Mortgage Rates Comparison Sites – Do They Give You the Whole Story?

If you are contemplating your first mortgage as a first time buyer, or a remortgage of your existing loan, you would probably think that researching the best mortgage rates would be as simple as going to the nearest price comparison site, answering a few straightforward questions and applying a few filters to suit your mortgage rate requirements.

Now for price comparison sites that make millions from online financial arrangements, that view is one that they try to foster, indeed actively promote. Why wouldn’t they? It makes them millions. Giving advice requires expertise, time effort, adherence to strict Financial Services Association rules, and above all a desire to really make sure the most appropriate advice is provided, even if the advice means no income is generated for the adviser.

Oh, but that doesn’t make money. Far easier to place the decision with the client, and allow them to make the decision. Now I’m all for people power, and people taking responsibility for their own actions, but does it make sense for the largest financial commitment most of us ever consider to come without even the smallest amount of mortgage advice.

Having spent more than ten years providing mortgage advice online talking to people from all walks of life, I am of the firm believe that advice should be made compulsory. All too often I have seen the consequences of an ill considered decision causing problems later on. Mortgage rates believed to be fixed only to turn out to be a discounted rate, where the mortgagee misunderstood that the discount rate was fixed, not the actual pay rate. Those with extended redemption penalties that they had just not realized were present because they hadn’t read the documentation correctly. They were only really concerned about the monthly payment.

Well if you are considering a mortgage, and what mortgage rates will be suitable, my advice would be that you talk to an Independent Financial Adviser. Fee or no fee, seeking advice will always save you money in the long run.

For those that don’t feel professional advice is for them, perhaps just consider the following points when mulling over which mortgage rates are best for you.

Attitude

Do you have a real understanding of the differences between the different types of mortgage rates? Has media hype, adverse publicity or the advice of friends lead you to discount a particular type of mortgage that may be suitable for your needs.

Changes in Circumstances

Do you know what you will be doing in two, three, five or more year’s time? Do you plan to start a family? Is there any expectation that your income may go down? Do you expect a promotion, relocation, and if you did, would you retain the property and let it out lender permitting, or sell it? Might you move abroad, and would that impact on the mortgage repayment type considered?

Early Repayment Charges

Does the mortgage have one, and if so is it just during any product period such a three year fixed rate, or does the penalty extend beyond the benefit period leaving you with the prospect of paying the generally higher lender standard variable rate, or the payment of a penalty which is often equivalent to six months interest?

Can the mortgage be transferred to a new property without incurring the redemption penalty?

Portability

Whilst most mortgage rates are portable to a new property some are not. For those that are you should be aware that portability is not a ‘Right’, but rather just a feature of the mortgage product. To transfer a mortgage to a new property you will still need to meet the lenders underwriting criteria again, and the property will still have to be a suitable security. Also consider the repayment method you select. If you expect to move frequently, is a repayment mortgage advisable? Or would you be better of with an interest only loan and a savings plan that is independent of the mortgage?

Overall APR / Cost for Comparison

Which mortgage is the cheapest, and how do you assess it? Is the cheapest mortgage the best mortgage, after you take all the other factors into consideration? Total cost comparison is a good place to start however. Beware though, as this is the one calculation that many online mortgage sourcing systems do not provide. Comparing the total cost over a given period which includes all the relevant fees and charges will provide a list of products in total cost order. Whether the one at the top is the most appropriate mortgage is a different question.

Affordability

The monthly payment is always a major consideration. Typically a two year discount or tracker mortgage rate will provide the lowest overall cost over that period. Fixed rate security often comes at a premium. Would it be cheaper if interest rates were to rise? How much could they rise before the fixed rate mortgage becomes a better option? And more importantly if they were to rise at what point would the loan become unaffordable?

Flexibility

Does the mortgage allow for overpayments or underpayments where an overpayment has been made? Will it allow for the offset of mortgage interest against a linked savings account? Can you switch from repayment to interest only in the event of financial difficulty? Can you select if overpayments will reduce the term or the monthly payment?

