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As I have repeatedly stressed in this column, there are many factors to consider in making the right decision when shopping for a mortgage loan. Perhaps the most important consideration is the homebuyer’s or refinancer’s plan for the house - how long they plan on keeping it. If clients can answer that question to the best of their ability, then we can objectively assess the merits and drawbacks of the many loans available. For example, if a couple informs me that they do not think that they will stay in their new purchase beyond 5 or 6 years, I can offer the suggestion of considering a hybrid adjustable rate mortgage (ARM) in which they can lock into a lower interest rate. After the loan program is decided upon, we then need to investigate whether the closing costs are inflated by built in points, origination fees, etc. Unfortunately, however, most of those factors are too often disregarded in favor of the almighty interest rate. Without question, despite all of the important questions that need to be asked, interest rate is what is shopped for and what is being marketed. As long as mortgage shoppers understand this fact, then they can take the necessary steps to hold the lender or broker to their word. You see where I am going with this? At the risk of sounding like a broken record, an educated mortgage shopper will ultimately walk away from their closing without any unpleasant surprises. What kind of surprises? A common one is finding that the interest rate on the closing documents is higher than the agreed upon rate lock. This disparity may be the result of a dishonest loan officer playing the bait and switch game to increase profits. A more likely explanation is that the loan did not close during the original rate lock period due to sloppy service or other unforeseen delays. Rather than upsetting the client with news that the rate lock will expire (and risk the client taking his business elsewhere), perhaps the lender or broker assumes that the client will agree to the new rate at the finish line. The solution to this problem actually benefits the client and the broker and is so simple that it should be standard operating procedure. Once the available interest rates have been discussed and the client gives the go ahead to lock the rate (remember: this is always the client’s decision), the lender or broker should provide a rate lock confirmation. This simple document contain all of the relevant details of the rate lock: the interest rate itself, the expiration date, and any points or other fees required to secure the rate. By taking this extra step, the borrower and lender will avoid any misunderstandings. The borrower will have documentation of what they agreed on. On the other hand, this document benefits the lender/broker should the borrower demand different terms at the closing table. It should all be there in black and white. Back |
