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Selecting the Best Mortgage Rate
Finding the best mortgage rate may not be as easy as simply identifying the lowest interest rate (30 year mortgage rates) available. The criteria a mortgage shopper should apply must begin with the question of how long they plan to hold onto the mortgage and retain ownership of the property. There is no reason to consider the option of paying points and fees to buy down the interest rate when a borrower does not plan to own the property long enough to re-coup (or at least break even) on the closing costs. The second criteria that should be used in determining whether to buy the interest rate down by paying point and fees, is whether a borrower is refinancing (refinance mortgage rates) or purchasing the property in question. When refinancing, points and fees have a different tax treatment than if the transaction involves a purchase. Deducting points and fees typically has a more favorable tax treatment in a purchase transaction rather than in refinancing when the deduction of points is normally amortized over the life of the loan and not deducted in the year they are paid as is typically the case in a purchase.
Another criteria frequently used to determine the best mortgage rate is APR or the Annual Percentage Rate. The purpose of the APR is to give the mortgage consumer a basis of comparing several loans by examining the total cost of the loan, including some specific costs, over a period of time by reflecting some of those costs in the interest rate (30 year mortgage rates). The problem with the APR is that it is not required to be calculated the same way across the board, for instance one area were lenders can differ dramatically when it comes to quoting APR, is the number of days of pro-rated interest they use when arriving at their APR calculation. Pro-rated interest is the number of days remaining within a month that you will pay interest after your new loan closes, for example if your loan should close on the 15th of the month then you would have 15 days (or 16 if the month has 31 days) interest remaining to pay on the new loan. The problem with lenders including the pro-rated interest in the APR is that there is no uniform requirement for how it is quoted. Some lenders use 15 days in their calculation and some may use 30 days, a few may even use zero days of pro-rated interest in their APR calculation so it will appear (somewhat deceptively) to be the lowest among their competitors.
What type of loan would be best mortgage for you? With so many sub-prime borrowers having been burned recently by adjustable rate mortgages, ARMs are being avoided like the plague in this new post-mortgage meltdown era. It’s unfortunate that all adjustable loans are being written off by many consumers and are now being presented in the same negative light. In fact, given the right circumstances, an adjustable loan can be a wonderful tool for managing one’s personal cash flow if a borrower is both responsible and educated in maintaining their own finances. Risk tolerance, along with personal confidence and skill, in controlling one’s finances is critical in determining whether an ARM might be right for a particular borrower. ARMs can also be useful for borrowers who have a short term ownership horizon, perhaps of less than 3-5 years. Of course given the soft real estate market currently experienced throughout the country, buying a home with such a short term time horizon would likely be a foolish strategy. Fixed rate mortgages (30 year mortgage rates) are always a safe bet and in many cases borrowers are better off taking a 30 year term versus the shorter 15 year term. Borrowers opting for the 30 year can always make additional payments to shorten the term of the loan (assuming they take a recommended no prepayment penalty loan), this way they remain in control of managing their mortgage payment and cash flow. A 15 year mortgage can be a terrific, less costly option for the more mature borrower who does not have as many competing demands for their cash (i.e. saving for retirement, kid’s college education, etc.).
As you have now seen, determining what the best mortgage rate for you may be is not as simple as it sounds. There are many considerations to take into account and the key to making accurate loan comparisons is to be certain you are truly comparing loans on an apples-to-apples basis and not looking at two loans that have completely different rate and yield equivalencies.
New credit scores for mortgages coming for better and for worse
by Broderick Perkins
DeadlineNews.Com
(11/16/2011) - Your mortgage lender is about to really get all up in your creditworthiness grill - a whole lot more than before.
It's a for-better-or-for-worse proposition, depending upon how the new approach makes you look on paper.
Fair Isaac Corp, or FICO, which provides the industry standard for calculating credit scores, is joining forces with CoreLogic a consumer, financial and property information data bank, to create a new credit score that allows mortgage lenders to get in your business more than you may want.
FICO offers the industry leading FICO score used by Fannie Mae, Freddie Mac and Federal Housing Administration (FHA), which guarantee or own about 90 percent of mortgages written today.
The FICO score, ranging from a low of 350 to a high of 800, has largely been based on data in your Equifax, Experian or TransUnion credit report - credit and retail card payments, personal and car loan payments, mortgages and other standard forms of credit.
CoreLogic's CoreScore is derived from a databases of nearly 1 billion consumer transaction records covering 99.9 percent of the U.S. population and includes county, municipal and special tax jurisdictions, residential properties and liens and courthouse records, along with extensive landlord and tenant experience as well as non-traditional lending activity records - payday loans, rent payments, evictions, child support payments, even energy utility bills and cellphone payments.
The new score is being developed specifically for mortgage lenders who've already put the squeeze on home loans. The new credit scoring deal could be a boon or a bane if you are applying for a home loan.
If you have an empty or light traditional credit history, say, because you are young, unbanked or wealthy and not on the credit map, you could get a boost from additional credit scoring data - if it's positive.
If you would otherwise barely qualify for a mortgage, the additional credit scoring information that comes in negative could turn your American Dream into a pipe dream if the information is negative.
"A preliminary analysis of over a quarter-million traditional credit reports for mortgage applicants demonstrated that one out of every 13 applicants lacked unique consumer credit data that the CoreScore Credit Report provides- information that could significantly impact a borrower's debt-to-income ratio and credit risk score," says CoreLogic.
The statement goes on, "Of these, 22.6 percent contained open mortgage obligations which were nearly twice as likely to appear for a borrower with no open mortgage trade lines on his or her traditional credit report. Twenty percent of the loans represented by these trade lines were found to be derogatory or delinquent."
Designed not to replace traditional credit scores, but to be used as an adjunct, the CoreLogic's CoreScore is the latest fallout from economic malaise that has spawned a continuing trend to scrutinize consumers' creditworthiness.
Credit reporting agencies, Experian, Equifax and TransUnion, recently began examining estimates of consumers' income as an additional credit report item. Experian already includes data on rental payments in its reports.
While the new scoring models can and likely will squeeze some consumers out of the mortgage market, the scoring operations say the new scores are designed to find new ways to reduce lenders' risks and thereby be more inclusionary.
"Lenders today need as much actionable consumer information as possible so they can safely grow origination volumes and avoid future losses," said Greg Pelling, vice president of Scoring and Analytics for FICO.
If that doesn't work, lenders can always find new ways to raise the cost of mortgages, even in a low interest rate environment.
And consumers can expect to be further confused by the ever-evolving world of credit scores.
