Finding the Best Mortgage Rates

Finding the Best Mortgage Rates

Mortgage rates differ substantially based on the location of the property and the type of product selected. What follows are therefore indicative rates only. They are just some of the most interesting rates for different mortgage products that are listed and marketed on the internet.

Mortgage rates differ substantially based on the location of the property and the type of product selected. What follows are therefore indicative rates only. They are just some of the most interesting rates for different mortgage products that are listed and marketed on the internet.

Indicative Mortgage Rates - Updated July 27, 2007

30-Year Fixed Rate Jumbo* Mortgages:

 

15-Year Jumbo* Mortgages:

Bank APY** Rate Lock (Days) Closing Costs (Approximate)** Reviews

Virtual Bank

5.875%

30

$3,000

Post/read reviews of this bank

Liberty Financial

6.00%

30

$695

Post/read reviews of this bank

Everbank

6.175%

30

$1,300

Post/read reviews of this bank

E-Loan

6.375%

30

$410

Post/read reviews of this bank

 

5/1 Jumbo* ARMs:

Bank APY** Rate Lock (days) Closing Costs (Approximate)** Reviews

Virtual Bank

6.25%

30

$3,300

Post/read reviews of this bank

Liberty Financial

6.375%

30

$695

Post/read reviews of this bank

ING DIRECT

6.00%

30

$555

Post/read reviews of this bank

Everbank

6.625%

30

$1,300

Post/read reviews of this bank

E-Loan

6.375%

30

$410

Post/read reviews of this bank

 

5/1 Jumbo* Interest-Only ARMs:

Bank APY** Rate Lock (Days) Closing Costs (Approximate)** Reviews

Virtual Bank

6.75%

30

$2,250

Post/read reviews of this bank

Liberty Financial

7.00%

30

$695

Post/read reviews of this bank

Everbank

7.125%

30

$2,500

Post/read reviews of this bank

E-Loan

7.50%

30

$2,500

Post/read reviews of this bank

 

* All rates considered here are jumbo rates, ie., rates for over $417,000. Rates for lower amounts may be slightly more competitive.

** Closing Costs may differ dramatically based on property location.

For further info on choosing the best mortgage product, please click here.

If you would like to comment on your experiences with the above institutions or on mortgage opportunities generally, please visit the Bestcashcow Message Boards.

For further assistance with mortgage terminology, please click here.

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Choosing The Right Mortgage Product

Choosing The Right Mortgage Product

The word mortgage comes from the French word "mort" which means "death". While buying a home main mean financial death to some first time buyers in the current environment, mortgages don't need to be intimidating. Once you understand the products available, finding the best rate is easy.

Several different types of mortgages are offered on the marketplace.

Amortizing vs. Interest Only (Non-Amortizing): An increasingly popular option, especially among first-time buyers, is to choose non-amortizing, interest only mortgages. According to the terms of these mortgages, the borrower pays only the interest on the principal each month no more (and therefore does not pay pay down the mortgage principal). BestCashCow.com believes that many buyers are using these mortgages to stretch their financial means too thin. Since the outstanding mortgage principal is never reduced, the borrower's ability to build equity in their home is limited to the appreciation in value of their home before they sell it. Interest only mortgages are a very risky proposition if you believe as many do that there is a real estate bubble since a decline in the value of the home could leave the homeowner with negative equity in their home.

Fully Amortizing vs. Balloon: A fully amortizing mortgage involves payments of principal that are geared or scheduled so that the entire principal balance will be paid off at the end of the mortgage. A mortgage that is not fully amortizing may involve a part of the monthly payment each month attributable to paying down principal (or may not - see Interest Only Mortgages above), but not completely pay off the mortgage by the end of the mortgage term. Instead, they leave the borrower with a balloon, or one time payment, that they need to make in order to extinguish the outstanding liability associated wit the mortgage at the end of the mortgage term. Borrowers cannot be certain of the availability of new lending sources and rates and the end of the term; and they also want to avoid additional closing costs. Therefore, BestCashCow.com advises homeowners to purchase fully amortizing mortgages unless they anticipate having the means to pay off the balloon and the end of the mortgage term or do not plan to live in the home until the end of the term.

Terms: Mortgages terms may vary. Fully amortizing short-term mortgages are appropriate for borrowers that have the ability to make larger payments, thus accelerating the amortization and building equity more quickly. Long-term mortgages are more suitable for borrowers wanting the security of budgeting for the future who plan to live in their homes for long periods.

