Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

"From the minute you call me to the minute we close, I have your back. No hassles, no banker’s hours & quick response times." - Scott Storace

  • Home Loans up to $3,000,000
  • Interest Rate Float Down Option
 

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Is The Lowest Interest Rate Always Best?

Loan Options: How To Evaluate

Orange County, CA – One of the first questions that most new borrowers ask is, “What’s the interest rate?” One of the main reasons for this is that it’s one of the easiest ways to assess the quality of a loan and compare to other offers. It’s easy enough to take a figure that’s given to you and have a basic understanding of what it will mean in terms of repayments. That’s fine of course, but it’s very important to realize that it’s not the only way to judge a loan. And sometimes, the interest rate is a long way from being the best way to judge a mortgage loan.

THE MAKING OF AN INTEREST RATE

Interest rates are very important. They determine what the loan payment will be. However, that interest rate may not relate to your particular situation. A rate may be advertised, but often that rate will indicate a best case scenario. Interest rates are determined by a number of risk factors. It’s similar to asking what prices are like. The price of a property is not static. The size, location, features and much more will determine a property’s price. The same is true of interest rates. The type of property, loan amount, loan program, down payment, the term of amortization as well as the rate lock duration and credit calculation can all change the initial interest rate figure that is quoted. Because lenders have to factor all of these things into a loan, they can rarely give a clear indication of all these scenarios in an advertised rate. Take fo rinstance these posted interest rates: Wells Fargo posts their rates here. These rates include 1 point but they do not encompass all the potential scenarios. Therefore, the advertised figure and the one that you might end up getting can be significantly different. A good source for lender comparison is Freddie Mac’s weekly survey. They survey lenders throughout the country every week to determine the average 30 year fixed rate and points charged.

Interest rates are also heavily affected by the market, and changes to the market can affect the rate on an almost hourly basis. Rates are determined by the yield of bonds. Bond traders are constantly purchasing and selling bonds. What you understand to be the offer in the morning could change dramatically by the afternoon!

THE IMPORTANCE OF A TRUSTWORTHY ADVISOR

It’s important to know what goes into making your interest rate. If your down payment is 5% versus 20% then you can expect a higher interest rate. If your credit score is 660 versus 740 then you can expect a higher interest rate. There are many more adjustments that must be taken into consideration. Therefore, it’s most important that you find a lender that you can trust. Someone who will take the time to explain your scenario and answer your questions will be very important. After all, it’s easy to quote someone a rate over the phone. But if that person is unable to perform on your loan then the quoted rate is worthless. You’ve lost time and, if the markets have worsened, the rate may be higher at that time.

When you start to understand your own situation, then you can begin to assess interest rates and loan programs. It’s only really when you assess a loan as a whole that you can start to understand the true value of what you’re being offered. You should look at what you will be paying on a month by month basis and how much money you will have to pay back by the end of the repayment term. You will need to look at the cash needed to close as well. If you can take all of this information in, then you should be able to decide for yourself which loan program will suit you best.  For instance, interest rates on FHA loans can be lower than conventional loans. They also require less money down. Sounds like that should be the best way to go, right? Not necessarily. With most FHA loans you’ll need to pay an up front mortgage insurance premium plus monthly mortgage insurance. These payments can make your total monthly payment higher than an equivalent conventional loan with a higher rate and no mortgage insurance.

LOWERING YOUR RATE AFTER LOCKING

Once you’ve decided on a loan program you’ll next need to decide when to lock your interest rate. With rates moving up and down regularly it can be somewhat of a crap shoot. If you lock today and rates go down tomorrow then you’re stuck. If you don’t lock your rate and they move up then you have to take what the market gives you until you lock. But it doesn’t have to be that way! Be sure to ask me about our interest rate Float Down Program. This program allows you to lock your rate immediately so that you’re protected against upward movements in the market. Then once your loan is approved our float down window is open. If interest rates have dropped during that time by 0.125% or more then we’ll float you down to the market rate and no additional cost. You get the best of both worlds and can sleep easy knowing that you’ll get the best interest rate!

To understand which loan program is best for you, contact me. Be sure to ask me about our Float Down Program too!

Scott Storace

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