| Q: |
Where are
interest rates headed? |
| A: |
No
one knows for sure where rates are headed.Beyond public policies put in
place by the Federal Reserve Board, there are no laws that govern
mortgage rates. Historically, usury laws were used to prevent lenders
from charging sky-high interest rates when lending money. But in some
states where there are usury laws, banks, thrifts and a number of other
financial institutions are exempt from the law.
Today, interest rates are governed solely by the financial markets
and by Federal Reserve Board action, neither of which can be predicted
with absolute certainty.
|
|
| Q: |
How do you
lock in an interest rate? |
| A: |
Locking
in a mortgage rate with a lender is one way to ensure that same rate
still will be available when you need it.
Lock-ins make sense when borrowers expect rates to rise during the
next 30 to 60 days, which is the usual length of time lock-ins are
available.
A lock-in given at the time of application is useful because it may
take the lender several weeks or longer to prepare a loan application
(though automated loan practices are cutting this time dramatically).
However, some lenders require borrowers to pay lock-in fees to assure
particular rates and terms. Be sure to check that the rates and points
are guaranteed and that your lock-in period is long enough. If your
lock-in expires, most lenders will offer the loan based on the
prevailing interest rate and points.
Lenders may have preprinted forms that set out the exact terms of the
lock-in agreement. Others may only make an oral lock-in promise on the
telephone or at the time of application.
Resources:
* "A Consumer's Guide to Mortgage Lock-Ins," published by the
Federal Reserve Board and Office of Thrift Supervision, Washington, D.C.
|
|
| Q: |
How do you
choose between fixed and adjustable rates? |
| A: |
There
is risk involved in selecting an adjustable rate mortgage, or ARMs,
because rates may go up. On the other hand, a fixed-rate loan offers
good protection against rising interest rates but the borrower is stuck
with the initial rate if interest rates drop.
Statistics show that home buyers who have chosen ARMs since 1981 have
saved thousands of dollars. For a period, the percentage of home buyers
applying for ARMs rose substantially, then buyers and homeowners began
flocking to fixed-rate loans.
Whether to opt for a fixed or adjustable rate mortgage is a matter of
personal choice. The first route offers stable payments; the second
offers lower initial payments.
Another consideration is the length of time a buyer plans to own the
home. If you're planning on moving within three or four years, an ARM
makes sense even if rates do nothing but rise during that period of
time.
|
|
| Q: |
What are
rates for FHA and VA loans? |
| A: |
There
are no set interest rates for FHA and VA loans. The FHA stopped
regulating rates in 1983 and the VA followed suit soon after. Shop
around for the best rate. |
|
| Q: |
How do you
get a low-interest rate loan? |
| A: |
Price
discounts and interest rate buydowns are common incentives offered by
new-home builders trying to overcome slow sales.
Buydowns are a financing technique used to reduce the monthly payment
for the borrower during the initial years of the loan. Under some
buydown plans, a residential developer, builder or the seller will make
subsidy payments (in the form of points) to the lender that "buy
down," or lower, the effective interest rate paid by the home
buyer.
State agencies often offer lower rate loans. But to qualify,
borrowers usually must be a first-time home buyer and meet income limits
based on the median income level of their county.
|
|
| Q: |
How are the
rates set for seller financing? |
| A: |
The
interest rate on an owner-carry loan is negotiable. Ask your agent to
check with a lender or mortgage broker to determine the current rate on
institutional first (or second) loans.
Seller financing typically costs less than conventional financing
because loan fees (points) typically aren't charged. The interest rate
on a seller-carry loan will also be influenced by current Treasury bill
and certificate of deposit rates. Sellers usually aren't willing to
carry a loan for a lower return than they would earn if their money was
invested elsewhere.
|
|
| Q: |
What are the
most popular ARM indices? |
| A: |
Among
the most common indexes Treasury Securities (T-Bills), Certificates of
Deposit (CDs), and Libor (London inter- bank offering rate). Most
metropolitan newspapers publish current ARM index rates. |
|
| Q: |
Are interest
rates negotiable? |
| A: |
Some
lenders are willing to negotiate on both the loan rate and the number of
points but this isn't typical among established lenders who set their
rates like large corporations set the prices on their goods.
