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What the bank won't tell you about your home mortgage quote
by Paul Lerner |
| Shopping for a house is probably the most significant financial decision that you will make in your life. When you shop for your home by first attaining a home mortgage quote, your decision becomes even more momentous—you need to perform a balancing .. |
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Shopping for a house is probably the most significant financial decision that you will make in your life. When you shop for your home by first attaining a home mortgage quote, your decision becomes even more momentous—you need to perform a balancing act between the house of your dreams and factors such as the down payment and interest rate payable.
Your first stop in this process will probably be your bank. This is the most obvious option, but may not always be the right one; there are things your banker will not tell you about a home mortgage quote. In other words, the home mortgage quote that is good for your banker may not be the best one for you.
Prevailing interest rates
Take the issue of interest rates. Rates fluctuate according to market exigencies. When you start your negotiations for a home mortgage quote, the interest rate might be higher than at the time you actually avail the loan. You must keep a track of such fluctuations, and induce the bank to provide you with the advantage of the prevailing rate. Your lender may not tell you this, but the difference could mean several hundred extra dollars. Therefore, it is always a good practice to consider alternative information sources before finalizing the home mortgage quote, and then compare rates on offer. With easy access to the Internet, you can even generate online quotes from web sites. This exercise will help you prepare well for negotiating with your banker regarding the interest rate.
Mortgage tenure
The mortgage tenure is another important question that you need to query. From the point of view of the bank, a 30-year fixed rate is most suitable because it can bring in returns of up to 4-5 percent for the bank. However, is it good for you? If you are looking to refinance in a period of about seven years, a 30-year rate is a disadvantage because you would be keeping the loan for only seven years.
Hidden fees and levies
Once you have finalized the purchase of the house and the interest rate with the bank, you would think that getting the right home mortgage quote is guaranteed. However, you need to watch out for those hidden fees or “add-ons”, which your banker might not have explained at the outset: loan processing fees, warranties, insurance, and the like. It always pays to put these issues on the table before finalizing the home mortgage quote.
Disproportionate service charges
In your market research for the right home mortgage quote, your focus is obviously the lowest interest rate. However, this should not be your only guide because some banks attract customers with the offer of a low rate, but may levy charges for services that are non-existent. A real-world experience is of a Fairfield, Conn., graphic designer who discovered that his bank charges fees for services such as lender inspection and notary at a rate much higher than normally acceptable. It is a prudent step to compare the complete fee package before committing to a quote. It is important to remember that lenders often offer to waive a particular fee levied by your bank in an effort to close the deal. So, it is important to recognize such opportunities and press home the advantage.
Besides raising these factors, you must also consider issues that are more closely related to your personal decision-making capacity, and for which no banker can tender advice:
• Be sure of the reasons for buying a house.
• Ensure that the size of the house is right for you.
• Choose the right time in the year to buy a house (there could be a particular time in the year when home prices drop, depending upon your location).
• If you decide to involve a real estate agent in procuring your home mortgage quote, find the right estate agent and be aware of his/her commissions.
• Select the location of the house carefully keeping in mind resale value.
• Inspect the house thoroughly, identifying problem areas and factoring them into the price.
Getting a home mortgage rate that suits your requirement is one aspect, living with it is another. However, once you have understood the operating market forces in this arena, you will go a long way toward successful management of both these aspects.
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