Monday, June 7, 2010

Tips For Locking in the Best Home Mortgage Rate

Tip #1: Always Shop For Home Mortgage Rates

Don't blindly accept a Realtor or Builder referral to apply for a Home Mortgage through their preferred lender. Many times they will say, "We work closely with this guy and he gets the job done". Translation: "We play golf together and he buys the beer". Remember, the Realtor won't be paying the bill each month for the next 30 years, you will.

Mortgage Loan Officers that work off of a referral network of Realtors and Builders don't have to have competitive Home Mortgage Rates because they have a steady stream of "Drones" (people who are referred to them and don't shop) calling them. Shop around, get the lowest cost Home Mortgage Rate, then if you are inclined, approach the "preferred" Loan Officer you were referred to and ask him to match the quote.

If you apply for a Home Mortgage through a preferred lender without shopping, you will pay hundreds or even thousands of dollars in additional costs.

Tip #2: Call For Home Mortgage Quotes After 11:00 a.m. Eastern Time

Mortgage Rates change each day and sometimes midday. The previous day's rates typically expire by 8:30 a.m. the next morning. Generally, Home Mortgage Rates are published each day by 11:00 a.m. Eastern time. This varies from lender to lender. To make sure you are getting Home Mortgage Rates from the current day and not a mixture of rates from the previous day from some lenders and the current rates from other lenders, always do your rate shopping after 11:00 a.m. Eastern time.

Get all your quotes after 11:00 a.m. Eastern time.

Sometimes Home Mortgage Rates change midday due to a volatile bond market. When this happens, some Home Mortgage Lenders will adjust the Discount Points for their rates in accordance with the new bond prices and publish new Home Mortgage Rates for that day. Other Lenders may continue to honor their morning rates.

Tip#3: Always Tell The Mortgage Loan Officer You Are Prepared To Apply For A Loan NOW

If you are buying a home, tell the Home Mortgage Loan Officer you are Rate shopping and you have a "ratified contract" to purchase a house. Tell him you intend to make a decision and Lock-In a rate on that day, but you have to check a few other lenders. If he asks you how his rates compare to the others, tell him he's the first person you've called. If you are refinancing, tell the Home Mortgage Loan Officer you are ready to apply for a Refinance Home Mortgage today. If you don't tell him that, he may provide a fake Home Mortgage Rate quote.

Loan Officers know you will probably talk to another lender with lower Home Mortgage Rates and the only way he can be sure for you to call him back is to give you a fake quote that appears to be the lowest. He's expecting you will rate shop for several days and figures you will call him back in a day or two because he provided a low, bogus rate quote. Also, since Home Mortgage Rates change daily and are subject to change at any time, he's not concerned about giving you a fake quote.

How will you compare quotes if you don't know which quotes are real and which are part of a bait and switch plan? The only way to ensure getting real quotes is to box in the Home Mortgage Loan Officers by making them think you are ready to Lock-In a Home Mortgage Rate immediately.

Tip#4: Ask For The Total Points And The Total Fees

When you call a Mortgage Lender, ask for the "Total Points" (Discount Points, Loan Origination Fee, Broker Points) for each Home Mortgage Rate. Some lenders will only quote the Discount Points and deliberately leave out the Loan Origination Fee. You won't find out about the 1.00 Point Loan Origination Fee until you apply for the Home Mortgage. By that time, the Loan Officer figures you will just accept it because he's got your application and pulled your credit report. In addition, Mortgage Brokers often neglect to mention their Broker Fee.

Some lenders do not charge a Loan Origination Fee.

When you are quoted the Total Points, specifically ask them if there is an additional Loan Origination Fee or Broker Fee being charged. You truly have to nail this down when you talk to a Home Mortgage Loan Officer.

Also, ask for a list of ALL other fees that will appear on the Good Faith Estimate that you will be paying to the Lender or Broker. Make sure they include their Credit Report and Appraisal Fees. Some lenders charge one lump sum fee and that includes the Credit Report and Appraisal Fees while other lenders will itemize each fee. Keep it simple and ask for all fees, including the cost of the credit report and appraisal fees.

Don't get confused by Title Company, Attorney Fees or Escrows. A lender will estimate these on your Good Faith Estimate, but these charges are not related to costs associated with a Mortgage Rate quote. The amount required for your escrow account will not change from lender to lender and Title Company and Attorney Fees are not being charged by the lender. Don't include them in your comparison.

