Finding a Loan on Zillow category archives

“What are your rates today?”

Many years ago we established a policy we still live by today, “My goal is to be as honest and ethical with my answers as possible. While I could tell you ‘a’ rate, if you can answer just a few questions I can give you ‘your’ rate. Which would you prefer?”

Everything has a cost and nobody works for free. Banks, lenders and brokers alike all have to be profitable or they will cease to exist. Mortgages, meals and motorcycles are all the same: there is a cost of doing business.

Interest rates contain profits. For the originating company like a broker the profit is a one time payment at the funding of the loan. For the servicing lender or “note owner” the profit comes month after month as long as the mortgage is paid. The originating lender makes profit on the loan through something called Service Release Premium (SRP). Mortgage Brokers make profit on something called Origination Fees. Lenders and banks may or may not charge an origination fee based on how much SRP they are making from the interest rate on the loan.

If you talk to a couple of lenders and brokers and they tell you the interest rate, for example only, is 4.5% and you see an ad for an interest rate of 3.5% you really want to fill out the form or pick up the phone and call that advertiser. They just won. All they want you to do is fill out that form or call them so they can explain one of two things: (a) why you do not qualify for that rate or (b) how much it is going to cost you to get that rate.

There are still Adjustable Rate Mortgage (ARM) loans available. With an ARM you can get an interest rate (starting rate) at 2% or more lower than the rate on a fixed interest loan. Of course that will only last for 3 to 5 years or so then your rate adjusts … almost always upward. There is a time and a place for ARM loans – they are not “evil” but they can be used and advertised in a manner not consistent with the highest of ethics.

Mortgage interest rate buy-downs are widely available. If you insist on getting the lowest possible rate you are going to have to make an investment elsewhere. Either you will need to take a riskier loan, like an ARM, pay some discount fees or both.

Zillow Mortgage Marketplace Chart

Rate reports where the community can police quoted rates, like Zillow’s Mortgage Marketplace, are much more trustworthy than many of the advertisers you may find online. Since the community can give feedback to Zillow about the rates quoted by mortgage companies you are assured a higher level of accuracy on apples to apples comparisons.

If you want honest answers to questions as important as the question of rate be prepared to answer a few questions for the mortgage loan professional you are speaking with. If they demand/request an application before giving you an answer simply hang up and call someone else. But, in their defense, when you are asked questions about your income, assets and payment history answer honestly and know they are only giving you a quote based on the answers to their questions. If your answers are inaccurate you cannot hold them to that rate.

One of the easiest ways to tip your hat to the loan officer who would love to take advantage of you is to start out by asking, “what are your rates today?”

There are a number of ways to find the best mortgage rates, but all require a little bit of work on your behalf.

The key to all the methods is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Try a Mortgage Broker

Sure they’ve taken a lot of flak lately, but if you work with a mortgage broker, you can have them shop your loan scenario with a number of banks and lenders to find the best rate.

They have access to wholesale mortgage rates, which generally price below retail rates, so you might end up with a better deal.

And brokers do the work for you, so you don’t need to shop yourself – just make sure you find a reputable broker to work with first.

Comparison Shop Online (and Offline)

If you want the best mortgage rate, shop around. Get quotes from mortgage lenders online and inquire about rates with your local bank(s).

Just be prepared to get bombarded with phone calls and e-mails from interested parties looking to sell you the best rate.

They’ll probably lay off after a few days (or weeks), but the more you shop, and the more you tell others about yourself, the more you can expect to be contacted, sometimes relentlessly.

Zillow’s® Mortgage Marketplace

Assuming you still want to shop around after those words of warning, consider using Zillow’s® Mortgage Marketplace, which allows you to shop for mortgage rates anonymously.

You simply fill out a rate request form and the lenders pitch their offers to you – just watch out for bait-and-switchers once you’ve made contact.

