Tips on How To Get A Good Mortgage Rate

To get the best possible mortgage rate you need to know how to be able to bargain. You can negotiate a mortgage rate just as you can negotiate a home loan rate. The trick is to do all of your research first and then go to your lender armed. Comparing mortgage quotes lets you identify which deals look good and which deals do not.

There are also different types of mortgage rates that you can choose from and finding the one that is right for you takes some research.

If you are trying to choose between a 3/1 adjustable-rate mortgage at 4.625 percent and a fixed-rate mortgage at 5.875 percent, both 30 years and don't expect to be out of your house within three years, how do you know whether you should choose an adjustable mortgage rate or a fixed-rated mortgage?

Whether the adjustable-rate mortgage (ARM) or fixed-rate mortgage (FRM) turns out better depends on what happens to interest rates in the future, which no one knows. Shoppers faced with this decision should ask themselves, "Is this a risk worth taking," and "can I afford to take it?"

The best way to deal with these questions is by determining what will happen to the rate and payment on the ARM if market interest rates change in ways that you specify. This "scenario analysis" provides a measure of the risk if rates increase, and the benefit(s) if they don't. It also allows you to determine the extent to which you can reduce the risk on the ARM by making the larger payment than you would have made had you selected the FRM.

A side benefit is that you can't do scenario analysis without knowing all the features of the ARM that affect future rates and payments. The information you are forced to compile for this purpose you should have anyway. Otherwise, you don't know whether you have found the best deal on your ARM.

For example, the scenario says that your 3/1 ARM had a rate of 4.625 percent, but that rate holds for only three years, after which the rate adjusts every year. It did not say what was needed to know to calculate the rate and payment after the three years. We know that your ARM rate was tied to the one-year Treasury index, which had a recent value of 1.28 percent, and had a margin of 2.75 percent. After three years, the rate would equal the index at that time plus 2.75 percent, subject to an adjustment cap of 2 percent (no rate change can exceed 2 percent) and a maximum rate of 10.625 percent.

It’s important to do that analysis. If there was the same 3/1 ARM with a 2.5 percent margin, that’s a definite deal.

The numbers cited below all assume loan amounts of $100,000:

• A stable-rate scenario provides the best measure of the potential benefit of the ARM. The payment would be $514.14 for the first 36 months, and $481.76 thereafter, as compared to $591.54 on the FRM. If there was a $591.54 payment on the ARM, it would be paid off in 257 months.


• There were four rising-rate scenarios of gradually increasing severity used: 1. Small rate increase: after two years, the index increases by .5 percent /year for three years; 2. Moderate rate increase: after one year, the rate index increases by .75 percent/year for four years; 3. Larger rate increase: starting immediately, the index increases by 1 percent/year for five years; and 4. Worst case: the index rises to 100 percent in month 2.


• With the small rate-increase scenario, the payment remains lower on the ARM than on the FRM over the entire 30 years. If the borrower makes the FRM payment, he will pay off in 304 months. The borrower thus benefits if rates are stable or decline, or have a delayed rise of 1.5 percent over 3 years.


• With the larger rate-increase scenarios, the benefits of the ARM over the first three or four years are followed by losses. Skipping to the worst case, the payment would rise from $514.14 to $630.64 in month 37, to $754.44 in month 49, and to $883.74 in month 61 where it would remain until payoff. It is useful to know whether you could deal with these increases, even though the likelihood of their occurring is very low.


• These payment increases could be reduced by making the larger FRM payment in the first three years. If you paid $591.54 rather than $514.14 for 36 months, you would reduce the worst-case payment in months 61-360 from $883.74 to $856.01.

Finding a Good Mortgage to being with!!

How to find a Good Mortgage

It is always a good idea to compare rates from several different companies. But there are several factors to keep in mind. The lowest rate isn't always the best deal.

Other factors to consider are "points" and "closing costs".

Points are simply additional finance charges tacked on to the beginning of a loan. They can be paid up front or spread out over the life of the loan. Although adding them into the loan makes your up front costs lower, it greatly increases your total cost since in effect you are paying interest on interest.

Closing Costs are additional fees and expenses necessary in order to transfer ownership of a property. Some examples of typical closing costs are title insurance, title searches, court filing fees, and survey charges. Sometimes closing costs are called settlement costs. These fees are not the same with every lender so be sure to include them in your comparison.

Another factor in the rate that you will be offered is your credit rating. Someone with a good credit rating provides a much lower risk to the lender so they will be able to offer you a lower rate. Some lenders specialize in one type of borrower over another. In other words some lenders prefer higher risk with higher returns while some prefer lower risk borrowers. So if you ask the wrong type of lender either they will turn you down (in the case of a high risk borrower approaching a low risk lender) or their lowest rate will be higher than you could get elsewhere, (in the case of a low risk borrower approaching a high risk lender). Of course some lenders are willing to loan to either type of borrower and just offer them different rates.