Tip#5: Always Confirm The Rate Lock Period When Asking For A Rate Quote

If you are buying a home and you need 60 days to close, make sure you specifically request Mortgage Rate quotes with a 60 Day Lock period. Some Home Mortgage Loan Officers will quote rates with 15 Day or 30 Day Lock periods because the Discount Points for shorter lock periods are less than rate locks for longer periods. Quoting a Home Mortgage Rate with a 15 Day lock period obviously gives that Loan Officer an unfair edge. It is also a waste of your time because the quote isn't real if you can't settle on your loan within 15 days. Always specify a 60 Day Lock-In if you are buying a home. Ask for 45 Days if you are refinancing, but you may be able to get it done within 30 days if you are very diligent and call your Home Mortgage Loan Officer twice a week for a status of your application.

If your rate lock expires, the lender will re-lock you at the higher of either the original rate or the current rate when you decide to re-lock. That's a LOSE/LOSE situation for you. Never let your rate lock expire.

Tip#6: Compute The Dollar Cost Of The Points And Add All Fees

After you've spent some time talking to a bunch of Mortgage Loan Officers, you will have lots of Rates, Points and Fees on a sheet of paper. You will need to compute the dollar cost of the Points (multiply the mortgage amount X the Total Points expressed as a percent; For example, multiply 400,000 mortgage amount X.625% for.625 Points). Then add the dollar cost of the points to the Total Fees. You can then compare each Home Mortgage Lender's Total Cost (dollar cost of the points + all lender related fees) for a given rate. That will show you which Home Mortgage Lender has the lowest cost Home Mortgage Rates.

If Mortgage Insurance (not to be confused with mortgage life insurance) is required on a Conventional Home Mortgage, ask for the cost per year expressed as a percent and compare it from lender to lender. Some lenders require different levels of coverage and this will affect your monthly Mortgage Insurance payment. In addition, lenders use several different mortgage insurance companies and they charge different rates for their coverage. The lender will select the mortgage insurance company.

The cost of Mortgage Insurance can vary from lender to lender even though most Home Mortgage Loan Officers will say, "We don't determine the Mortgage Insurance coverage, Fannie Mae and Freddie Mac do". Your can just say, "Please humor me and provide the Monthly Mortgage Insurance expressed as a percent".

You will want to check the quoted percent with what is on your initial application documents and final loan documents to make sure the Monthly Mortgage Insurance payment isn't higher than what you were quoted. If it is, get it reduced immediately. If they won't do that, then ask them to reduce your Home Mortgage Rate by.125% and that should cover the difference.

If you are getting a government insured mortgage (FHA or VA), you don't have to get into a comparison of the FHA MIP or the VA Funding Fee. This is a cost you will be paying, however every lender MUST use the same costs, so there is no reason to attempt to compare these costs from lender to lender.

Tip#7: When You've Found The Lowest Cost Rate, Apply and Lock The Rate

While you were looking for houses or thinking about refinancing, you may have shopped around and gotten some quotes from lenders and narrowed down your search to the best 5 Home Mortgage Lenders or Brokers. But when it is time to apply for your Mortgage, make sure you update your quotes for the 5 lowest priced Home Mortgage Lenders. After you identify the Home Mortgage Lender with the lowest cost rate, call and apply for the loan. Tell the Home Mortgage Loan Officer you want to Lock-In your Home Mortgage Rate and apply NOW. If the quote has changed since you updated your quotes a couple of hours before, tell the Loan Officer you want him to honor the previous quote. If he won't do it, tell him you may call back. Then call the next cheapest Home Mortgage Lender on your list. If that lender tells you the same thing, you can go back to the first lender and proceed with the application process.

Before you provide your application information, make sure the Home Mortgage Loan Officer agrees to provide you with an actual Rate Lock confirmation via email or fax on the same day you apply for your loan. When you receive the Rate Lock confirmation, check it and make sure you are Locked-In for the number of required days (30, 45 or 60), with the correct Loan Type (30 Year Fixed, 15 Year Fixed, etc.), with the correct Total Points quoted. It's normal for a lender to require you to apply over the phone before they will Lock-In your Home Mortgage Rate.

TIP#8: Never Float The Rate

If the Mortgage Loan Officer thinks you might be inclined to FLOAT your Rate and Points, he may say, "I think the rates are going to be coming down, so you might want to FLOAT". Remember this, never FLOAT your Home Mortgage Rate. Never. Always Lock-In the Rate and Points. If you FLOAT, and the Discount Points for Home Mortgage Rates drop, you will only realize the benefit of a small part of that drop in the Points, if any at all. The Home Mortgage Loan Officer will keep the rest of the savings as a fat commission.

