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Why diff. interest rates on home loans from diff. lenders?

Discussion in 'General Discussions - USA & Canada' started by SriVidya75, Jan 19, 2012.

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  1. Jan 19, 2012 #1
    SriVidya75

    SriVidya75 Platinum IL'ite

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    I was just checking the home loan rates and I see diff. lenders are offering diff. rates? and there is a big diff. among some of the lenders in terms of the interest rate%.

    Why and how can anyone shed some light on this? what do you keep in mind when going for a particular lender?

    I understand that % of downpayment and credit score matter...even then I see diff. rates...how do you know which lender is safe and its not a sham!!!

    One more question: Why do people prefer a 30 year loan over a 15 year one? is it because of tax deductions available?
     
    SriVidya75, Jan 19, 2012
    SriVidya75, Jan 19, 2012
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  2. Jan 19, 2012 #2
    justanothergirl

    justanothergirl IL Hall of Fame

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    Sri from what I have seen..it depends on the kind of loan.Typical factors are
    1) rates are adjustable (ARM)or fixed
    2)f its just interest only(sort of like credit card payments...none of the monthly installment go towards the capital
    3)prepayment penalty.
    4) points
    And ofcourse
    5)size of the loan itself . Jumbo loans $750,000 + are the most exp and the interest rates are completely diff for them.

    Typically 15 yr ,30 yr fixed with zero prepayment penalty and zero points have the highest interest rates.
    I am not too sure how point system works..but typically u can pay 1 or 2 points (depending on the size of the loan) and get ur interest rate lowered./ This might really help when the loan amount is large.


    Referral..I prefer to go to a person who has worked in the neighborhood
    I personally prefer 15 yr fixed. Rates Vs Risk ..I think its a good balance.
     
    justanothergirl, Jan 19, 2012
    justanothergirl, Jan 19, 2012
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  3. Jan 20, 2012 #3
    Ranchu

    Ranchu Local Champion Staff Member IL Hall of Fame

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    Sri,

    When you check the chain of banks , it all goes back to Fannie May and Freddie Mac. So depending on how the banks function (the interest offered on Checkings acct , the finance of the bank itself ) , the loan rates are decided.
    Also depending on what type of loan you are choosing , the rates differ.

    Its better to shop around 2 or 3 for the rates, but I'd say dont go shopping too much . Each time you talk to a bank for their rates, they are going to pull your credit report. And i believe for some reasons that is not good. (not sure the exact reason , but I've been advised about it).

    "% of downpayment and credit scores Matter " --> Yes indeed. This comes into picture to determine how much is your PMI : your mortgage insurance.
    If your downpayment is low, that means your amount of loan is huge, so your PMI goes up.
    If your Amount of yrs say 30 , that means the surity that you WILL pay your loan is more , so your PMI goes a bit down.
    IF your Amount of yrs is say 15 , that means the surity that you WILL pay your loan is skeptical , so your PMI goes a bit up .


    "How do you know if lender is safe" --> We wont know for sure.. its safe to get referrals from builder or friends.. or try your bank where you have your personal Checkings account. Sometimes the bank will have some offers for account holders.


    JAG explained about ARM and fixed.. thats another factor which influences the rate %.
    (, you sometimes have the option to buy down rates by paying some amount upfront. Say by paying 10k more I get 3.75 instead of the regular 4%. This 3.75 will be maintained for 3 or 5yrs and then it picks the current market in that point of future and sticks to Fixed rate from then. )

    If my payments can go up, why should I consider an ARM?
    The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which might help you qualify for a larger loan. (americans dream of a big house) .



    How long do you plan to own the house? The possibility of rate increases isn't as much of a factor if you plan to sell the home within a few years.( typically ppl start small and then sell it and go big.)



    There are many more options for home loans I believe.. FHA for first time home owners , etc..

    Sri ,
    Just imagine if we have 100's of varieties for a simple orange juice :rant , why not for Home loans :rotfl
     
    Ranchu, Jan 20, 2012
    Ranchu, Jan 20, 2012
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  4. Jan 20, 2012 #4
    SriVidya75

    SriVidya75 Platinum IL'ite

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    aaah very well said...I was like why so much of diff. in the ratesoffered...

    moreover why do people prefer 30 yr loan??? when we are paying huge interest over it...almost like 30 to 40% extra of what we owe to the bank.....is it because the interest on the loan is tax deductible???

    paying it off in 15yrs sounds reasonable but is it that they wont get much oftax exemption ?
     
