June 16, 2022
When the Fed meets to set monetary policy, it has the option to raise or lower the nation’s interest rates.
That is a move that can directly affect some areas of the finance sector such as credit cards, but it indirectly affects mortgage loan interest rates. The Fed’s actions don’t actually change mortgage rates.
Investor behavior in reaction to the Fed’s announcements, on the other hand, do have the potential to affect mortgage rates. The rate you are offered by the lender tomorrow may be affected by news and developments in the markets today.
But that’s not the only factor that can affect the interest rate you are offered.
At this stage for many mortgage-focused blogs, a conversation about FICO scores goes right here. It’s true that your credit scores will help the lender determine what interest rate to offer you.
The better your scores, the lower the risk to the lender. And that can translate into a more generous interest rate offer.
Your FICO scores aren’t the only factor to consider when you decide about a lender’s offer. What happens when you get into an uncertain interest rate environment? In a given week where rates go up one day, down a bit the next, then flatten, then go up, then down, etc. what is a borrower to think?
Lenders may or may not try to keep up with such changes in the rate itself. The rate you are offered may reflect rising rates or the lender might offer you a number that seems a bit lower than you expect. Does that mean the lender isn’t profit-taking somewhere else? No, it does not.
If you are offered a rate that’s lower than you expected, be sure to ask the lender whether there are higher closing costs as a result.
Those higher costs could be the trade-off, but does that trade make sense for you financially? You may need to run the numbers and see. Sometimes it does, and other times it may not make sense.
That is one of the little secrets of buying a home with a mortgage loan. Much like buying a used car, the lender will find a way to profit in one area of the loan or another.
Comparing lenders and options with this in mind could open a whole new way of thinking about shopping around for your mortgage.
You’ll want to compare interest rates AND closing costs for a variety of lenders.
Do you know how much your loan will cost you over the full term of the mortgage under the terms offered? Those closing costs and interest rate issues and their importance may vary depending on whether your priority is a lower monthly payment or saving money over the term of the mortgage.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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