Here's how they increase their commission when you FLOAT. Originally, the lender quoted 4.875% with 1.00 Total Point when you applied for your loan. Then 45 days later you called to Lock-In. Keep in mind that over the 45 day period that you were FLOATING, the actual Points for 4.875% dropped to.250 Total Points. So you should have saved.75 Total Points on your 4.875% rate. Right? No! First, you don't know if his company's points have dropped or by how much they might have dropped. So, instead of giving you 4.875% for.250 Total Points, the Home Mortgage Loan Officer tells you his rates only dropped a little bit. He says you can Lock-In 4.875% for.75 Total Points. You are happy because it is.25 lower than what it was when you applied for your loan, but the Home Mortgage Loan Officer is ecstatic because he keeps half of the "overage" you paid. That overage is.50 points and he splits this with his company. If the mortgage amount was $400,000, he just earned.25% which is an additional $1,000 commission. That's not bad for a five minute phone conversation.

If you FLOAT and the Discount Points for Mortgage Rates increase, you will pay for the increase. FLOATING is a LOSE/LOSE proposition for you and a WIN/WIN for the Home Mortgage Loan Officer.

Some companies quote very low rates and attract lots of applications, but they don't let you Lock-In until 15 Days prior to loan closing. If you apply for a Mortgage through a company with that policy, you will get screwed. When it's time to Lock-In your Mortgage Rate, you will pay an "overage" that will go straight to the Mortgage Loan Officers pocket. You will either pay more points for the rate you requested at the time of application or you will get a higher rate. Either way, you will get screwed and the Loan Officer will get a fat overage added to his commission.

Tip#9: Get a Final Good Faith Estimate Several Days Before Loan Closing

Get a copy of the Final Good Faith Estimate at least a few days before the scheduled closing day. Check the Mortgage Rate, Points, Fees and Monthly Mortgage Insurance Premium (if applicable). Make sure you are getting exactly what you bargained for. Ask questions if you don't understand something. Demand that previously undisclosed fees be removed from the Final Good Faith Estimate. Make sure you get a revised estimate if the Mortgage Loan Officer verbally agrees to make changes.

The day of loan closing is the wrong time to haggle over discrepancies.

Article Source: http://EzineArticles.com/?expert=Mick_Taylor


Friday, June 4, 2010

Types Of Mortgages Available In Canada

In Canada there are two types of mortgages available to residential borrowers, one being a conventional mortgage and the other is a high-ratio mortgage. Within both types of mortgages there are two sub-types, which are either open or closed mortgages.

To clarify the various options one can be presented with when shopping for a mortgage this article is divided into two parts;

Part one deals with the difference between a conventional mortgage and a high-ratio mortgage and part two deals with the different sub-types of mortgages available within the two types. However, these are fairly generic explanations - just as there are many different lending institutions, so there are almost as many different varieties of mortgages available. This is another good reason to consult a mortgage broker. Depending on your situation, one type of mortgage may be better for your circumstance than another.

CONVENTIONAL MORTGAGE:

If you have at least 20% of the purchase price (or appraised value if this is lower than the purchase price) as a down payment, you can apply for a conventional mortgage.
Some lenders may require either CMHC, Genworth or AIG insurance as well because of the property's location or type, even though you have 20% or more equity.

LOAN TO LENDING:

to 65% 0.50%

65.1 to 75% 0.65%

75.1 to 80% 1.00%

80.1 to 85% 1.75%

85.1 to 90% 2.00%

90.1 to 95% 2.90%

95.1 to 100% 3.10%

Please note: Insurance premiums are higher when the amortization is greater than 25 years or if there is more than one advance. This usually happens if you are building your house or having it built for you. Check with your Mortgage Broker to learn what the applicable premiums will be.

The insurance premium is calculated by multiplying the mortgage amount needed by the applicable percentage.

For example:

If the purchase price is $112,000 and the required mortgage is $100,000. You divide 100,000 by 112,000. This equals 89.29%.

Looking at the above chart - the premium is 2.00% when the lending ratio is 89.29%.
The next step is to multiply the mortgage amount by the insurance premium. Using our example this means $100,000 X 2.00% = $2,000. Your actual mortgage loan will therefore be $102,000.

CMHC's 5% DOWNPAYMENT PROGRAM was originally for first-time homeowners, but was expanded in May 1998 and is now available to all purchasers (principal residence only) who meet the normal requirements. Furthermore, borrowers can now even borrow up to 100% of their purchase price under new CMHC's Flex Down Insurance Program.

CMHC may set maximum purchase prices under these programs depending on the city so check with your Mortgage Broker to learn what the price limits are in your area.

If the property is a duplex (and you are buying both sides), with one side being owner occupied, the minimum down payment is 5.0%.

