Home > In the News > Distinctive Homes, Ask the Mortgage Expert: July 2006

Ask the Mortgage Expert

Recently Distinctive Homes asked Mortgage Expert Steve Hines the following question:

What do consumers need to know when shopping a mortgage?

Here is his helpful response: In answering the question, many items come to mind since the lending process can be quite confusing, but today I’ll focus on a couple of simple but important concepts.

First of all, the relationship of closing costs vs. interest rate. Typically, the lower the rate, the higher the cost. Conversely, the higher the rate, the lower the cost. That is why mortgage companies can offer loans with reduced or even zero closing costs. In reality, you’re paying for the benefit of lower costs by accepting a higher rate. When you’re deciding between lower rate/higher cost or lower cost/higher rate, the most important factor to consider is how long will you live in the home, and will you have time to make up for higher costs with lower monthly payment. For instance, it typically takes about five years for your improved monthly payments, due to taking the lower rate, to catch up with the upfront cost of paying an origination fee, which is 1% of your loan amount.

Another consideration is that everyone should usually “shop” a mortgage, or compare a number of lenders. When doing that, don’t compare just interest rates, but also compare closing costs that various lenders charge for an interest rate. A lot of costs aren’t controlled by the lender, but many are, and you will find a wide variety of charges. So, pick a certain interest rate, and ask two or three lenders to provide you with a cost estimate at the same rate. Then, you will really be comparing applies to applies. While shopping a few lenders is prudent, if you compare many more than that, you’re probably wasting your time. Also, keep in mind that how you feel that you will relate and work with that loan officer is very important, because you will be working in tandem with them on a very important financial transaction. So, relationship and comfort level with your mortgage provider actually is almost as important as rate and cost.

> contact Steve Hines