Why The Mortgage Interest Rate May Not Be The Most Important Factor To Consider

Real Estate

The interest rate on your mortgage determines your monthly mortgage payment as well as how much you’ll pay in interest. A good interest rate can save you thousands upon thousands of dollars over the life of your loan.

However, this doesn’t mean that you should agree to a mortgage simply because the lender can offer you the lowest interest rate.

These are some of the other factors to consider.

Will the Mortgage Be Approved?

Agent Michael Arkin at Coldwell Banker Warburg, tells us that the lender with the best rate might not approve of the property’s location. “Will they lend for that purchase? Will you actually get the mortgage and close on the home?” Arkin says it doesn’t matter if you get an offer of a great rate from the mortgage lender, but then they decline to lend you the money for the purchase you wanted.

Is the Rate Locked In?

The interest rate is impacted by market conditions. “Much like the stock market, interest rates are constantly influenced by many market conditions, including investor demand, the economy – specifically inflation levels – and government policies,” says Jason Lerner, VP, area development manager at George Mason Mortgage, a subsidiary of United Bank. He recommends working with a knowledgeable mortgage professional who understands market conditions. “This individual can help to create an effective strategy for the timing of locking an interest rate.”

And once that rate is locked in, the clock starts ticking. According to Melissa Cohn, regional vice president of William Raveis Mortgage, buyers need to know how long the rate is locked in for.

“In today’s high-rate environment, a buyer should also be asking about the ability to float down the rate once locked, and what incentives the mortgage company can offer when the buyer wants to refinance to a lower rate next year.”

Is the Lender Experienced?

Another important factor is the lender’s experience underwriting in the market segment that’s relevant to your transaction. For example, Ian Katz, a real estate broker with Compass, tells us that in his city (NYC), larger national lenders without a local retail presence often don’t understand how to properly qualify and underwrite a co-op purchase loan and/or a new development early in its sales cycle. “These types of loans are most effectively and successfully closed by lenders who are very active in the local market, and may charge a slightly higher rate for the risk or complexity they correctly price out at the beginning of the process.” On the other hand, he explains that the national/non-local lender may return with a higher rate or a loan denial.

In a personal story, Dorothy Shrager, a broker at Coldwell Banker Warburg, tells us that she has a customer who recently selected a bank that had the lowest interest rate. “As it turns out, this was a small bank and apparently not too detailed with co-ops in New York – they didn’t understand the nuances of a co-op purchase.”

As a result, Shrager says the mortgage was first denied on a technicality. Her clients then selected a new bank with a good rate, but it was also a smaller bank. “The due diligence at the bank made for a delay in the mortgage commitment for longer than necessary.” Shrager recommends paying a little more and using a bank that is larger and has experience in your area (or in this case, building).

Is the Lender Responsive?

While some delays may be due to inexperience, a lack of responsiveness can also be a red flag. Katz recommends that buyers consider the loan officer’s demeanor and professionalism, along with their level of customer service and responsiveness.

“The last thing a borrower/buyer will want is an unresponsive or dismissive loan officer with a time of the essence closing date looming and the bank’s approval still outstanding,” he says. And, Katz also recommends checking to be sure that your rate is protected in case a transaction is delayed.

Is the Lender Reputable and Transparent?

Mortgage lenders (like most for-profit organizations) are in business to make money. However, you don’t wany anyone maximizing their profits at your expense. “A lender or mortgage professional seeking to maximize profitability will often have higher interest rates or closing costs,” warns Lerner.

To find the best interest rate, he recommends seeking referrals from industry experts and other borrowers who have had positive experiences. “Borrowers should get estimates immediately before choosing their lender and locking their rate to compare and understand the interest rate offered and any associated lender specific fees.”

In addition, Lerner says you should point-blank ask if this is the best available rate and how it was determined. You also want to find out if there are ways to structure the loan that would improve your rate, and he says you want to know if there are other products available that would better meet your needs and long-term goals.

Having the right professional that you can trust to help you navigate the process will make a significant difference and could save you money,” says Matt Vernon, head of retail lending at Bank of America. Vernon also recommends doing your research by shopping around. “If you like a lender but their offer is missing something you saw in another offer, communicate this.” In many cases, he says lenders are eager to earn your business and will be willing to work with you.

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