Adjustable Rate Mortgages (ARMs) vs. Fixed Rate: A borrower can choose a fixed or variable interest rate. A fixed rate mortgage allows the borrower certainty on the payment amount for the full term of the mortgage—amortizing mortgages are usually from 15 to 40 years. The initial fixed rate period under an ARM is followed by adjustment intervals. For example, a "3/1 ARM" is fixed at an initial low rate for the first 3 years, and then adjusts every year based on an index (Fed Funds Rate, CPI, LIBOR, etc). Common ARMs are: 1/1, 3/1, 5/1, 7/1, and 10/1. ARMs are often offered at substantially lower rates than fixed rate mortgages for their initial fixed period. Unlike fixed rate mortgages, these mortgages can climb sharply immediately thereafter. These mortgages are ideal for borrowers who do not intent to live in their homes for a period exceeding the fixed period or for borrowers who intend to have the ability to pay off the mortgage at the end of the fixed period. Borrowers intending to live in their homes for longer periods and who will not have the means to pay off the an ARM should the rate rise dramatically are usually better served to lock into fixed rate mortgages.

Closed vs. Open Mortgages: So-called closed mortgages may offer very slightly lower interest rates than open mortgages of the same term, but they have terms limiting the borrowers ability to pre-pay or pay down the mortgage balance. Open mortgages allow the borrower the flexibility to pay off as much as you want, any time, without penalty. Many states have legislation forbidding closed mortgages. BestCashCow.com recommends that they be avoided even where available.

Conventional vs. high-ratio mortgages: A conventional mortgage equals no more than 75% of the appraised value or purchase price of the property, whichever is less. A high-ratio mortgage is usually for more than 75% of the appraised value or purchase price. High ratio mortgages are often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must, by law, be insured through CMHC for which the borrower pays the insurance premium as well as application, legal and property appraisal fees. Purchasers of condomium or cooperative apartments are often required by board management to purchase conventional mortgages (i.e., to own at least 25% equity in their homes at purchase).

Assumable vs. Non-Assumable Mortgages: Assumable mortgages are relatively rare. A homeowner with an assumable loan can "hand off" the loan to a buyer instead of paying it off using proceeds from the home sale. If rates are low and you can get one, by all means do so. If rates rise, buyers will want to assume your loan (and might be willing to pay more for your house) because it will be much cheaper than any loan they could get from a bank or other source.

Portable vs. Non-Portable Mortgages: Traditionally in the U.S., a mortgage must be repaid upon sale of the mortgaged property (i.e., it is not portable). In Canada, the UK and elsewhere, some mortgages are portable and may be taken transferred by a borrower from a home that is sold to a home that is purchased. In the U.S., E*TRADE briefly introduced and then removed the portable mortgage from the marketplace. Portable mortgages place the risk of interest rate hikes squarely on the lending bank. Therefore, portable mortgages would be a very interesting product for those likely to move often who are seeking to lock in historically low interest rates over long periods of time, allowing them to transfer the balance when they move.

Once you've understood the options available, check out rates on different mortgage products.

If you need help understanding mortgage products or terms, please visit BestCashCow.com's section on Financial Terminology.

Image: Image courtesy of Stuart Miles at FreeDigitalPhotos.net
Mortgage Glossary

Mortgage Glossary

Here are some commonly used mortgage terms and their meanings.

401k

- A tax-deferred savings account made available by an employer which allows employees to set aside income for retirement. In some cases, the employer may match contributions to a certain limit.

Adjustable rate mortgages (ARMs)

- A mortgage with a rate of interest that may adjust based on various indexes, such as the Treasury Bill rate or the prime rate.

Administration fee

- A fee imposed to cover the administrative portion of settling a loan.

Affordability calculator

- One of many calculators on the Internet which measures how much home a person can afford.

Agent fee(s)

- A fee imposed by the real estate agent for providing the buyer with realty services.

Amortization

- The process of regular repayments at scheduled intervals to reduce the principal and repay interest as it is due.

Annual percentage rate (APR)

-The cost of a loan expressed as a yearly rate, which includes the interest rate, points, broker fees, insurance, and any other related fees a borrower is required to pay.

Application fee

- A fee charged by the lender to cover the cost of processing a loan request and checking the borrower's credit.

Appraisal

- A documented estimate of a property's market value by a qualified appraiser.

Appraisal fee

- The fee an appraiser charges to assess the property value of a home.

Appreciation

- The increase in value of a home over time.

Balloon

- A final lump sum mortgage payment due in full after a set period of time.

Better Business Bureau (BBB)

- A national member organization that addresses marketplace problems through voluntary self-regulation and consumer education.

Borrower(s)

A person who borrows money from a lender.

Broker(s)

- The intermediary between borrowers and lenders used for loan origination, and earns a commission for doing so. They do not originate or service the mortgage, but they may negotiate with lenders to find the best possible financing for the borrower.

Buyer(s) agent

- The real estate agent who represents the buyer in a sales transaction and owes fiduciary duties to the buyer.

Carry-back mortgage

- A financing arrangement where the seller holds a second trust deed or mortgage on the property to allow the buyer to buy the property.

