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Mortgage What is a Mortgage A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. Mortgages are also known as liens against property or claims on property. If the borrower stops paying the mortgage, the bank can foreclose. In a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the homes tenants and sell the house, using the income from the sale to clear the mortgage debt. Mortgages come in many forms. With a fixedrate mortgage, the borrower pays the same interest rate for the life of the loan. Her monthly principal and interest payment never change from the first mortgage payment to the last. Most fixedrate mortgages have a 15 or 30year term. If market interest rates rise, the borrower’s payment does not change. If market interest rates drop significantly, the borrower may be able to secure that lower rate by refinancing the mortgage. A fixedrate mortgage is also called a “traditional mortgage. With an adjustablerate mortgage (ARM), the interest rate is fixed for an initial term, but then it fluctuates with market interest rates. The initial interest rate is often a belowmarket rate, which can make a mortgage seem more affordable than it really is. If interest rates increase later, the borrower may not be able to afford the higher monthly payments. Interest rates could also decrease, making an ARM less expensive. In either case, the monthly payments are unpredictable after the initial term. Other less common types of mortgages, such as interestonly mortgages and paymentoption ARMs, are best used by sophisticated borrowers. Many homeowners got into financial trouble with these types of mortgages during the housing bubble years. When shopping for a mortgage, it is beneficial to use a mortgage calculator, as these tools can give you an idea of the interest rates for the mortgage youre considering. Mortgage calculators can also help you calculate the total cost of interest over the life of the mortgage.

Compare Fixed Mortgage Rates - How to Get the Best Rate from Your Lender When getting quotes from competing lenders its always hard to know whos telling the truth and who is giving the real interest rate when they quote you. To be completely sure you really do need to ask several lenders to quote you to be sure you are getting the best deal. The first thing to understand when comparing fixed mortgage rates is that interest rates never change and are always constant. Whats that you say? Rates change daily dont they? Not really, a 5% rate on a 30 year fixed mortgage has always been available regardless of the market. What changes is the cost of that rate to the retailer (Mortgage Company) and eventually the borrower, these are called points. What we are seeking from the mortgage company is the par rate; this is the lowest interest rate that does not require us to pay points. Everything revolves around the "Par rate". The par rate has no cost to you and no profit for the lender. Very rarely will a lender quote this rate unless they are trying to "low-ball" you in hopes of raising it later. When a lender sells a rate above "par" she makes a profit. When she sells a rate below par it represents a cost to the lender that she usually passes along to the borrower in the form of points. These are the interest rates that are usually advertised on mortgage web sites, and that is why you are usually told you cant have that rate. Most borrowers are aware that the mortgage company needs to make a profit and to stay in business, after all they arent philanthropist. The intelligent shopper will seek to manage the amount of profit in the deal as opposed to having to argue about rates and closing costs. Most mortgage companies buy their money from the same sources, meaning their rates should almost be identical. Therefore, if you are reasonably sure you have the "par rate" then you have effectively narrowed the discussion down to the closing costs. Once you have the lender negotiating their profit you have the upper hand! So how do we find this magical "par rate" from the lenders? Its simple, you ask them. This is where having 3-5 lenders to work with pays off. When you speak with experienced lenders they are going to ask you a series of questions to pre-qualify you to a rate. Rates have add-ons so to speak. The lender begins with a par rate and then adds and subtracts from that rate depending on your specific loan situation. It will be a little tedious going over the same questions with 3-5 lenders but the payoff is worth it. Once the lender feels comfortable that she knows your situation she will usually quote you an interest rate. Rest assured this rate will NOT be a par interest rate. You should respond to her verbal quote "is that the par rate?" She will probably be taken back that you know to ask this question. What you want to convey to the lender at this time is your willingness to pay higher closing costs to get the lowest rate. It should be sort of like this "I realize my closing costs may be a little higher but can you quote me the lowest rate that is available without having to pay points?" The lender should volunteer the information, if not, next!

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