Rate Shopping The Truth

Shopping for the best interest rate possible has always been the consumer’s primary objective when borrowing money.  As well it should be!  The problem with this strategy is that there is much misleading information on the subject released by various media, internet, websites and email marketing, and television have brought the importance of interest rates to the forefront of consumer’s minds.

The problem for the consumer with this type of marketing is it’s designed to make the lender’s phone ring.  Ofter, the advertiser offers ridiculously  low interest rates with the intent of using the “bait and switch” technique once the consumer is reeled in.  This is often done through short pricing.  Short pricing occurs when a lender offers the lowest interest rate that is available for a brief period of time.

The average borrower enters into a contract to purchase a house for at least 30 days.  Pricing on an interest rate for only 7 days doesn’t do a borrower any good.  Its simply not enough time to complete the transaction.  When shopping for interest rates its important to ask the lender the amount of time the lock being quoted is good for.

Another common marketing ploy that make interest rates appear better involves the manner in which fees are presented.  All lenders are required by law to present  the true cost of financing through the Anual Percentage Rate (APR) each time the interest rate is quoted in advertising.  Unfortunately, even though the various ads display the APR the real cost of financing many lenders calculate this rate differently.

Another factor to consider is how long you plan on being the home you want to purchase.  Most home owners live in their home on average from 7 to 10 years.  If this is the case the home buyer might want to consider the possibility of an adjustable rate mortgage or arm.  The rate is generally is fixed for a set period of time and can adjust after that.  We at CM Mortgage offer 3, 5, 7, and 10 year arms.  The rates are generally lower than the average 30 year fixed rate and may offer an attractive alternative depending on your situation.

Many rate shoppers are caught up in just the rate.  I have news for you homeowners don’t pay rate they make a payment.  Instead of shopping for just the rate.  Shop for the lowest payment.  One of the most common loans is a conventional purchase on a primary residence with 5% down.  If you put less than 20% down your required to pay mortgage insurance.  At CM Mortgage we offer lender paid mortgage insurance.  The interest rate is generally higher with this product but the mortgage payment is cheaper.  You don’t pay mortgage insurance for this product because it is absorbed by the higher rate.  Another thing to consider is the mortgage insurance might not always be tax deductible.  Your interest on your mortgage payment still is.