How are interest rates determined?
Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.
What is a Good Faith Estimate? What is a GFE?
A Good Faith Estimate (GFE) is a form that provides you with basic information about the terms of a mortgage loan for which you have applied and estimated costs to you in acquiring the loan. The lender or the mortgage broker must provide you with a GFE within three business days of the receipt of your application or required information. You must receive the GFE and indicate that you intend to proceed with the loan before you are charged any fees except a credit report fee.
If the lender denies your application within three business days, it does not have to provide you with a GFE. It does have to tell you within 30 days either why your application was denied or that you have 60 days to request the reason why it was denied.
Receiving a GFE does not require you to take the loan. Providing a GFE also does not commit the lender to making the loan. Instead, the GFE provides you with basic information about the loan, which will help you compare offers, understand the real cost of the loan, and make an informed decision about your loan choice.
Can the final loan costs be different from the Good Faith Estimate?
If you obtained your loan after January 1, 2010, the following items listed on the Good Faith Estimate (GFE) CANNOT increase:
- The “Origination Charge” listed in Block 1
- If your interest rate is locked, the “Credit or charge (points) for the specific interest rate chosen” in Block 2
- If your interest rate is locked, your “Adjusted Origination Charges” listed in Box A
- The Transfer Taxes listed in Block 8
The following items listed on the most recent Good Faith Estimate you received cannot increase in total by more than 10 percent at closing:
- Services listed in Block 3, which are services for which your lender chooses the provider
- Title services and lender’s title insurance charges listed in Block 4, if you use a company identified by your lender
- Owner’s title insurance listed in Block 5, if you use a company identified by your lender
- Charges listed in Block 6, if you select a company listed for those services in Block 6
- Government recording charges listed in Block 7
The following items can change:
- Charges for any services that you obtain from a company not listed by your lender
- Title services, lender’s title insurance, and owner’s title insurance if you do not select a company identified by your mortgage originator
- Your initial escrow deposit listed in Block 9
- Your daily interest charges listed in Block 10
- Your homeowner’s insurance listed in Block 11
What costs will I have to pay as part of taking out a mortgage loan?
First, your loan will include charges paid to your lender or broker for providing the loan. These charges may come in the form of points and fees. You may have an option to pay a higher interest rate on the loan rather than paying points and fees upfront. If a fee is charged for the lender and broker providing the loan, that fee may include amounts for taking the application, processing and underwriting the loan, and the loan commitment. You may also be charged for locking your rate.
Often, borrowers have an opportunity to pay discount points at closing to reduce their interest rate. Other times, borrowers agree to pay a higher interest rate to reduce their costs at closing. Before paying discount points for a lower interest rate or agreeing to a higher one, you should consider talking to a trusted financial advisor other than your lender, such as a HUD-approved housing counselor.
Finally, you will pay for the cost of items required by your lender in order to make the loan. Examples of these are real estate appraisals, closing fees for an attorney or settlement agent, title insurance, and government recording fees and transfer taxes.
What are closing costs?
Generally we do not charge closing costs but for the sake of information, closing costs are fees and costs associated with obtaining the mortgage loan. You pay most of these expenses when signing the final loan documents, or when you “close” the deal. Some common closing costs include:
- Underwriting and/or processing fees
- Appraisal fees
- Pest inspection fees
- Title insurance
- Title inspection and recording fees
Should I pay points/origination in exchange for a lower interest rate?
Points/origination is considered a form of interest. Each point is equal to one percent of the loan amount. You pay them up front at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing. However, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay points/origination, you should compare the cost of the points/origination to the monthly payments savings created by the lower interest rate. Divide the total cost of the points/origination by the savings in each monthly payment. This calculation provides the number of payments you must make before you actually begin to save money by paying points/origination. If the number of months it takes to recoup the points/origination is longer than you plan to have the mortgage, you should consider the loan program option that does not require points/origination to be paid.
If something related to my loan changes, when does Coastal Pacific Lending have to tell me?
We may need to provide you with a new Good Faith Estimate (GFE) and a new Truth-in-Lending statement if the information disclosed on the forms changes. We provide you with a GFE and a Truth-in-Lending disclosure after you first apply, your estimated settlement charges and loan terms can only change within specific regulatory requirements.
If there are changes affecting information disclosed on the GFE, in some cases your lender must send you a revised version within three business days of the lender’s receipt of information justifying the change. If there are changes to information disclosed by the Truth-in-Lending statement, we may need to issue a corrected Truth-in-Lending statement so that you receive it at least three business days before closing.
Is comparing APRs the best way to decide which lender has the lowest rates and fees?
The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees, in addition to the interest rate, determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up front costs over the entire loan term.
Also, unfortunately, the APR does not include all the closing fees, and lenders are allowed to determine which fees to include. Fees for things like appraisals, title work and document preparation are not included even though you generally have to pay them.
For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments. You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that is best for you. Look at total fees and possible rate adjustments in the future and consider the length of time that you plan on having the mortgage.
Don’t forget that the APR is an effective interest rate—not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
How do I know if it’s best to lock in my interest rate or to let it float?
Mortgage interest rate movements are as hard to predict as the stock market and no one can really know for certain whether they will go up or down. If you have a hunch that rates are on an upward trend then you may want to consider locking the rate as soon as you are able. Before you decide to lock, make sure that your loan can close within the lock in period. It will not do any good to lock your rate if you can not close during the rate lock period.
If you are purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you are refinancing, in most cases, your loan could close within 30 days. However, if you have any secondary financing on the home that will not be paid off, allow some extra time since your BB&T Mortgage Professional must contact that lender to get their permission.
If you think rates might drop while your loan is being processed, take a risk and let your rate “float” instead of locking.
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When do I make a decision?
Making a decision on changing the mortgage on your home is tough. But we are here to help, if you have any hesitation, if your current lender is giving you grief and you would like to just as questions, we are here for you.
Will this loan cost me money or raise my balance?
There are many types of loan programs out today, if you would like cash out and don’t have enough equity, then it may raise the balance of your loan. We do offer free loans, all you have to pay for our of your pocket is the appraisal, it is illegal for banks or mortgage brokers to pay for an appraisal up front, this is to keep the lender from “paying off” the inspector. In most cases we are able to refund the initial investment of the the appraisal back to borrower.
Will my rate ever “inflate”?
Alot has changed in the industry since 2007. We have a new branch of our government (called the CFPB) that oversees lending operations and eliminates deceptive and otherwise “tricky” practices. Because interest rates are almost zero, we prefer fixed rate loans, there is rarely a case where we would suggest and ARM although adjustable rate mortgages still exist, they are vastly different than what we were seeing in 2006, they have adjustment caps and maximums.