    SriVidya75, Jan 20, 2012
    SriVidya75, Jan 20, 2012
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  5. Jan 20, 2012 #5
    SriVidya75

    SriVidya75 Platinum IL'ite

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    aah this point system is another headache thing....but if zero downpayment...there is soemthing called mortgage insurance..what is it???

    by the way are the lenders that come through the specific builders trustworthy???
     
    SriVidya75, Jan 20, 2012
    SriVidya75, Jan 20, 2012
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  6. Jan 20, 2012 #6
    aparnanc

    aparnanc Bronze IL'ite

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    Mortgage insurance will need to be paid till you pay off 20% of the total house worth. If for e.g, you pay only 5% of the home value as down payment, you will pay PMI till you pay the other 15%.

    The lenders who come through specific builders are generally trustworthy. I am assuming you are talking about local mortgage companies. They are basically resellers; they will initially do your paperwork. After the loan is finalized, they will sell it off to some other major bank. Finally your loan will not be held by the major bank like BOA or Wells Fargo.

    As for your other question about people opting for 30 years, it could be that they have taken a bigger loan and therefore feel the monthly mortgage payment is more manageable when it is for 30 years vs 15 years. As you know, when we reduce the duration of the loan, the mortgage payment goes up. It's a compromise between the amount one feels comfortable paying and the loan they need to take.
     
    aparnanc, Jan 20, 2012
    aparnanc, Jan 20, 2012
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  7. Jan 20, 2012 #7
    aparnanc

    aparnanc Bronze IL'ite

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    Credit checks are usually run when you apply for credit/loan, be it credit cards or store cards or loan for home or cars. The assumption is the person is going to increase his debt. Therefore the score gets affected if you hit it too many times.

    That said, when you are hunting for a house, you can get your credit report pulled by multiple vendors. They will all show up as request for mortgage. The credit report company knows you are on the lookout for a house and therefore it will not adversely affect your credit score. Just be sure to run all this within a month or two months. Don't drag it over a long time.

    Multiple hits over a long period of time will definitely drag your credit score down.
     
    aparnanc, Jan 20, 2012
    aparnanc, Jan 20, 2012
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  8. Jan 20, 2012 #8
    Ranchu

    Ranchu Local Champion Staff Member IL Hall of Fame

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    Sri,

    I guess AparnaNc has explained all your questions..
    Adding to that, if you choose 30yrs Vs 15 yrs, the Down payment amount also differs. As you may now know, americans/house-owners generally dont have enough cash stocked up , so they try to go for low down payment and longer term of loan .
     
    Ranchu, Jan 20, 2012
    Ranchu, Jan 20, 2012
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  9. Jan 25, 2012 #9
    SriVidya75

    SriVidya75 Platinum IL'ite

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    As I have started this thread related to housing...had couple of more questions...


    Usually who gives the mortgage insurance? is it the same lender who is offering the housing loan? are tehre rate diff. in the mortgage insurance also? can we go with other lenders for mortgage insurance and take housing loan with some other lender?

    Most imp. question I have....how to know the feedback about a builder? usually we hear lot of builders on the market...apart from word of mouth, how to know which builder is good...(in the sense their houses wont have foundation issues or any other draw backs etc)


    one more...how to know what features are additional and what features are coming with baseprice? I understand that thre are some customizing options given by each builder....but can we check these features online and compare which builder is giving more features for the base price? what is the best way to go about it...more features for base price or customize what you want (which is going ot be expensive)


    If anyone has time please give me the info related to the above questions...or if you have any other thread or online site where we can look up for more info let me know,,,thanks again friends....
     
    SriVidya75, Jan 25, 2012
    SriVidya75, Jan 25, 2012
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  10. Jan 26, 2012 #10
    SriVidya75

    SriVidya75 Platinum IL'ite

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    bumping the thread hoping for some replies :)
     
    SriVidya75, Jan 26, 2012
    SriVidya75, Jan 26, 2012
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