Illinois Mortgage Rates and News

Chicago, IL. - Are you in the market for a mortgage? If so you are ready to compare rates and prices to make sure you are getting the deal that is right for you. Mortgage ads are everywhere. My spam folder fills up with mortgage offers I never requested, and I cringe when I hear the mortgage ads on the radio. The approach irritates me on these ads because they distort the facts and play on people’s fears. The focus of most of these ads is that they (and only they) can get you the lowest rate for your mortgage. Many people think of loans as a commodity, and that one lender is the same as another, so the decision should be made strictly based on who has the best rate. This can be a big mistake. It is true that most lenders have the same loan programs, but there are other factors you need to compare to make sure you are getting exactly what you think you are. Besides the rate, you need to compare a company’s fees, the terms, the quality of their service, and the company’s reputation. Getting a good rate is important. But if the company you choose is not able to close on time, or doesn’t deliver at the terms you expected, a low rate is no bargain.

In order to know how to compare loan offers, it helps to understand how the mortgage market operates. The truth is, nearly everyone borrows money from the same sources. Whether you are looking at a government loan (FHA and VA), a Jumbo loan for higher priced homes (currently loans of more than $417,000), or a conventional mortgage, most of the loans will be sold off to a small group of end investors. The majority of conventional loans end up in the portfolio of one of two organizations, FNMA or FHLMC, often called Fanny Mae and Freddy Mac. These organizations are government sponsored corporations that are charged with buying up mortgages in the aftermarket, packaging them into investments that are sold on Wall Street, and making sure there is always money available to lend for mortgages.

These companies set the standards for mortgage qualifying, and their purchases set a base for the prices that all of the other lenders charge. Lenders price their loans with the expectation that they will be selling their loan, and eventually delivering it to one of these organizations. What all this means to you is that the true rates on mortgages are usually going to be close to the same from one lender to the next. The range in rates for the same product is typically going to be only 1/8 to ¼ point difference among most lenders. But if you are looking at the newspapers, or searching the internet, you may see advertised rates that are much lower. These low rates look tempting, but you need to know exactly what you are getting. What makes this complicated is the way that lenders show their prices to their customers. Because most consumers are looking for the lowest rate, it’s easy for unscrupulous companies to manipulate the fees and the terms in order to appear to offer a rate lower than it actually is. When comparing mortgages, you need to compare apples to apples and that is not always an easy thing to do.

Borrower Beware! What to watch out for - The number one complaint regulatory agencies receive regarding mortgages, is that the terms they ended up with weren’t what they were promised. There are lenders who will promise whatever it takes to get the customer in the door, but don’t deliver on that promise. Here are some of the areas you need to watch to make sure you are not being quoted an artificially low rate.

Locking In – When you find a property and apply for a mortgage, you have a choice between locking in or floating the rate. Locking in means that you are guaranteed that the rate you choose will be good for a certain period of time. If you choose this option, make sure that the period you lock in for is long enough to approve the loan, and that it extends through the closing date in your contract. Floating means that you are taking a chance. If the rates go down, you will get the lower rate; if rates go up, you will end up with a higher rate than you planned on. Interest rates go up and down based on what’s happening in the mortgage backed securities markets. The markets tend to overreact to both good and bad news, so lenders try to price according to the market, which means they can change every day – lately it’s been common to see rate changes more than once a day. Because the market is so volatile, rates are priced based on how long they are guaranteed for – the shorter the time period, the lower the rate.

Some lenders take advantage of this system in several ways. One way is to quote a very short-term lock period, which means a lower interest rate. But it doesn’t help you to lock into a 15-day rate guarantee if you aren’t closing for 45 days. Another twist on this is to quote you based on the short-term rate but then to encourage you to float. Or they claim that you can’t lock in until after you have been fully approved, or right before closing. These techniques are unfair because all the risk is put on you. If rates go up, you are stuck with the higher rate. Floating is always an option, but it should be your decision, not something that is forced on you.

A darker version of this is when the lender tells you that you are locked into a rate, but doesn’t lock you in with an investor. If rates stay the same or go down, you will close at the rate that was quoted and never know that you hadn’t been locked in. If rates go up, however, you may find that you are rejected for a mortgage at the last minute, or are forced to take a higher rate in order to close your loan. This is not only unethical, it’s illegal. But it happens. Every time that interest rates move up sharply, there are businesses that close their doors for good because they couldn’t honor their lock commitments, leaving their customers without the financing they had relied on.

Mortgage rate shopping is a big topic. I’ll have more on this in my next post.

Illinois Mortgage Rates and News

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Peter Thompson is illinois Mortgage Broker



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