Mortgage brokers and lenders must verify that the borrower has the 5% down payment and 1.5% of the purchase price to cover closing costs. The only exception to the 1.5% is when the purchaser qualifies for an exemption of the Land Transfer Tax (Ont.) or Property Transfer Tax (B.C.), or similar provincial tax exemption. In these cases the mortgage broker or lender must ensure that there are sufficient funds available to cover all remaining closing costs.

OPEN MORTGAGES:

An open mortgage allows you to pay off part or the entire mortgage at any time without penalties. Open mortgages usually have short terms of six months or one year. The interest rates are higher than those for closed mortgages with similar terms.

VARIABLE RATE MORTGAGES / ARM (ADJUSTABLE RATE MORTGAGES):

At the start of a variable rate mortgage, the lender will calculate a mortgage payment that includes principal & interest. For the term of the mortgage your payments usually do not change. However, as the prime rate changes so will your mortgage rate.

If interest rates are dropping, less of each payment will go toward interest and more will go toward principal. If interest rates rise, more of your payment will be interest and less money will be reducing your principal.

Some of these mortgages are completely open (you can pay off all or part of your mortgage at any time without penalties). Others that offer a 'prime minus' interest rate (e.g. prime - 0.375%) may charge a penalty.

The interest rate on most variable rate mortgages is compounded monthly.

CAPPED RATE MORTGAGES:

These are variable rate mortgages that the lending institution has rate 'capped'. In other words, the rate will fluctuate with prime, but the institution guarantees that you will not pay more than a certain interest rate, set by them.

These mortgages often have a penalty for early 'payment in full' and are often not portable.

CLOSED MORTGAGES / FIXED RATE MORTGAGES:

The expression 'closed mortgage' originates from the 1980's when this type of mortgage was literally 'closed'. You contracted to the lender to make your payments for the term chosen, you could not pay anything additional, nor could you pay off the entire amount for any reason except the sale of your property.

These days, there are many ways to pay down your mortgage principal quicker, though the name 'closed' mortgage still remains. See pre-payment options for ways to pay off your mortgage quicker.

Fixed rate mortgages are the most popular type of mortgage. You benefit from the security of locking in your mortgage interest rate, for lengths of time ranging from 3 months up to 25 years. The rates are slightly lower than for an open mortgage for the same term.

If you think interest rates could rise, you may want to choose a longer term, such as a 5 or 10 year term. If you think that rates are going lower, you may want to gamble on a shorter length of time. Discuss this with your Mortgage Broker.

The major lending institutions have different pre-payment options allowed under their contracts. These options allow you to pay off your mortgage faster. It is also possible to pay off most closed mortgages prior to the end of the term or pay down a portion of the balance owing. However, lenders charge penalties for doing so.

Please note that some lending institutions will not give any pre-payment options. It is wise to find out what options are available before entering into any mortgage contract.

CONVERTIBLE MORTGAGE:

These are fixed rate mortgages for terms of 6 months or 1 year. Not all lending institutions offer convertible mortgages. With a convertible rate mortgage you can lock into a longer term during the current term of your mortgage without penalty - but only with the same lender. For example, if after a couple of months you hear that interest rates are going to increase, you may change to a longer term mortgage such as the 5 year term.

REVERSE MORTGAGE:

CHIP - Canadian Home Income Plan is the name of the company providing reverse mortgages in Canada.

A reverse mortgage allows homeowners to convert equity in their homes into cash, without selling the property or having to make monthly payments.

To qualify, homeowners must be at least 62 years old, have significant equity in their property and live in B.C. or Ontario.

The amount that can be borrowed depends on the homeowner's age. Reverse mortgages are for between 10% and 40% of the appraised value of the home. The older the homeowners, the more they can borrow.

The homeowner retains ownership and possession of the house. The lending company registers a reverse mortgage against the property. At death, or when the house is sold, the loan and the accrued interest must be repaid.

The biggest disadvantage to reverse mortgages, is that the interest keeps building on the amount of money borrowed (hence the maximum 40% loan). This means that if you borrow $50,000 this year and your interest bill is $5,000, next year your interest will be charged on $55,000 and so on. The longer the loan is in place, the greater the interest bill that has to be paid.

It is possible that when the house is sold, 100% of the proceeds from the sale may be required to pay off a loan.

If the homeowner dies the estate will have to pay off the loan and the accrued interest. This may wipe out any inheritance for the homeowner's heirs.

An alternative is to establish an equity credit line. This allows you to take funds only as you need them, thereby owing the least interest possible, with no surprises.

Consult with a financial advisor for more alternatives.

Article Source: http://EzineArticles.com/?expert=Victor_Borges