Shopping Around? Here's How To Do It Right!

In my years of experience in the mortgage industry, I've learned many consumers shop for their home mortgage based on one question, "What rate can you get me?"  While this is important, the truth is that rates do not really differ from one lender to the next, nor one broker to the next.  The reason?  Simple.  Rates, like everything else we purchase as consumers are a commodity.  We all want the "Best Deal", so research becomes extremely important when choosing the right professional to represent you when it comes to obtaining financing on a home mortgage.

 

After all, 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 in mind when you are shopping.

 

 

1. 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.

 

2. 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!).

 

3. 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.

 

4. 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.

 

Call me so we can discuss all of your questions about home financing!!