In summary, be sure to look beyond the mortgage rate itself – fees (loan origination fee, mortgage points) can add up quickly and greatly distort the mortgage rate you ultimately receive.

Tip: If the lender lists the mortgage rate along with the APR (which includes certain fees), find out exactly what fees are included in the calculation and which are not. All are relevant!

(source: TheTruthAboutMortgage.com)

(photo: thetruthabout)

Despite the expiration of the Home Buyer Tax Credit, waiting to buy a home could cost you tens of thousands of dollars.  “Why?” you ask.

Home Values
Perhaps you are on the fence because you think home values are going to drop further.  You may be right, but there is mounting evidence that most markets are stabilizing, and some markets are starting to show appreciation vs. this time last year.  Below is a chart showing the average US Home Values since 1975.

As you will see, home values are stabilizing and there are some major US markets that have seen appreciation compared to this time last year.

What does this mean for you?  If you are waiting for home values to fall further, you may be waiting forever.

At least one expert thinks home values are going to go up.  John Paulson, who made billions by correctly predicting the housing crash, had this to say on Reuters.  Paulson Eyes Housing Rebound

Mortgage Rates

We have enjoyed mortgage rates for over a year that are the lowest since World War II.  That’s the war that took place in the 1940′s, before TV was widely available for most households.

The prospect of rates dropping significantly more is unlikely.  Although we might see a slight decline, it would not be enough to warrant waiting to just to lock in that “perfect” rate.  30 year fixed rates are currently below 5% which is an incredible bargain.

The chart to the right shows bond prices over the past 2 years.

This is an illustration of the price of the Fannie Mae 4.5% 30 year coupon, which is one of the key indicators of mortgage rates.  Tracking this bond on a daily basis can give great insight as to what mortgage rates are doing and what kind of trends we can expect.

The pink line shows the 200 day moving average, an important trend line.  Higher bond prices result in lower mortgage rates.  The price of a bond is in basic terms tied to supply and demand.  More demand = higher prices and vice-versa.

Note that on November 25, 2008, the Federal Reserve announced a plan to purchase $1.25 trillion in Mortgage-Backed Securities (MBS), and the bond markets  immediately rallied.  Bond prices have not come out of that general trading range ever since, hence the resulting low rates we have experienced.

The Fed exited their MBS program on March 31, 2010, and there was widespread speculation that rates would then go up.  This hasn’t happened- yet.  Rates have stayed low due to uncertainty in the economy and low inflation.  Recent news of trouble in Europe has led to even better rates in recent weeks.  Any time there is uncertainty in the market, investors tend to buy safer investments with guaranteed rates of return (MBS fall into this category).  We have seen this ”flight to safety” especially in the past couple weeks with the global fears of a European collapse.  This added demand has driven bond prices up and mortgage rates down.

However, if you are waiting for lower rates before you buy, don’t.  Most experts still believe that rates will go up, and likely this year.  One of the key drivers of mortgage rates is inflation, and with the Fed financing record stimulus packages by essentially printing money, inflation will come, it’s just a matter of time.  More money in circulation = lower currency values = more dollars to buy the same item.

Inflation is the arch-enemy of long term investments because it erodes returns, which means yields must rise (and mortgage rates with it).  Morgan Stanley predicted higher rates in 2010 and they are not alone in this opinion.

As soon as inflation arrives and/or the world economy appears to be stabalizing, bond prices will return to the levels we had  prior to November 25, 2008, which means rates back in the 6%’s at least.

What does all of this mean?

If  home values trend up, and mortgage rates do the same, you will certainly lose tens if not hundreds of thousands by waiting to  buy a home.  Even if home values drop more,  but rates go up, you will lose a significant amount of money by waiting.

The chart to the left shows the net savings of buying a home now vs. buying later, assuming a 1% increase in mortgage rates.  Column 2 assumes  that  home values continue to fall, and column 3 assumes  home values remain the same.

