Shopping Around for a Home Loan: 10 Things You Should Know When You Refinance, Lock Into a Low Interest Rate

Fred Solomon of Solomon Financial urges every homeowner to learn about your most precious asset: your home. For example, is 6% interest plus 1 point better -- Is this better than 6.26 % and no points? Or 5.5% and 3 points? This is why Solomon Financial will do a free loan cost analysis for you so you can decide based on the numbers. Solomon also reviews Good Faith Estimates free.

To avoid confusion, tell lenders you want par pricing.  That’s the full interest rate and no points.  Between par pricing and the annual percentage rate or the APR rate it’s easy to tell which loan costs less and which doesn’t.  This will allow you to compare interest rates just like the pros.

Make sure you are working with an experienced, professional loan officer.  The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way.  But how can you tell?  Here are SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY.  IF THEY DO NOT KNOW THE ANSWERS…RUN…DON’T WALK… RUN…TO A LENDER THAT DOES!  Avoid a loan officer/consultant who cannot answer these important questions:

1. What are mortgage interest rates based on?  (The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.  DO NOT work with a lender who has their eyes on the wrong indicators.)  
2. What is the next Economic Report or event that could cause interest rate movement?  (A professional lender will have this at their fingertips.)
3. When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates?  (The answer may surprise you.  When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”.  These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like.  On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change.  This is due to the dynamics within the financial markets in response to inflation.    
4. Do you have access to live, real time, mortgage bond quotes?  (If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.  Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future?  No way!)
5. Avoid someone who does not let you ask questions and get proper answers.  Be smart...  Ask questions…  Get answers.  Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.
6. Avoid the “TOO GOOD TO BE TRUE” scam.  If it seems too good to be true, it probably is.  But you didn’t really need us to tell you that, did you?  Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook.  Is there a pre-payment penalty?  If the rate seems incredible, are there extra fees?  What is the length of the lock-in?  If fees are discounted, is it built into a higher interest rate? Again, this is our business and we follow the market daily and GUARANTEE  the best wholesale rates in the country.  If someone tells you a gallon of gas is $1, would you believe that?  There is still so much misinformation out there. 
7. Avoid bait and switch techniques.  YOU GET WHAT YOU PAY FOR.  If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder.  Best case, expect very little advice, experience and personal service.  Worst case, expect that you may not close at all.  All too often, you don’t know until it’s too late that cheapest isn’t BEST.  But if you want the cheapest quote – head on out to the Internet, and we wish you good luck.  Just remember that if you’ve heard any horror stories from family members, friends or co-workers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience.  Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run.  This is the largest financial transaction most people will make in their lifetime.  That being said – we are very competitive.  Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve. 
8. Avoid incorrect comparisons. Not all loans are the same.  NOT MAKING CORRECT COMPARISONS CAN HURT YOU.  When looking at estimates, don’t simply look at the bottom line.  You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls.  And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line!  APR?  Easily manipulated as well, and worthless as a tool of comparison.
9. Not understanding that INTEREST RATES AND CLOSING COSTS GO HAND IN HAND.  This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm.  On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate.  Either of these balances might be right for you, or perhaps somewhere in between.  It all depends on what your financial goals are.  A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.
10. UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY.  This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis.  For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison.  You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

"Again, our advice to you is to be smart.  Ask questions.  Get answers.  We are happy to teach you.   It’s your home and your future.  It’s our profession and our passion.  We're ready to work for your best interest.  One of the main reasons we broadcast our show, The Solomon FREE Money Hour is to make sure that you join our other success stories and become an educated and informed consumer," adds Solomon.

For more information, or to contact Solomon call (888) 305-1408.