The above are just a few considerations, and can often leave you more confused than before you started, and this is often when the lowest monthly payment becomes the main factor for mortgage rates selection.

The reality is that most mortgage rates are unable to satisfy all your needs, and seeking advice ensures you know which mortgage rate is the most appropriate for your needs having considered all the important factors.

The Right Way to Beat Rising Mortgage Rates

The variable rate mortgage is really a bank loan that features a fixed introductory interest rate to get a to some degree short period of time – typically from 2 to Ten years based upon the item – and after that time, the mortgage changes up and also down depending on the loan’s margin, caps, plus the index that the loan is tied to. Almost always, the actual fixed interest rate to the specified stretch of time is leaner than conventional 17 to 46 year fixed rate mortgage products and solutions.

What countless applicants may well are not able to seem to comprehend is that these loan officials as well as mortgage brokers put on commitment into determining whether a borrower is even qualified to have a home mortgage loan. When it reaches as a result of the wire, they can rather are satisfied with a smaller amount of a commission than no commission at all. And here, you have the room to barter and escape a bundle of money immediately, plus on the lifetime of the mortgage loan.

You can find risks and rewards when it comes to considering a 5 year variable rate mortgage. The advantage is that you could reduce costs by locking inside a lower interest rate with the first five years. Rates are typically lower the shorter the promotional period on this form of mortgage, so a shorter variable rate would have less interest rate when compared to a long run mortgage. Plus, it usually is possible to make additional principal reduction payments monthly or quarterly to try to shorten lifespan in the loan. Saving money using a variable rate mortgage having a lower interest rate for the fixed introductory interval may assist you to make those additional payments.

Any new home buyer will show you that unusual closing costs and interest rates can be tricky, at best. Mostly, they could be downright intimidating because if they are too high it may mean paying much more for your home mortgage. You’ll be able to negotiate interest rates and closing costs, community. could be a tricky prospect. Loan officers and mortgage brokers often get a portion from the total mortgage loan amount as commission, so they really would like to understand the borrower obtain the highest number of fees and interest possible. It is their bread and butter, as it were.

When it comes to what’s so great about these lower mortgage rates, it is critical to take into account the amount of time you could possibly are now living in your property, your current and projected future income, your ability to spend a larger monthly mortgage payment if the 5 year ARM adjusts to your higher rate before you close against each other, and the savings it is possible to achieve while paying lower interest rates in the fixed period.

Fortunately that borrowers will have the possibility to call their particular interest rate and closing costs with Offer to Lenders. Decide what you look for the purchase price to be and let lenders compete to win the house mortgage loan. “Name your rate and your closing cost” and win each and every time should you your sufficient research! Lenders are definitely more willing to be a little more flexible since they’re not charged for ones offer, so they can afford to present the most beneficial mortgage deal possible without any obligation to consumers

till closing day.

It is strongly recommended that you just meet with a mortgage and tax professional when weighing the potential for loss, rewards, and attributes of a variable rate mortgage. While most of these mortgages will help cut costs for a while, it’s important to use a long-term plan when scouting for a variable rate mortgage. A licensed mortgage loan officer may help you comprehend the implications of selecting the best mortgage accessible in industry.

One instance certainly where an 5 year variable rate mortgage will make sense is that if you recognize you likely will never be in your own home for longer than 5 years. Then chances are you’ll wager that you close out of the loan before it could alter to a potentially higher rate.

Once you understand the desired financial disclosures to your mortgage loan, you need to check out these with careful scrutiny. This is when there is a fees and rates that can be negotiated. Things like document processing fees and underwriting costs are incredibly negotiable. By looking around and gathering competitors’ rates and charges, you are able to essentially ‘force’ your mortgage lender to offer you the fees and rates that you’d like, within reason. Home appraisal and inspection fees can oftentimes be negotiated directly while using appraiser and the inspector, so you can may well avoid some dough doing this, too.

Variable rate mortgages have obtained some negative awareness nowadays as numerous men and women found themselves not working or maybe without enough equity left inside their residences so that you can refinance. Nonetheless, inside the right situations, a variable rate mortgage affords returns regarding prospective lower temporary interest rates.