Note that your total after-tax mortgage payment will be higher at a 6% rate, even if home prices fall by 10% more.  If home values stay the same and rates go up by 1%, your after-tax mortgage payment will be $134/mo higher if you wait to buy and rates go up by 1%.

Even scarier- What if rates go up to 7.5%?  This is where Morgan Stanley predicted rates will be at the end of this year.

The net result?  You would lose over $140,000 over the life of your mortgage and your payment would be a staggering $353/ mo higher, and that is assuming home prices don’t go up.

Tax Advantages

All of this is not even taking into consideration the lost tax advantages you would lose over the months you are waiting to buy a home.  All of the mortgage interest over the next 6-12 months while you are waiting will not be available to you as a tax deduction  if you wait.

Why wait?

Home affordability is at an all time high, and with mortgage rates at extremely low levels and home values  deflated, it makes sense to buy a home now, even though the home buyer tax credit has expired.

It is impossible to time the market exactly at the bottom, and if we are not there, we are close.

Looking back on 2009, it appears that the average 30-year fixed mortgage rate was on a roller coaster ride.  The rate dipped below 5.0% for much of January, then it spiked up and down during the spring before taking a long drop to a near all-time low of 4.56% on November 30th.   

The roller coaster is headed back up again, and this time it may be a steep climb.  The Mortgage Bankers’ Association forecasts that 30-year mortgage rates will increase through 2010 to end the year at 5.7%.  Freddie Mac predicts an even grimmer future, expecting rates to get to 6.0% in 2010.  Morgan Stanley thinks they’ll go even higher to 7.5% or 8% … levels we haven’t seen since the year 2000.   

The reason?  The Federal Reserve’s program to buy $1.25 trillion in mortgage-backed securities has kept rates at artificially low levels in 2009.  However, the program is set to end in spring of 2010.  The recent climb in rates is due to the market reacting to this reality, with mortgage-backed securities traders anticipating the run-out of Fed funds.

What does this mean for borrowers?  If you’re thinking about buying a home or refinancing your existing mortgage, now might be the time to act.  Let’s compare a hypothetical mortgage today vs. one in the near future:

A $200,000 30-year fixed loan (assuming 20% down) today, when the average 30-year fixed rate is near 5.0%, would result in a monthly P&I payment of $1074.  Looking forward, if rates really do increase to 6.0% by the end of next year, this loan would result in a monthly P&I payment of $1199 –  $125 per month more expensive than today, or $45,000 more expensive over the life of the loan. 

If you want to make this same comparison on your own existing or dream home, just use this easy mortgage calculator.  Then, if you decide it’s time to buy or refinance, you can anonymously request custom loan quotes on Zillow.

Freddie Mac just released their quarterly Refinance Report, which shows that half of borrowers who refinanced a conventional loan during July-September 2009 lowered their mortgage rate by at least 17 percent, or 1.1 percentage points below their old rate.  The accumulated savings from all of these refinances amounts to $3 billion over the first year of the new loans.

What’s driving people to refinance their homes?  Historically low mortgage rates. 

Current mortgage rates are significantly lower than they were just a few months ago. Today’s average 30-year mortgage rate of 4.78 percent is now 77 basis points (or 14 percent) lower than it was in June, when the 30-year fixed mortgage rate was at 5.55 percent, the highest level this year.

That means that on a $200,000 loan (assuming a home value of $250,000), the monthly principal and interest payment would now be $1,046.91 versus $1,141.86 for the same loan in June, saving the borrower $94.95 per month, or $34,182.00 over the life of a 30-year loan.

If you are thinking about refinancing, now is a great time. An easy way to shop for a mortgage is through Zillow Mortgage Marketplace.

