ONLINE MORTGAGE COMPANIES - Can They Save You Money?
RATES MAY BE LOWER ONLINE - BUT WILL AN ONLINE LENDER BE RESPONSIVE IF THERE IS A PROBLEM?
The Federal Reserve Board, as anticipated, dropped its benchmark Fed Funds Rate today by 1/2%. Today, that key rate, tied to many ARM Resets, is now 1.0% - the lowest it has been since 2004. Indeed, the rate has not gone lower than 1% since 1958 - when Dwight Eisenhower was Commander-in-Chief.
Although most prospective home buyers know by now that few fixed mortgage interest rates are tied directly to the Fed Funds Rate (instead, 10-Year T-Bill rates are the closest indicator of Mortgage Rates ups and downs), experts agree the Fed move was necessary, as was a companion 1/2 percent drop on October 8th.
But where can a borrower find the best mortgage rates today - in an environment where loans are often hard to come by, and with added premiums, fees, and higher rate levels for all but the most qualified applicants?
Many rely on Banks or Mortgage Brokers to shop lenders for the best rate. Currently, the average 5/1 Adjustable Rate Mortgage is 6.01% nationally.
Some online lenders, however, such as online-only bank ING Direct, presently offer rates as low as 5.25% APR for essentially the same product. E-Loan, Emigrant Savings, and MTG Capital offer similar rates. These rates apply, mind you, typically apply to applicants with strong FICO Credit Scores - typically 700 or over.
Hey, what's the catch here? Are these online rates possibly misleading, or even too good to be real?
Note that many of the discount-rate lenders do not have a costly bricks-and-mortar presence, and their overhead is lower. This allows them to quote lower rates and still make a profit on the loan.
According to ING Direct President and CEO Arkadi Kuhlman, his firm holds many of these discounted-rate loans in their own portfolios. "I don't want to underwrite mortgages I can't keep," says Kuhlman.
He continues that his firm's lower rates are possible since he doesn't have to pay the hundreds of employees and branch operating expenses that the big lenders have to pay.
The theory behind the 5/1 ARM loan has to do with the fact that the average American homeowner these days still moves every 5 to 7 years. For these borrowers, the added cost of a higher-rate 30-year fixed loan may be a waste of money.
What happens, however, if you DO NOT move before the rate adjustment period expires? Do you risk a far-higher rate with the reset?
The answer - YES, you would shoulder that risk.
So a buyer unsure about how long he will stay in the home need be careful. If the example loan were to adjust today, the 5.25% rate would increase to near today's rate of 6.01%. However, no one can accurately predict where mortgage interest rates will land fie years from now.
Customer Service is often another concern. Our Team can recite a dozen or so horror stories over the years, where our clients signed on with a supposedly-less-expensive online lender, only to find closing fees and points pushed the final loan far higher than anticipated. At the closing table, a call to the Online Lender's Customer Service Number was met with music-on-hold for what seemed like forever, followed by no resolution.
Using local Loan Brokers, whose livelihood is dependent on referrals from the Buyer's Real Estate Agent, may be more likely to make sure the closing loan terms are identical to those previously agreed to.
However, saving money is saving money, and a smart home borrower might want to compare more than one source for funding a home loan. Close examination of the federally-required Truth in Lending (TIL) Statement from each lender, provided soon after the loan application is made, will uncover "surprise" charges, rates, or fees.
For more, read Mary Pilon's post on "The Wallet" blog in yesterday's Wall Street Journal.
DEAN MOSS & DEAN'S TEAM CHICAGO