Closing costs

- Fees and expenses (separate and in addition to the purchase price of the property) incurred in the process of transferring ownership of property. May also be called settlement costs.

Commission

- The amount a real estate broker earns (usually 3-6% of the sales price of a home) for selling a home.

Conforming

- A loan that conforms to the standard rules for purchase by Freddie Mac or Fannie Mae.

Constant Maturity Treasury (CMT)

- Weekly average of quotes on Treasury securities with same time remaining time to maturity that is frequently used as mortgages index.

Construction cost(s)

- The amount it costs to finance the construction of a property.

Conversion fee

- The fee charged to convert an adjustable rate mortgage to a fixed-rate loan.

Credit history

- A borrower's record of repaying loans and use of revolving credit. Used by lenders to assess applicant's creditworthiness.

Credit report

- A report issued by a credit reporting agency containing a person's credit history, public records (including bankruptcy, tax liens, etc) and recent inquiries.

Credit score(s)

See FICO score.

Credit union

- A not-for-profit cooperative financial institution that is owned and operated by its members. Federally chartered credit unions are regulated and insured by the National Credit Union Administration.

Debt ratio(s)

- A number that measures how much of an individual's income is solely devoted to repaying debt. Frequently considered by lenders when evaluating a person's creditworthiness. Calculated by dividing monthly debts owed by monthly income. Also referred to as debt-to-income ratio.

Discount broker

- A broker who discount his/her commission fees to buy or sell your property.

Document preparation

- The process of preparing closing documents for a mortgage.

Down payment

- A portion of the purchase price paid in cash up front, reducing the total among of the loan.

Equity

- The current market value of a property minus what is owed.

Escrow

- An account held by a lender into which a homeowner pays for taxes and insurance.

Escrow agent

- The person or company which handles the distribution of escrow funds.

FICO Score

- A credit score developed by the Fair Issac Corporation used to determine a borrower's level of risk.

Fannie Mae (FNMA)

- The Federal National Mortgage Association is a public company that operates under a federal charter. As the nation's largest source of financing for home mortgages, Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

Federal Housing Administration (FHA)

- The Federal Housing Administration is a United States government agency which insures loans made by approved lenders to qualified borrowers, in accordance with its regulations.

Finance charge(s)

- The cost of credit, including interest, paid by a borrower for a loan. In accordance with the Truth in Lending Act, all finance charges must be disclosed to the borrower in advance.

Fixed rate loan

- A mortgage with a constant rate of interest over the life of the loan.

Flat fee

- A set management fee which does not change or fluctuate.

Flood certificate

- Insurance coverage for homes that are in known flood areas.

Freddie Mac

- The Federal Home Loan Mortgage Corporation, also known as Freddie Mac, is a congressionally chartered institution that buys mortgages from lenders and resells them as securities on the secondary mortgage market.

Government loan

- A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Mortgages that are not government loans are classified as conventional loans.

Hazard insurance

- Property insurance covering a borrower's home against losses from fire, certain natural disasters, vandalism, and malicious mischief. Mortgage lenders require hazard insurance coverage before closing a loan. Typically maintained through regular mortgage payments.

Home builder(s)

- A construction company or general contractor who builds homes.

Home improvement

- Any interior or exterior projects which improve the overall appearance of an existing home.

Homeowner's association fees

- Fees paid by homeowners who live in a common property development and share amenities like grounds maintenance, swimming pool upkeep, use of the community room, etc.

Index

- A published cost of money measurement that lenders use to calculate the rate on a mortgage (e.g., T-bill, LIBOR, CMT.)

Insurance

- Coverage against unforeseen property losses in exchange for premiums paid.

Interest rate

- A rate, frequently expressed as a annual percentage, that is charged or paid to borrow money.

Lease

- An agreement which specifies the terms for occupying a property.

Lease option

- An agreement which allows a borrower to purchase a property which is being leased from the lender at a predetermined price.

Lender(s)

- An individual or firm that extends money to a borrower with the expectation of being repaid, typically with interest.

Lien(s)

- A legal claim against a property that must be paid off when the property is sold before the title transfer can occur.

Lifetime cap

- The maximum interest rate on an adjustable rate mortgage that may be charged at any time over the life of the mortgage.

Loan-to-value (LTV) ratio

- The amount of a mortgage loan divided by the appraised value or sales price.

Loan officer

- The person at a lending institution who solicits loans, acts as the representative for the lending institution, and represents the borrower at the lending institution.

Lock(ed)-in

- A quoted rate guaranteed by a lender for a specified period of time even if rates go up or down during the lock-in period.

Interbank Offering Rate (LIBOR)

- An index used to determine interest rate changes for certain ARM plans, based on the average interest rate international banks charge each other for loans.

Low-interest

- A special rate which may be lower than the national average and for a specified period of time.

