Home Buyer Beware – Part 6

  We have covered the A.P.R. and gimmicks so it is time to look at rates.  The rate will determine the amount of money your loan will cost over its term.  We as consumers will feel this in the monthly payment. 

  This is often the single largest item that is the most misunderstood.  I am often total “the Stock Market went up so rates should be good.”  Well if that was only the case, the average person does not even realize that the Stock Market has no direct effect on Mortgage rates.  Yes the Stock Market can have a huge run up and there are some in direct effects but it is due to investor’s pulling their money from the Bond Market.  I assume that everyone has heard the term “Mortgage Backed Security.” Mortgage Backed Securities or MBS’s are just what the name implies.  A mortgage – backed by – a security.  The mortgage is your loan and the loan is backed by the security of your property. 

  MBS’s are traded in a similar fashion to stocks on their own exchange.  We all know about the DOW.  The DOW is the most talked about indicator that the Media uses to determine how good the Stock Market is doing.  What the media rarely talks about is the DOW is made up of only 30 companies and if any one of them begins to under perform then they will be replaced.  So this makes the DOW subjective at best.  A better indicator would be the S & P 500.  The Bond Market does not have this equalizer.  This is why there are the swings in terms of rates. 

  Most people ask the question what are the rates today.  Well the rates are the same everyday.  What most people do not realize is that rates never change.  What changes is the cost for a specific rate.  So the real question should be ask as “what is the par rate today.”  The PAR rate is the rate at which there is not a cost or a rebate for a particular rate. 

  Banks and Brokers often make loan offers where there are no fees, as we discussed earlier.  They can absorb the fees because they up sell the rate and the Lender offers a rebate.  This rebate is a percentage of the total loan amount that is paid as compensation.  It is this compensation money that is used to pay the fees.  You really did not think you were getting something for nothing, did you?  All loans have fees no if’s, and’s or but’s about it there will be fees!  No business can survive without these fees because they have to keep the lights on and pay their staffs. 

  As indicated earlier to not be charged fees means that you will pay a higher rate which will cost you more money every month, Common Sense.  Now there are always times when it makes sense to do a no fee loan such as, you will only be in a property for a limited amount of time, less than five years for example.  But long-term a no fee loan is not your best move.    


Stay Tuned…. 


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