Archive for September 24th, 2009

Is Comparison Shopping for a Mortgage Necessary?

When you’re looking for a mortgage,  everyone advises to “Shop around.” No one tells you to take the first loan, savings account or financial instrument you see. How can you make an informed decision until you’ve evaluated what’s available, and compared what you’re offered with what you could get elsewhere? Does the same generalization hold true for mortgage applications?

Mortgage brokers can save you the hassle of shopping around.

First and foremost, a good mortgage officer can save you the trouble of comparison shopping. A brokerage officer works as your liaison with one or more lenders to determine what type of mortgage you’re eligible to receive. When you find the right mortgage officer, you know you’re getting the best deal out there, without having to do all the legwork yourself. Go with the wrong mortgage officer, and you’ll only hear what he or she wants you to hear, so you may not get the best deal.

You can check with lenders without applying for a mortgage.

Whether or not you’re using a mortgage broker, you can still shop around without applying for a mortgage. Many lenders publish potential interest rates as an incentive to get buyers to inquire within. If you know the status of your credit score and your general credit-worthiness as a buyer, you can get a fair idea of what type of interest rate you’d be eligible for. For example, if you’ve got bad credit, you’re not getting the 4.25% interest rate that lenders are advertising.

However, if your credit is golden, you’ve got plenty of cash to put down, your income is high and your debts are low – you might just be the ideal borrower, and may be eligible to get rates close to the lenders’ low published rates. Use these rates as an index to evaluate where the market stands and what you’re likely to qualify for, and if the professional you finally utilize gives you something drastically different, you’ll know to ask why.

Equity Line Interest Rates Are Irrelevant

If you’re using your house to pay off your house, or to get out of debt, employing the mortgage acceleration and debt-reduction technique we advocate here at Equity Cycling, the interest rate on your line of credit is almost irrelevant. Sure, you still want to get the best rate possible, along with the other features of a HELOC that we recommend.

The myth is, “You can’t pay off a 6% mortgage with an 8% line of credit. That would be foolish.” We hear this all the time, but they’re wrong! Because of the difference between the way line-of-credit (HELOC, PLOC, SLOC, ALOC) interest is calculated (on the daily balance) versus the way mortgage interest is computed (on the total remaining balance as of last month), using your HELOC to pay off your home years and years earlier is not only feasible – regardless of the HELOC rate – it’s downright brilliant!

To find out how to employ the equity cycling technique, join in on our next mortgage acceleration and debt roll-down webinar.

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