• Submit an anonymous loan request, and receive unlimited custom quotes from lenders.  On average, borrowers receive 26 quotes within seconds. 
• Sort and filter quotes by APR, rate, fees, monthly payment, lender rating, distance to the lender, or True Cost, which incorporates interest rate, fees, points, and time into one easy-to-compare number.
• Use the interactive Break-Even graph to determine how long you need to live in your home to offset the cost of refinancing.  This graph also show the cumulative savings that will occur over the life of the new loan.
• After comparing quotes side-by-side and reading lender reviews and ratings, you decide which lenders to contact…they don’t call you.

I have found that few things in life separate the sheep from the goats men from the boys efficient from the not-so-efficient like the free market does.

Earlier this week, I received an email from the people at Zillow saying that they were making changes to their Zillow mortgage marketplace and were going to start to charge lenders for each contact with borrowers and my first thought was:

“Well, this oughtta be fun to watch”.

I think it might be the social scientist in me that casually enjoys watching people squirm whenever a perceived “big change” is announced – whether it is a global, national, corporate or maybe even just a marketplace change.

It has been my experience that whenever change occurs, there is almost always a group of people who thinks change is “fun” – no matter what it is – and finds a way to adapt to the change and continue on with life. It has also been my experience that there is also a group of people who resist change and can’t figure out why they never end up on the good end of the changes.

If you enjoy seeing both sides (and everything in between), be sure to follow the debate about the recent changes Zillow announced and how people are reacting to them.

What This Change Means For You: The Consumer

If you are a consumer, be sure to put Zillow on your Holiday greeting card list. They did you a big favor by making sure that lenders are valuing your contact – in fact… they are making your interest and qualifications a “market”.

If you are interested in a loan to buy a home or refinance, have good credit, good income, good assets and want to buy a $500,000 house do you think you are more valuable to speak with than someone who has lousy credit, no money and wants to find out how to use the $8000 tax credit to buy a house?

Of course you are.

So now the lenders on the back end are going to be actually “bidding” for that interest and hoping that you contact them.  When you do contact them (hint: if I were you, I would contact one of the ones who has a stellar reputation), then they will be charged.

Just a hunch here, but I wouldn’t be surprised if Zillow doesn’t start out segmenting you as a customer and assigning a different value to you based on certain criteria, they will over time.  Which will only help the process.

I know, I know – it still remains to be seen just exactly how much money Zillow will be willing to pay lenders to talk with people who have lousy credit and no down payment (that was a joke) but one thing is almost certain:

Now that there is a price-tag that lenders are going to be paying each time you contact them – you as a consumer have an even higher chance of getting the best service from your loan officers working right here on Zillow.

Or, maybe I should say it like this: It seems to me that if a lender has to pay $100 for you to talk to him, you have a better chance of getting his/her full attention than if they didn’t have to pay anything for you to talk to them.

Or at least that is where I always try to put my mouth… where my money is.

Zillow Mortgage Marketplace recently launched a unique Break-Even Point graph on every loan quote borrowers receive from lenders.  This graph helps borrowers who want to refinance determine their “break-even” point, which is when they would start saving enough from a new loan to offset the costs of refinancing.

After anonymously submitting a refinance request, borrowers are presented with custom quotes from a network of thousands of lenders.  When borrowers click on an individual quote to get more information, they can view this new graph which indicates how long they need to live in their home to offset the costs refinancing.

In addition, the graph shows the cumulative savings that would occur over the entire life of the loan.  Borrowers can use the interactive feature to scroll across the graph to see the accumulated savings in each year.

On Zillow Mortgage Marketplace, the average borrower gets 24 quotes in 6 seconds.  With the launch of this new feature, Zillow calculates and creates an interactive Break-Even Point graph on each refinance quote instantly, something that would be very difficult for borrowers to do manually.

Given the historically low mortgage rates we’ve seen this year, refinancing a mortgage is something that many homeowners are considering right now.  This new graph helps borrowers quickly and easily compare the break-even point on all the refinance quotes they receive to determine which loans make the most financial sense for them.

