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  Mortgage Rates

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Types of Mortgage Rates

ARM (‘Adujstable Rate Mortgage’): Adjustable-rate loans, also known as variable-rate loans , usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.

  • If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.

  • ARM's often start with an initial fixed rate for 1 or 3 years, after which the loan rate is generally re-calculated based upon prevailing market rates.

Annual Percentage Rate (“APR”): calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate that includes the interest, points, mortgage insurance, and other fees associated with the loan.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan, and generally have repayment terms of 15, 20, or 30 years. The interest rate and other terms are fixed and do not change.

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Reverse Mortgage: this mortgage lets an owner convert home equity into cash; unlike a traditional home equity loan or second mortgage, however, no repayment is required with a reverse mortgage until the borrower no longer uses the home as a primary residence. A reverse mortggage actually pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

When mortgage brokers talk about ‘points,’ they are referring to the “origination fee” that the lender is going to charge you for originating a loan. Points are generally paid at closing.

Get the Best Deal That You Can

Once you know what each lender has to offer, negotiate for the best deal that you can. On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications. The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

Generally, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage. When overages occur, they are built into the prices quoted to consumers. They can occur in both fixed and variable-rate loans and can be in the form of points, fees, or the interest rate.

Whether quoted to you by a loan officer or a broker, the price of any loan may contain overages. Have the lender or broker write down all the costs associated with the loan.

Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points.

You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points. There’s no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.

If they promise you a reduction in fees or the loan rate, get it in writing.

Get a Lock-In Rate in Writing

Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker.

The lock-in rate should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate, and it may be refundable at closing.

Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less favorable rate. Should that happen, try to negotiate a compromise with the lender or broker.

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