You've seen the commercials on TV and on the Internet - low rates on new and refinanced mortgage loans. Many are lower than what local Loan Brokers, and many banks, seem to be offering these days.
But are these offers on the level? And, will someone be there to service your loan at closing if the terms are different than was earlier agreed?
All of this comes in a lending environment where low-rate loans may truly be hard to find. Many home borrowers today with mid-level credit and less-than-25% down payments are finding higher rates and fees, and tighter loan requirements.
Indeed, many prospective home buyers, as well as our Team advising our own clients, rely on Banks or Mortgage Brokers to shop lenders for the best rate. Currently, the average 5/1 Adjustable Rate Mortgage is 6.01% nationally.
Some online lenders, however, such as online-only bank ING Direct, presently offer rates as low as 5.25% APR for essentially the same product. E-Loan, Emigrant Savings, and MTG Capital offer similar rates. These rates apply, mind you, typically apply to applicants with strong FICO Credit Scores - typically 700 or over.
Many of the discount-rate lenders do not have a costly branch office presence, and their overhead is lower. This allows them to quote lower rates and still make a profit on the loan.
According to ING Direct President and CEO Arkadi Kuhlman, his firm holds many of these discounted-rate loans in their own portfolios. "I don't want to underwrite mortgages I can't keep," says Kuhlman.
He continues that his firm's lower rates are possible since he doesn't have to pay the hundreds of employees and branch operating expenses that the big lenders have to pay.
The theory behind the 5/1 ARM loan has to do with the fact that the average American homeowner these days still moves every 5 to 7 years. For these borrowers, the added cost of a higher-rate 30-year fixed loan may be a waste of money.
What happens, however, if you DO NOT move before the rate adjustment period expires? Do you risk a far-higher rate with the reset?
The answer - YES, you would shoulder that risk.
So a buyer unsure about how long he will stay in the home need be careful. If the example loan were to adjust today, the 5.25% rate would increase to near today's rate of 6.01%. However, no one can accurately predict where mortgage interest rates will land fie years from now.
Customer Serviceis often another concern. Our Team can recite a dozen or so horror stories over the years, where our clients signed on with a supposedly-less-expensive online lender, only to find closing fees and points pushed the final loan far higher than anticipated.
At the closing table, a call to the Online Lender's Customer Service Number was met with music-on-hold for what seemed like forever, followed by no resolution.
Using local Loan Brokers, whose livelihood is dependent on referrals from the Buyer's Real Estate Agent, may be more likely to make sure the closing loan terms are identical to those previously agreed to.
However, you can't ignore money saved these days. A smart home buyer might want to compare more than one source for funding a home loan. Close examination of the federally-required Truth in Lending (TIL) Statement from each lender, provided soon after the loan application is made, will uncover "surprise" charges, rates, or fees.
See our post today @ BlogChicagoHomes.com for more, as well as a link to Mary Pilon's post on "The Wallet" Blog in yesterday's Wall Street Journal.
DEAN & DEAN'S TEAM CHICAGO