The Truth Behind Interest Rates
Many borrowers choose to select their lender based solely on the interest rate that is advertised or offered to them. However, it is critical for any borrower to understand there are more factors to consider than the rate that is presented. Avoid being misled by dishonest lenders by knowing which information to keep in mind when choosing a lender.
Ask for an estimate of total costs
A common practice among large banks and online lenders is to sell a borrower on their interest rate being lower than all their competitors. The information they leave out, however, is that this low rate often comes with discount points or a 1 percent origination fee. The lender may also have a low origination fee, but have a multitude of hidden closing costs. Lenders like this may choose to not fully explain their costs to the borrower upfront. When comparing rates and fees between lenders, make sure you are looking at the amount of total closing costs rather than any one particular fee.
As a borrower, it’s critical to understand that you essentially can get whatever rate you want. It’s just that every lender’s below-market interest rate will carry additional fees for you to pay. At RMN, we are confident that our total amount of fees and closing costs will compare favorably to the competition.
Don’t overlook interest rate details
Outside of the interest rate itself, borrowers must consider whether the rate offered to them is fixed or adjustable. A lender may tell you after you’ve already started the mortgage process that they can only offer you an Adjustable Rate Mortgage (ARM) or that you would be better suited for an ARM.
Some lenders advertise or quote a great interest rate, only for the customer to find out it was based on a shorter lock period than what is actually available. For example, a lender will get a customer into their office by advertising a 3.250% rate, but then will tell the borrower, “Sorry, that’s our 30-day rate and we can only give you a 60-day lock, which has a rate of 3.750%.” Be sure you understand the lock period when you receive a rate quote and make sure the lock period works for your situation. At RMN, we typically quote the 60-day lock rate and talk you through those options.
It’s imperative to always keep these key points in mind when shopping for a mortgage. It will give you the peace of mind that you are comparing apples to apples when you are trying to differentiate between mortgage financing options. Contact Residential Mortgage Network to work with the lenders you can trust.