Mortgage Rate

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Mortgage Refinance in California?

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