I have been told that a fixed rate mortgage at today’s rate is the best mortgage loan. But many different types of loan programs are available. It is a mistake to think that just because Aunt Sue got an 8.5 percent 30-year fixed rate you should get the same loan.
You should get together with an expert who can explain the many different types of loan programs. Each program may have its own series of special benefits for you and your specific needs.
When considering such an important decision, it is best to explore all possibilities. It may well be that a fixed rate is the best type of loan program. It may also be that you can save a significant amount of money by exploring alternative adjustable programs.
A full-service lender with relationships throughout the mortgage industry is a must in today’s market. Lenders need the flexibility of the small business owner with the clout of a large company.
Today there are almost as many different loan programs as there are housing options. A few considerations are:
- Anticipated time in the home
- Available asset base
- Current income situation vs. future income situation
It is wise to pick a program that fits YOUR lifestyle. Example: If you pay off a loan in fifteen years versus thirty years you will obviously save a lot of money in interest expense. It is important to note that this savings is due to repaying the loan in half the time. The savings is not due to a significant savings in interest rates. You would expect that there would be a much lower interest rate since the loan has a quicker repayment and, therefore, a loan with less risk. The difference in interest rate is not that significant. Rates on 15 year loans may be 1/4 percent to 3/8 percent better than 30 year rates. Payments on 15 year loans will be approximately 25 percent higher on a monthly basis.
MYTH: I should go to my bank to get the best loan at the cheapest interest rate. Typically a commercial bank will own a separate business entity which shares the bank’s name and happens to offer mortgage financing. But this does not mean that you will get a special deal just because you are the bank’s client. The bank’s mortgage subsidiary has no special access to your financial records as you might expect. The bank’s mortgage subsidiary must request your financial records from the bank just as any other mortgage company. Your mortgage loan process will not be simplified or viewed differently from any other applicant making a request.
The perception of most people who go to their bank’s mortgage subsidiary is that their loan payments will always be made to their bank; thus, all of the individual’s banking needs will be under one roof. However, most mortgage subsidiaries sell their loans on the secondary market and may sell the loan servicing just as any other mortgage company will.
Another important consideration is that a typical bank mortgage subsidiary works with a small number of mortgage products. You may not find a wide variety of loan programs and your loan officer may not have a good comprehension of all the different programs offered. It is doubtful that they can adequately advise you as to the best program for your needs. It is possible that you, or the property you are buying, may need to have special underwriting to approve your loan application.
Just as you should interview your Realtor, you should also interview your lender. Not all lenders look after your needs. Select a lender who is willing to discuss your needs and help you choose the loan program that is best for your situation, not the best for the Lender!