Nevertheless, it pays to shop around for loan rates and know the market
before you go in to talk to a lender. You should always look at the
combination of interest rate and points and get the best deal possible.
The interest rate is much more open to negotiation on purchases that
involve seller financing. These usually are based on market rates but
some flexibility exists when negotiating such a deal.
When shopping for rates, look for published rates in local newspapers
or check the growing number of Internet sites that publish such
information.
|
|
| Q: |
How do
adjustable-rate loans change? |
| A: |
Adjustable-rate
mortgages go up and down with interest rates, based on several esoteric
money market indexes which cause the cost of funds for lenders to vary.
Several popular indexes include Treasury Securities, Certificates of
Deposit, and Libor (London inter-bank offering rate). Most big city
newspapers publish ARM index rates.
The interest rate and payment adjustments do not always coincide.
There is usually a lag. There are a variety of consumer protections
built into these loans. But consumers need to beware of advertising and
other claims made by lenders.
Resources: * For more information, consult the "Consumer
Handbook on Adjustable-Rate Mortgages," available from the Federal
Reserve Bank of San Francisco Public Information Department, P.O. Box
7702, San Francisco, CA 92120; (415) 974-2163.
|
|
| Q: |
Where can I
get adjustable-rate loan info? |
| A: |
For
adjustable-rate loan information, consult the Consumer Handbook on
Adjustable-Rate Mortgages, published by the Federal Reserve Bank of San
Francisco. Write to the Public Information Department; P.O. Box 7702;
San Francisco, CA 94120 or call (415) 974-2163. |
|
| Q: |
What is APR? |
| A: |
The
Annual Percentage Rate (APR) is the relative cost of credit as
determined in accordance with Regulation Z of the Board of Governors of
the Federal Reserve System for implementing the federal Truth-in-Lending
Act, according to Charles O. Stapleton III, Thomas Moran and Martha R.
Williams, authors of "Real Estate Principles," 3rd Ed.,
Dearborn Financial Publishing, Chicago; 1994.
The APR is the actual yearly interest rate paid by the borrower,
figuring in the points charged to initiate the loan and other costs. The
APR discloses the real cost of borrowing by adding on the points and by
factoring in the assumption that the points will be paid off
incrementally over the term of the loan. The APR is usually about 0.5
percent higher than the note rate.
|
|
| Q: |
How do I
monitor my ARM loan? |
| A: |
Consumer
Loan Advocates publishes a book with form letters and worksheets to help
people who want to check mortgage payments or adjustments on their own.
It costs $19.95 plus $4 shipping and handling. For a copy, write or call
Consumer Loan Advocates, 655 Rockland Road, Lake Bluff, IL 60044; (847)
615-0024. |
|
| Q: |
What is the
value of a mortgage lock-in? |
| A: |
Locking
in a mortgage rate with a lender is one way to ensure that same rate
still will be available when you need it.
Lock-ins make sense when borrowers expect rates to rise during the
next 30 to 60 days, which is the usual length of time lock-ins are
available.
A lock-in given at the time of application is useful because it may
take the lender several weeks or longer to prepare a loan application
(though automated loan practices are cutting this time dramatically).
However, some lenders require borrowers to pay lock-in fees to assure
particular rates and terms. Be sure to check that the rates and points
are guaranteed and that your lock-in period is long enough. If your
lock-in expires, most lenders will offer the loan based on the
prevailing interest rate and points.
Lenders may have preprinted forms that set out the exact terms of the
lock-in agreement. Others may only make an oral lock-in promise on the
telephone or at the time of application.
Resources:
* "A Consumer's Guide to Mortgage Lock-Ins," published by the
Federal Reserve Board and Office of Thrift Supervision, Washington, D.C.
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