The Mortgage Rate “Game”…don’t get fooled!
Okay, the interest rate on what is likely your largest liability, your mortgage, is hardly a game! That being said, there is some “smoke & mirrors” going on with some banks, lenders, and brokers that cause an immense amount of confusion for your average well intentioned “rate shopper” homeowner. If you rightfully expect to get the best mortgage interest rate, the following will help you understand and play the mortgage rate “game”:
Interest rates are highly specific
You may be wasting your time to a certain extent by directly shopping online, responding to ads, or getting cursory and superficial rate quotes by a banker, bank mortgage rep., or broker for that matter. While it can certainly be prudent to do a bit of preliminary research on your own to establish a baseline rate, understand that mortgage interest rates are increasingly becoming à la carte in the sense that you now choose, and pay for, the specific features that you want and your specific borrowing circumstance and property. If your broker or banker spins out a rate to you based on a 2min. conversation, run for the hills because they are likely misleading you (intentionally or unintentionally) and may be setting the stage to overpromise and underdeliver.
The following are just a few of the many factors that go into an interest rate, and most borrowers are simply are not equipped to decipher this on their own, and the lender or broker isn’t either until they understand some of the following:
Many factors affect rate
- Lender Type (Schedule 1 bank, Credit Union, MonoLine lender, Finance Company)
- Mortgage Class: Insured, Uninsured, Uninsurable
- Interest Term (1-10 years, Open, Closed, Variable, Adjustable)
- Loan Purpose: Purchase, Refinance, Equity Take Out
- Loan to Value/Downpayment
- Prepayment Features/Portability/Breakage Penalties
- Property type, condition, area, marketability
- Property use: owner occupied, rental, seasonal, second home
- Borrower Qualifications: debt ratios, credit, earnings stability, character, assets
- And many more!
Mortgages are big ticket items
Shopping for a mortgage is kind of analogous to shopping for any other big ticket item, like a new car for instance. Do you simply call up a car dealer and ask what the price is for a new car? Of course not, because you know that the vehicle make, model, features, engine size, options etc. all factor in to the price. There are also other costs such as freight, administration, taxes, financing charges etc. that also need to be explained, considered, and factored in to the total cost of acquisition. What you really want when shopping for a new car is a professional salesperson, that you like, trust, and can count on to listen to you and have your best interests at heart. In short, a trusted advisor that can find you the most suitable vehicle, with the best value, at the lowest possible overall price. Not always easy…but very possible!
Seek an Advisory Relationship
It is suggested that you seek the advisory support of a qualified, ethical, experienced, and knowledgeable mortgage broker who has access to all of the top lenders and rates. There are many great lenders that lend at a discount only through brokers, and a broker can navigate this complex mortgage marketplace on your behalf. A good broker will be an effective communicator, uncover and discover your true motivations, needs, and wants regarding your financial and housing situation, narrowing down the list to a few of the best options available to you.
Not a Banker or Mortgage Rep. Fan
A personal banker or bank mortgage rep. can only sell the product of their employer bank, whereas a mortgage broker is an independent contractor that works for you (usually with no fees) in seeking the best financing terms available in the country. A bank mortgage rep. is accountable first and foremost to their employer…the bank. Who is the bank accountable to? Shareholders. A mortgage broker’s primary loyalty is to their client, and will readily adapt to a new lender if they can exploit better terms terms for you. In short, a broker works for you, not the bank. If you have a long established bank relationship, this is certainly a place to start. Just beware however that a bank usually doesn’t volunteer its discounted rates too proactively. A credit union, while great places to conduct certain transactions, typically have a higher cost of funds, and therefore are not always the most competitive either. Because of this, you will want to also consult with other mortgage lender types and brokers as well during the house buying or mortgage re-negotiation/renewal process.
Seek truth, not Flashy Fluff!
The days are long gone where you surf a couple of website, call your bank, call a broker etc. to get a “rate quote”. This simply cannot be done based on a superficial conversation nor slick attention grabbing ad or web banner.
Bottom Line: the only way to get the best “real” interest rate available is to conduct an application with a broker/lender/banker and get a mortgage commitment in writing, with all of the terms and conditions disclosed. Until that happens…it can all be “Smoke & Mirrors” so be careful what and who you choose to believe. Seek trusting relationships, and let your broker (preferably) do what they do best, which is to find you the absolute best financing package available in the industry. Empower yourself and align with the right advisor, so that you do not just play the Rate Game…but win the Rate Game!
About Alan Fetterly:
Alan is a Certified Financial Planner and licensed Mortgage Broker with over 20 years experience in banking, investments, real estate, and mortgage brokerage. He has worked within major banks and credit unions in both an advisory and management capacity. Alan aims to open opportunity and education in alternative investments, as well as assists a vast array of borrowers with their mortgage financing needs.