The lowest mortgage rate is the best, right?
The lowest rate certainly sounds best. But did you know the lowest rate doesn’t always mean the lowest cost?
Mortgage interest is just one component of the real cost of owning a home.
Interest rates are a reflection of expectations for inflation and the supply/demand equation for money. Rising rates typically mean rising inflation, too.
When inflation occurs, the value of your home will typically rise. You can subtract that increase in value from the interest you pay for a better gauge of the real cost of owning.
The opposite is true too. If Mortgage rates are low and inflation is absent, values stagnate or even drop, potentially adding to your real cost.
In simple terms, a low rate and no appreciation can be more costly than a higher rate with appreciation. Recently, the markets have provided for both low rates AND rising prices. If you’re ready to take advantage of conditions that may not last or just want to learn more, reach out.
Mortgage Rate Education
Know what factors influence the actual rate for your loan.
Securing the lowest possible rate has less to do with scouring ads and more to do with the particulars of your transaction. Lenders typically pick the best scenario as the basis for advertisements. Unfortunately, best-case doesn’t apply to every loan.
Here are some factors that impact the interest rate for a specific loan:
Loan Level Price Adjustments (LLPAs) – Offered rates are based on LLPAs or risk factors. A high loan to value ratio (LTV) or low credit score, for example, carries higher risk and, therefore, a higher price.
Loan Type – An adjustable-rate mortgage (ARM) can provide a lower starting rate vs. a fixed rate loan.
Loan Terms – Shorter terms equal lower rates as equity builds more quickly, reducing the lender’s risk.
Combined Factors – The combination of certain factors work together to impact final pricing. For instance, as credit scores improve, the rate differential for LTV changes is less pronounced.
Securing a good interest rate requires balancing the different factors for your particular scenario. Fortunately, we excel at balancing acts. Let’s work together to discover the options for you.