At the end for the day, each individual has to examine precisely what is their utmost financial determination. Were still in uncertain occasions in the state with the economic system and also the quantity of residences which have been traditional bank managed. A lot of banks are not releasing homes yet. Whenever they do will house values keep falling? After that get lucky and interest rates then? Will interest rates keep rise, or will interest rates reduce allowing more people the opportunity to spend money on most of these foreclosed households? These are typically uncertain times regarding mortgage interest rates plus the sale involved with properties.

How Are Mortgage Rates Determined?

How mortgage loan rates are determined and what causes them to move is an absolute mystery to most folks – and those who think they know are usually wrong. As a former mortgage banker I can tell you that a lot of people in the mortgage industry can’t even give you an accurate answer to that question. So what’s the mystery and misinformation all about? Let’s take a simple look, in plain English, at what moves mortgage rates and (just as importantly) what does not.

Ask a bunch of your friends what mortgage rates are based on and they will tell you they are not sure but it has something to do with Ben Bernanke and the Federal Reserve. Some of your more financially savvy friends may tell you that rates are based on the 10 year treasury yield. Both answers are incorrect. The simple truth is that mortgage rates are based on the mortgage backed securities (MBS) market. I know – this is starting to sound scary. I promise to keep it simple – here’s a quick explanation of what a mortgage backed security is. Banks and mortgage lenders take large bundles of their mortgage loans and pool them together to be sold as investments. These debt obligations trade as bonds (mortgage backed securities). An investor can invest in a pool of mortgage loans and receive income based on how those loans perform (do they pay on time etc…). The mortgage backed securities market is a segment of the overall bond market. The MBS market reacts and moves based on economic news and indicators similar to how the overall bond market works.

To take this one step further, here’s the technical explanation for those of you who are knowledgeable in matters of finance. MBS rates, and consequently mortgage rates, are directly determined by variances (or spreads) between it (MBS Rates) and a financial derivative instrument called interest rate swaps. These swaps are used by investors to manage, hedge, or speculate on risk. The rate on a swap rate is a fixed interest rate that one would receive in exchange for the uncertainty of having to pay the short-term LIBOR (London Interbank Offered Rate) rate over time. Additionally, mortgage rates are influenced by relative spreads between interest rate swaps and treasury notes.

So why does everyone think that the Federal Reserve controls mortgage rates? Your guess is as good as mine. The most likely cause is that misinformed people in the media just keep talking about the fact that the fed lowered interest rates and mortgage rates will follow suit – and we keep listening. The fact of the matter is that the actions of the Federal Reserve do have an impact on mortgage rates but it is indirect and often extremely delayed. When the fed announces that they are lowering short term interest rates, this has an immediate impact on some types of consumer loans such as home equity loans and credit cards. It also has a negative affect on the interest rates on saving vehicles like money market accounts and certificates of deposit (because those rates go down as well). It does not however, have an immediate or direct impact on mortgage rates. The indirect impact on mortgage rates of the fed easing (lowering) short term rates is that it causes investors to flee investments like money markets and CDs and put more money into the stock and bond markets. When people buy more bonds (including mortgage backed securities) this causes bond prices to rise. When bond prices rise, the yields of those bonds go down. Lower yields on mortgage backed securities equal lower rates. This chain of events that started with the fed lowering rates and ended with mortgage rates going down could take months to unfold and dozens of other economic events could intervene and keep that chain of events from happening as predicted.

The other common misconception is that mortgage rates are tied to the long term Treasury notes. Not true. If you look at long term charts for mortgage rates and long term treasuries side by side you will see that they trend together over a long period of time. As mentioned above, the spread between interest rate swaps and treasury notes do influence mortgage rates – but it is inaccurate to say that there is a direct link between the two.

We’ve just covered the basics on how long term mortgage loan rates such as the 30 year fixed rate are determined. Short term mortgages like 5 year ARMs and 7 year ARMs can be based on a number of different indices.