If you are looking to refinance and want to try it out, submit a refinance loan request — anonymously — on Zillow Mortgage Marketplace.

President Barack Obama recently proposed that all lenders offer “plain vanilla” mortgages so consumers could understand the loan terms and the risks associated with the mortgages.  The proposal includes creating a Consumer Financial Protection Agency that would be responsible for these and other laws that help consumers make better decisions.   This proposal met strong opposition by the lending industry for trying to impose too many rules and limiting the flexibility of lenders.

“Under Obama’s plan, a new government agency would be established to monitor the fine print on such products as mortgages and credit cards. The Consumer Financial Protection Agency would require that lenders be up front about the cost of their products and offer customers a standard low-risk alternative.“

On Zillow Mortgage Marketplace we focus on consumer advocacy in a slightly different way.   Instead of limiting what lenders can do, our goal is to educate borrowers on the risks and benefits of each loan program so they can make the right decision themselves.  We have created a number of tools to educate consumers on how to compare mortgage types, analyze the risk associated with different loan programs, and find a trustworthy mortgage lender.

Here are some of the tools we built and why we think they are important:
•    Monthly Payment Graphs – each quote has a graph showing what the monthly payments will be over the life of the loan.  For adjustable rate mortgages, we always show the worst case scenario so borrowers can clearly see any risks associated with the mortgage.
•    True Cost – this calculation shows the interest and fees costs of all loans over any time period.  This helps borrowers compare prices for quotes across all of the different loan programs.
•    Comparison Page – compare all loan details in an apples-to-apples fashion across multiple quotes in one place.  Quotes are completely accurate and show all ARM details including margins, caps, and index.
•    Cumulative Costs Graphs – these graphs show the total cost of the loan over time so you can see how much you will end up paying in interest, insurance, and fees.
•    Lender Ratings – every lender on Zillow Mortgage Marketplace is held accountable for their actions and customer service through borrower ratings.
•    Mortgage Calculators and Help Articles – we created a whole library for consumers so they can figure out how much they can afford and the best way to repair their credit.

Helping consumers make better choices is extremely important to us.  If you have ideas for other tools or features that you think would help educate consumers, please let us know.

Refinance requests on Zillow Mortgage Marketplace are up 20% so far this month versus August.  The chart below shows that lower mortgage rates appear to be driving this spike in demand.

In an effort to continute to prop up the financial markets, the Federal Reserve’s policy-setting panel just announced that it plans to continue purchasing mortgage-backed securities into next year.  This activity should help to keep mortgage rates at low levels.

So with rates this low, now is a great time to see if it makes sense to refinance.

Zillow Mortgage Marketplace today launched two unique graphs and tables on every loan quote borrowers receive from lenders.  These graphs give borrowers an unprecedented amount of information presented in a dynamic, visual way that allows them to fully understand the details of each quote, including the makeup of payments over the life of the loan, and how much they will pay in cumulative costs over time. 

Payment Schedule 

The payment schedule graph shows the payment for the first month for every year of the loan. By hovering over any bar, borrowers can see how much of the monthly payment will go toward the principal, interest and mortgage insurance (if applicable). Clicking on any of these payments expands the year to display the complete monthly payments for that year. Clicking again returns borrowers to the year-by-year view.

Below the graph, a detailed amortization table lists the total monthly payment (also broken out by interest, principal, and mortgage insurance), the outstanding principal, and the interest rate for every month throughout the life of the loan. 

Cumulative Costs

The cumulative costs graph allows borrowers to see how their principal grows relative to the interest, fees and mortgage insurance over the life of the loan. Hovering over any year will give the cumulative costs paid up to that year.  This graph enables borrowers to see the grand total they will pay over time.  The table below the graph breaks down the costs paid each year throughout the life of the loan.

To use these graphs to find the right loan for you, simply submit a loan request on Zillow Mortgage Marketplace, and then click through to see the Quote Details on the quotes you receive from lenders.