The Daily News of Los Angeles
Shopping for a mortgage these days is lot like buying a vehicle. There are two basic models – car versus truck. From that point on, imagine the possibilities.
That’s because identifying all the types of mortgage products on the market today is a daunting task. And the interest rate landscape changes constantly.
“It’s basically fixed and adjustable, and then it gets hairy from there. There are any number of features you can add on top of those,” said Keith T. Gumbinger, vice president of HSH Associates in Butler, N.J., the nation’s biggest publisher of mortgage information.
Layering on various types of options yields probably several hundred varying kinds of mortgages. This can make shopping for a home loan a confusing, trying process – especially as interest rates trend up.
Rates are still low by historical standards, averaging just under and just over 6 percent in two widely watched surveys released last week. It’s cause for concern, though, because rates had been much lower for much of last year.
As rates move up, consumers tend to opt for other products – adjustable or hybrids that offer fixed interest for a specific period then adjust – rather than the benchmark 30-year, fixed-rate loan.
Adjustables and hybrids generally offer lower monthly payments – crucial in this time of record-high prices – and make qualifying easier in most cases. But the risks they carry should be carefully evaluated.
In its latest market survey, the Mortgage Bankers Association said the adjustable-rate-mortgage share of home-loan activity increased from 31.3 percent to 33.3 percent of total applications since the previous survey.
So home shoppers need to sharpen their comparison skills.
Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, said consumers should take an advocacy role when home loan shopping, even though there are laws regulating fee disclosure.
“The problem is people don’t read (the loan documents) and they don’t ask questions. They rush through the process,” he said.
The first thing shoppers should do is steer clear of products that carry a prepayment penalty and they should also negotiate fees up front, he said.
The National Association of Mortgage Brokers offers the following tips when loan shopping.
— Ask the mortgage company to guarantee the interest rate in writing.
— Make sure the lock length is clear, for example 30 days, 60 days or longer.
— Get a good-faith estimate, which will specify the interest rate and other closing costs.
Additional information can be found at the organization’s Web site, http://www.namb.org
And be careful.
“It’s not a no-brainer anymore,” HSH’s Gumbinger says of shopping for a loan. “Now you have to sharpen your pencil and do the math because there are known risks and unknown risks about what the interest rate environment is likely to be over the next couple of years.”
Contact the author Gregory J. Wilcox at: (818) 713-3743 or [email protected]