Is Rate Really The Most Important Thing When Choosing a Mortgage?
By Paul Esajian on April 7, 2014
Getting a mortgage can be a very overwhelming experience. In addition to the massive amount of paperwork needed – if you are fortunate to have options – there can be quite a few to choose from. Between deciding on the right lender, trying to find the lowest rate and working towards closing by your deadline, there is a lot going on in the mortgage process. While everyone is obsessed with getting the lowest possible interest rate and the best possible deal, the interest rate may not be the most important factor. Before deciding to go with the company with the lowest rate, there are a few things to consider.
There are a few questions you need to ask yourself before you get started with your mortgage. How long do I intend to hold the property for, how quickly do I need to close and does my loan require special attention? Not all loans and deals are created equally. How long you intend to keep the property and the loan is the most important guide you will have in choosing the right loan and loan officer. If you have a three to five year plan with the property, the rate on a 30 year mortgage should not be your biggest factor. The reality is that if your loan size is not over $200,000, the change in payment of a quarter point is less than $20 a month. Of course, money is money and every dollar is important, but there are other factors to think about.
Knowing that you have a relatively short term approach with the property, your primary goal should be to get approved and get the deal closed. Not every lender is equipped to handle investment property loans. You want to work with a lender that knows the process or has outlets for investment programs. Working with a lender or broker that has a slightly higher interest rate, but can get your deal closed is a good trade off in your situation. If you have ever been working on a loan only to get call a week before you are supposed to close asking for new documentation or even worse telling you there is a problem you know this is not a good feeling. The extra money from the higher rate is worth it to work with someone that you feel confident in can close your loan.
As an investor, a local lender can handle certain types of loans but a broker may have more options for you. In today’s market most of the fees are either predetermined, capped at a certain number or within 1-2% of everyone else’s. The same applies to interest rates leaving the ultimate decision maker who can close and who you feel comfortable with. There will be a lot of paperwork regardless of which company you work with and there may even be some unexpected items needed once you get started. This is the new normal but you should also feel that whoever you work with has your best interests in mind and knows what they are doing.
On larger loan sizes, interest rates become more important, but for most purchases the interest rate should not be the most important thing. Go with someone who can close your loan and offer the path of lease resistance.