RE/MAX Real Estate Guide and FAQ - Questions and Answers for Real Estate Mortgages and Financing.
RE/MAX Valley Real Estate, Boardman, Ohio

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RE/MAX Valley Real Estate

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RE/MAX
Valley  Real Estate
1006 Boardman - Canfield Rd.
Boardman, Ohio
(330) 629-9200

RE/MAX Real Estate FAQ - Buying Your Home, Working With A Real Estate Agent

Your Mortgage - Questions and Answers
'Interest Rates'

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What Are interest rates anyway?
Interest rates receive a lot of attention in the media but how are they determined? What do they do?

See >> An Introduction to Interest and Interest Rates.

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Are interest rates negotiable?
Yes. Armed with good credit, you can, indeed, negotiate for a lower interest rate, lower fees, or both. But you should realize that interest rates and fees (points) are joined at the hip. A lower interest rate will generally result in higher fees and vice versa. Your lender must pay someone for the money he borrows to loan you, so there isn't a whole lot of room to maneuver. Therefore, look at the whole picture. A fantastic interest rate with higher points and a laundry list of administrative fees is no bargain.

However, don't overlook negotiating down or eliminating those discretionary charges such as administrative fees, processing fees, wire transfer fees, delivery fees, and on and on. Many of these fees can be eliminated simply by asking. Nit pick! Ask your lender to explain every single fee s(he) says s(he) needs to charge you, and whine loudly about all of them.

The bottom line is that most people put far more effort into haggling a deal on a used car than they do the most expensive item they will ever buy, their home. It pays to shop around for loan rates and know the market before you go in to talk to a lender. Information is power. Check the growing number of Internet sites that publish comparable interest rates. Always look at the combination of interest rate, points, and discretionary fees to get the best deal possible.

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Where are interest rates currently?
This weeks survey results .

Each week, usually on Thursday, Freddie Mac publishes its Primary Mortgage Market Survey® (PMMS®). This is a weekly survey of hundreds of bona fide lenders from around the nation asking each for the current rates, fees and points they are charging for their most popular 30-year fixed-rate, 15-year fixed-rate, 5-year adjustable-rate, and 1-year amortizing adjustable rate mortgage loans. The survey is based on first-lien prime conventional conforming mortgages with a loan-to-value of 80 percent. In addition, the adjustable-rate mortgage (ARM) products are indexed to constant-maturity U.S. Treasury rates and lenders are asked for the both the initial coupon rate and points as well as the margin on the ARM products.

It is important to remember that this is an average and not an official GSE pronouncement of what the 'official' interest rate should be. It may or not reflect exactly what your lender has or is currently charging, as each lender is free to set his own rates.

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Where are interest rates headed?
At any one time, no one knows for sure where rates are headed. Beyond public policies put in place by the Federal Reserve Board, there are no laws that govern mortgage rates. Historically, usury laws were used to prevent lenders from charging sky-high interest rates when lending money. But in some states where there are usury laws, banks, thrifts and a number of other financial institutions are exempt from the law.

Today, interest rates are governed solely by the financial markets and by Federal Reserve Board action, neither of which can be predicted with absolute certainty.

See also:

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What is APR?
APR is an acronym for Annual Percentage Rate. The Annual Percentage Rate is the relative total cost of credit as determined in accordance with Regulation Z of the Federal Reserve Board for implementing the federal Truth-in-Lending Act.

The APR is the actual total yearly interest rate paid by the borrower, figuring in the points charged to originate the loan and other costs. The APR discloses the real cost of borrowing by adding on the points and by factoring in the assumption that the points will be paid off incrementally over the term of the loan. The APR is usually about 0.5 percent higher than the actual note rate.

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How do you choose between fixed and adjustable rates?
There is risk involved in selecting an adjustable rate mortgage, or ARM, because rates may go up. On the other hand, a fixed-rate loan offers good protection against rising interest rates but the borrower is normally stuck with the initial rate if interest rates drop (most ARMs are written so that interest rates can rise but never fall below the initial rate).  Statistics show that home buyers who have chosen ARMs since 1981 have saved thousands of dollars.

For a period, the percentage of home buyers applying for ARMs rose substantially, then buyers and homeowners began flocking to fixed-rate loans when interest rates fell in the late 90's. Then, because of the higher price of housing,  from 2000 to 2006 ARMs again became the darling of the mortgage industry. borrowers could buy 'more' house with an ARM. A portion of the blame for the mortgage melt-down of 2007 is the fact the higher interest rate on ARMs began to set, and the higher mortgage payments could not be met.  

Despite the bad press given to ARMs in recent months, the truth is they can be an invaluable investment tool when used wisely and with discretion. Because of initial lower payments, if you're planning on moving within three or four years, an ARM makes sense even if rates do nothing but rise during that period of time.

Whether to opt for a fixed or adjustable rate mortgage isn't just a matter of personal choice, it's a matter of taking a calculated risk. The difficult part is to assess that risk and decide if it's worth taking. RE/MAX Valley's Home Buyer's Top Ten Tool #6, our (Fixed vs. Adjustable Rate Calculator) and our (ARMs Payment Calculator), will help you decide which is the best option for you and your family.

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How do adjustable-rate loans change?
Adjustable rate mortgages go up and down with the rise and fall of  interest rates. Every ARM is pegged to one or several money market indexes which quantify the cost of funds to lenders. Several popular indexes include Treasury Securities, Cost of Funds Index (COFI), Certificates of Depositt, and Libor  (London inter-bank offering rate).  Most big city newspapers publish ARM index rates.

The change in the ARM interest rate index and payment adjustments do not always coincide since there will always be lag time involved. When and how often an ARM is adjusted depends on your mortgage contract, but most will adjust semi-annually or even quarterly.  There are a variety of consumer protections built into these loans. But consumers need to beware of advertising and other claims made by lenders.

Resources:

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What are the most popular ARM indices?
Among the most common ARM indexes are the:

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Where do I get information on correcting loan payments and monitoring my ARM loan?
See>> Real Estate Guide: Resources - Arm payment and monitoring information.
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Where can I get adjustable-rate loan info?
"Consumer Handbook on Adjustable Rate Mortgages," Publications and Educational Resources, The Board of Governors, Federal Reserve System.

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How do you get a low-interest rate loan?

Price discounts and interest rate buydowns are common incentives most often offered by new-home builders trying to overcome slow sales. Buy-downs are a financing technique used to reduce the monthly payment for the borrower during the first 2 or 3 years of the loan.

Under some buy-down plans, a residential developer, builder, or the seller will make subsidy payments (in the form of points) to the lender that "buy down," or lower, the effective interest rate paid by the home buyer.

Some state or municipal agencies, too,  will often sponsor lower rate loans that are lowered by means of a buy down. But to qualify, borrowers usually must be a first-time home buyer and meet income limits based on the median income level of their county.

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What are the interest rates for FHA and VA loans?

There are no set interest rates for FHA and VA loans. The FHA stopped regulating rates in 1983 and the VA followed suit soon after. Shop around for the best rate.

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How are the rates set for seller financing?

See >> Real Estate Guide: Your Mortgage - Seller Financing, How do you set rates for seller financing?

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What is the value of a mortgage lock-in?

See >> Real Estate Guide: Your Mortgage - Lock-ins, What is the value of a lock in.

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