Margin

- The difference between the interest rate and the index on an adjustable rate mortgage.

Market price

- The price a property would be worth on the open market.

Mortgage

- A loan to finance a real estate purchase, typically with regular scheduled payments and specific interest rates. A lien on the property is typically used as collateral for the loan.

Mortgage broker(s)

- The intermediary between borrowers and lenders used for loan origination, and earns a commission for doing so. They do not originate or service the mortgage, but they may negotiate with lenders to find the best possible financing for the borrower.

Mortgage lender

- A lender who specializes in mortgages.

Mortgage payment

- The monthly payment amount owed to a lender which covers the principal and interest on a property.

Multiple Listing Service (MLS)

- A nationwide database of properties available for sale used by real estate agents.

National Board of Realtors

- A membership group for realtors also known as the National Association of Realtors, or NAR.

Non-conforming

- A loan which does not conform to the guidelines for mortgage backed securities that are purchased by Freddie Mac and Fannie Mae.

Origination fee

- A fee charged by a lender to the borrower for processing a loan application. Frequently expressed as a percentage of the total mortgage amount.

Pest inspection

- An inspection required by a lending or government institution prior to lending money to a borrower to insure that a property is free from structural pest damage and decay.

Point(s)

- An upfront fee that a lender may charge a borrower for originating a loan. One point is equal to one percent of the loan amount.

Pre-approval

- A process by which a borrower is certified by a specific mortgage lender as being qualified and worthy of a certain type of loan with specific terms up to a specified amount. Actual loan closing will depend on the suitability and value of the collateral property, which is unspecified at the time of pre-approval.

Prepayment penalty

- A fee paid to a lender for the privilege of paying off a loan prior to maturity. Prepayment penalties are prohibited in many states and by Fannie Mae and Freddie Mac.

Prequalify

- A lender's opinion of how much a borrower may qualify for without filling out an application.

Principal and interest

- The actual mortgage amount and interest paid back to the lender in the form of monthly payments.

Principal, Interest, Taxes and Insurance (PITI)

- A term used by lenders or brokers to provide a total monthly payment which includes Principal, Interest, Taxes, and Insurance.

Private Mortgage Insurance (PMI)

- Insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults on a mortgage loan.

Processing fee

- A fee charged by the lender for the work required to process a loan.

Property maintenance

- The act of keeping a property presentable and livable.

Property tax(es)

- The tax paid on a property based on its assessed value.

Realtor

- A member of the National Association of Realtors (NAR) who must follow a strict code of ethics and receive ongoing training from the NAR.

Real estate agent

- A licensed salesperson working for a real estate broker, who receives a portion of the sale price of a sold property as commission.

Recurring debt

- A debt obligation which appears month-to-month until the balance is paid in full.

Refinance

- Paying off an existing loan with the proceeds from a new one, usually of the same size and using the same property as collateral.

Recording fee

- A fee that is charged as part of the closing cost to record a home sale as a matter of public record.

Remaining balance

- The amount of principal left unpaid on a mortgage loan.

Rural Housing Service (RHS)

- An agency of the U.S. Department of Agriculture that provides financing to farmers and qualified borrowers who buy property in rural areas and are unable to obtain loans elsewhere.

Sales agent

- The agent who handles and shows the property to the buyer.

Sales agreement

- The contract signed by the lender and buyer specifying the terms of the sale.

Secondary market

- The market where mortgages are bought and sold by investors.

Seller

- The person who is listing a property for sale.

Settlement cost(s)

- All expenses related to transferring home ownership from the seller to the buyer. Also referred to as closing costs.

State Board of Realtors

- A membership group by state which belongs to the National Board of Realtors.

Sub-prime

- A class of mortgage loan that is offered to individuals with less than perfect credit.

Tax savings

- The amount a borrower can save by writing off the interest on a mortgage loan.

Teaser rate

- A special introductory rate on an adjustable rate mortgage which is below current market rates to entice borrowers.

Title

- The deed to a property.

Title company

- A company that assures that the title to the property is clear and free from liens.

Title examination

- The review of a property's title by the title company against public records.

Title insurance

- Insurance which protects a lender or buyer against property disputes.

Treasury bill (T-bill)

- Securities auctioned by the U.S. Government to help pay off its debt obligations.

Underwriting

- The process a lender uses to determine risk and whether or not to extend a loan to a borrower.

Zero-down

- When a lender requires no money for a down payment from a borrower.

Zoning restrictions

The rules and regulations used by municipalities which control the use of lands and buildings.

Copyright 2009, Informa Research Services, Inc. ("Informa"). While all attempts have been made to provide effective, verifiable information in this article, neither the author nor Informa assumes any responsibility for errors, inaccuracies, or omissions. You should always seek the guidance of a licensed professional before making any major financial decisions.

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