10 Myths About Mortgages
10 Myths about Mortgages
There’s a lot of talk out there about mortgages in general, so we wanted to take a chance to follow up on the ten most common myths we hear about mortgages. See something you’re curious about? Give us a shout and we’d be happy to clear something up for you!
#1 – Borrowers will keep their loan for 30 years so the rate is extremely important.
This is something we like to discuss particularly thoroughly with first time homebuyers, because they are typically convinced that they will keep their mortgage forever. Spoiler alert, nobody does. One average, people typically hold their mortgages for anywhere from 4-7 years because they either move, refinance into a lower rate, need cashout, or simply pay off their mortgages.
#2 – The Fed controls mortgage rates.
The Fed only controls the short term Fed Funds Rate, it does NOT control long-term rates. Other factors such as inflation, supply and demand for mortgages, and economic-growth signals influence long-term rates. In addition, other institutions outside of normal banking channels (such as VC firms and credit card issuers) also influence rates.
#3 – There is one mortgage rate for everyone
There are at least 12 different factors that impact your mortgage rate, not just one. The impact of the factors such as low credit scores, multiple units, and cash out are now more significant than ever for some types of loans.
#4 – Borrowers can find the lowest rate by constantly shopping.
It is true that borrowers can always find a lower rate somewhere at any given time, but it will never remain the lowest rate. This is because the market moves every day, and also because there are some unscrupulous lenders that quote rates during the pre-approval process that they often can’t deliver on.
#5 – Interest rates are the most important thing when shopping for mortgages.
As much as we hate to say it,we’ve come across many lenders tend to over promise and under perform. We like to remind borrowers to ALWAYS check a lender’s reviews, especially from a credible source that cannot be filtered or manipulated in any way. (You can check out our reviews here). There are also plenty of services that a lender can provide after the loan closes too, such as home valuation updates (i.e. Homebot), interest rate monitoring, and even moving assistance.
#6 – Low rates are necessary to keep the housing market strong.
Low rates definitely help the housing market, but it does not clearly correlate to rising prices. There are numerous periods of time where both the rates and the housing prices edged up at the same time. Today is the perfect example for this, as rates have risen ¾% in recent months and the housing market remains stronger than ever.
#7 – Low rates are good for the economy.
Low rates are great for those of us in real estate and the mortgage industry, but not so much for the economy overall. Excessively low rates are horrible for pension funds, retirees, and savers because their returns are diminished or wiped out altogether. Low rates also foster misallocations of capital, as companies and governments alike take advantage of low rates to borrow on the cheap in order to finance projects they might not otherwise touch. Finally, very low rates foster more inequality, excessive/unsustainable consumption and asset bubbles.
#8 – Lenders control the rates they quote and quote higher rates just to make more money.
Lenders can of course control the rates they quote to some extend by adjusting the amount of money they want to make on each loan, and lenders do make more money when they quote higher rates. BUT – lenders cannot control the market overall and must quote higher rates when rates go up overall – or they will lose money. Many borrowers get frustrated when rates go up after they’re pre-approved because they think we either “baited and switched” them or that we are just being greedy. The fact of the matter is that we often make less money when rates go up because we have to get special rate concessions (for regulatory reasons) to keep clients happy and/or to ensure they can get a low enough rate to keep payments within qualifying range. Most lenders can never simply change their rates from day to day to make more money because regulations force them to set established margins (profits per loan) that they have to maintain over a set period of time.
#9 – You can “time” the market and/or catch bottoms.
Borrowers often ask to wait and lock when rates bottom out, but NOBODY has a clue as to what rates will doon any given day because so many unknown factors affect interest rates overall.These factors include supply and demand for mortgages, geopolitical situations, economic signals, central bank policies and comments, and much more.
#10 – The rates quoted in the news reflect the current market.
Many news sources rely on surveys that various entities (like Freddie Mac) perform on a regular basis. These surveys, however, often reflect market data that can be as much as a weekold. Because interest rates change every day, press reports can sometimes be ridiculously outdated and inaccurate.
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