THE state of Washington probably has more mortgage lenders and brokers than the market demands. This is good for you if you are seeking a mortgage or mortgage refinance loan because the consumer benefits from high competition in the market.
This advantage however can degenerate into a disadvantage if the consumer is unaware.
Awareness is therefore of the utmost importance in Washington irrespective of whether you live in Aberdeen, Oak Harbor, or Walla Walla -- or in any other city in the state. In this article, the writer attempts to make you aware of certain issues to ensure that the consumer draws the best advantage from the competitiveness of the market.
Myths and realities
Here, we shall separate common myths about mortgage refinance from the realities. They are as follows:
- Myth: Mortgage refinance rates in Washington are lower than in New York and California, but higher than in the other states.
- Reality: Lending rates in the United States belong to the Federal domain; so basic interest rates are the same in all states. Differences come in on a case-to-case, not state-to-state, basis. Case-to-case differences depend on two main factors: 1) the customer's credit profile (better profile means lower rate), and 2) the 'points' the customer pays (1 point = 1% of the loan amount; the customer makes this payment to reduce the 'effective rate' over the life of the loan).
- Myth: Mortgage refinance is a good move to make whenever interest rates fall below the rate at which you took your original mortgage loan.
- Reality: Interest rates are only one cost head. There are others, such as the upfront fees, charges, and commissions you have to pay for the refinance loan, etc. The factor to consider therefore is the 'APR' (annual percentage rate) of your refinance, not the interest rate alone.
- Myth: The longer the duration of a mortgage loan, the lower is the interest rate.
- Reality: 15-year mortgage loans come at a cheaper interest rate than 30-year mortgage loans. For example, on 27th February, 2008, 15-year fixed rate mortgage (FRM) loan carried an interest rate of 5.34%, while the 30-year FRM loan carried 5.91%.
- Myth: Low monthly repayment means you are enjoying a low interest rate.
- Reality: Total interest costs depend on how the monthly payments are applied to the debt balance over time. Thus, you might be making low monthly payments but paying a higher interest rate than someone doing vice versa.
- Myth: Since the US financial market is well-regulated by the federal authorities, there should be no doubt about the ethicality and moral integrity of mortgage brokers.
- Reality: While most operators in the mortgage loan market in Washington are professionals, one can never rule out the possibility of black sheep in the community. It is therefore important to ensure that the broker you are dealing with is registered to offer services in Washington, so they can be held accountable to a certain extent.
- Myth: Brokers must be paid even if we finally decide not to accept any of their offers.
- Reality: The broker is to be paid their agreed commission if and only if you have formally accepted an offer from him or her. This payment is made at the closure of the refinance loan, i.e., at the meeting where the lender, brokers, customer, real estate agent, and others meet to sign the dotted lines. No payment is to be made to the broker if you have not formally accepted any offer from them.
- Myth: If a person's credit rating is poor, he will not get mortgage refinance.
- Reality: A person with poor credit rating can also expect mortgage refinance, but on a higher interest rate and broker commission than a consumer with a good credit rating.
- Myth: If I'm not getting the interest rate advertised by the lender or broker, I'm being cheated.
- Reality: The advertised interest rates are almost always applicable to borrowers with above-average credit rating. People with average or less-than-average credit rating get loans at higher costs.
- Myth: Second mortgage is cheaper than mortgage refinance.
- Reality: Second mortgage comes at a higher interest rate, hence is costlier, than mortgage refinance.
- Myth: Online mortgage loan calculators available on the websites of lenders and brokers in Washington are not reliable.
- Reality: Online mortgage loan calculators may not give you precise results, but are fairly indicative of what is in store for you, given your credit profile, the type of loan you want, and other variables. It is strongly recommended that you first get a rough idea of your eligibilities through the online calculators, which you can use for free and without any obligation, and then approach lenders and brokers in your area.
Though anyone with a reasonable credit profile can find mortgage refinance in Washington, you should be aware of certain basics to ensure that lenders / brokers, in the heat of competition, don't end up giving you a deal that is good for them but not for you.
There are quite a few misunderstandings about mortgage refinance among people in Washington as well as many other states; so it is advisable to get the basic facts right before you enter into actual negotiations for your mortgage refinance.
The free online calculators available on many websites (such as: www.mortgage-calc.com, www.interest.com, www.mortgageloan.com,erate.com, bankrate.com) help arm you with what you can expect from the market. This information, though not fully accurate, stand in good stead as you negotiate with actual lenders / brokers.