June 12, 2017
You know that mortgage companies offer a variety of loan
programs to meet various needs. The most common loans today are those
underwritten to conventional guidelines. There are those eligible for a VA
loan. The FHA mortgage is a good choice due to its low down payment requirement
and relaxed credit guidelines. And each of these individual loan programs also
offer different terms. You can get an FHA loan spread out over 30 years. Or you
can get an FHA loan with a 15 year amortization period, for example.
Conventional loans can be found in 10, 15, 20, 25 and 30 year terms. You have
choices, no doubt. But did you know that each individual loan program offers
different interest rates for the exact same loan? They do, and here’s how to
get the lowest rate without overpaying.
Let’s say your loan officer suggests a conventional 30 year
fixed rate mortgage. Each day, the loan officer receives an interest rate sheet
from the lender and the 30 year loan will have more than one rate listed, in
0.125% increments. That means a rate one morning might be 4.00%, 4.125%, 4.25%
and so on. Why wouldn’t the lowest rate automatically be the obvious choice?
Because it’s more expensive, that’s why.
Lower rates mean paying a certain amount of points. Points
are expressed as a percentage of the loan amount and are a form of prepaid
interest to the lender. The lender doesn’t really care one way or the other
which rate and point combination you choose as the lender will still receive
about the same amount of interest either in the form of a point or a higher
rate. A 4.25% rate might not cost any point at all but the 4.00% rate might
cost you one point. On a $250,000 loan, one point is $2,500. That’s money out
of your pocket at the closing table for the lower rate.
Work with your loan officer to review the differences
between the different rates and the resulting monthly payment compared with how
much you had to pay to get the lower rate. Most often you’ll find the rate with
no points the best rate without overpaying. But work with your loan officer to
find out for sure.
For more information or questions about mortgage loans, please call (855) 757-8748.