3 Screen Loan and Mortgage Rates





Screen Loan and Mortgage Rates

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Getting a great loan or mortgage rate is one of the easiest ways to free up some serious cash to fund your investments.

Buying a house may be the largest one-time investment you ever make, and the total interest you pay on your house mortgage is most likely into six-figure territory. Of course, you can save some money with astute housing research and tough negotiating, but you can save thousands of dollars quite easily just by finding a mortgage with a great rate, up-front points you can live with, and low fees. HSH Associates, an independent publisher of mortgage and consumer loan information, is truly a one-stop shop for saving thousands on your mortgage and other consumer loans. Their web site (http://www.hsh.com) includes articles and pamphlets that explain what you need to know to pick the right loan or mortgage, and calculators that turn your newfound knowledge into hard numbers. The HSH Mortgage Survey provides data, updated weekly in most cases, for mortgages available around the country. If your credit rating isn't as good as it could be [Hack #98], HSH also provides data for mortgages for borrowers with less than perfect credit.

1 Unraveling Mortgage Costs

A lower interest rate on a loan or mortgage means you pay less interest on the money you borrow. Sure, lower rates on consumer loans save you money, but the amount you typically borrow to buy a house and the longer terms for mortgages make the savings from lower rates quite dramatic. If you refinance your mortgage after interest rates drop significantly, as they have over the last several years, the savings can be extraordinary. Figure shows examples of how much you can save by lowering your mortgage interest rate on a 30-year fixed-rate mortgage.

Total savings on mortgage interest from lower interest rates

Refinanced mortgage amount

Interest saved when rate is reduced from 6 to 5 percent

Interest saved when rate is reduced from 9 to 5 percent

$100,000

$22,582.41

$96,408.36

$200,000

$45,164.81

$147,651.90

$400,000

$90,329.62

$295,303.81


Interest rates typically don't plummet in a short period of time, but drop over several years. Therefore, if you refinance from a 9 percent mortgage to one at 5 percent, the savings you achieve will be less than the amounts shown in Figure and decrease the longer you hold the original mortgage.


Of course, it's not just about interest rates. The real winner in a mortgage race depends on how long you own the house, your future financial situation, and, for some mortgages, the change in overall market rates—all of which are unknown when you have to choose your mortgage. It's frustrating, but you have to make your best guess and hope for the best.

The interest rate for a fixed-rate mortgage remains the same for the life of the loan, no matter where market interest rates go. To take advantage of lower rates, you can refinance and obtain a new mortgage with a lower rate, but there are always some expenses associated with a refinance. Adjustable-rate mortgages (ARMs) offer rates based on an index, such as the current rate for treasury bills. The interest rates for these mortgages increase and decrease as the corresponding index changes, so you obtain a lower rate automatically without refinancing when interest rates go down. Choosing an adjustable-rate mortgage is more complicated than picking its fixed-rate counterpart, because these mortgages include additional features that can affect how much you pay. For example, how much can the rate go up if rates begin to rise? When rates rise, how frequently does the mortgage rate increase and how much can it jump each time?

When interest rates are above average, adjustable-rate mortgages can save you money over the long term, because you'll pay less as the rates drop. However, be sure that you can afford the higher payments that the mortgage would require if rates jump up. When rates are very low, as they are now, fixed-rate mortgages are more attractive, because they lock in your low rate for the entire life of the loan.


If you can handle a higher monthly payment, a shorter term on a mortgage drastically cuts your total interest, because you don't borrow the money for as long a period. For example, a $100,000 15-year mortgage at 6 percent costs $63,943.96 less in interest than a 30-year mortgage at the same rate. The monthly payment increases from $599.55 to $843.86. If you're unsure of your ongoing ability to handle a higher payment, you can also save on mortgage interest by prepaying principal, which reduces the balance of money owed and shortens the life of the loan. Unlike a shorter-term mortgage, in which the monthly payment is required, you can prepay when you have extra cash and pay only the mortgage payment the rest of the time.

Most but not all mortgages allow prepayment of principal. If you plan to prepay, be sure to get a mortgage that you can prepay without additional fees.


The Pain of PMI

As a borrower, you might have to pay private mortgage insurance (PMI) if your down payment represents a smaller percentage of the house price than the lender requires. PMI is insurance that protects the lender if the borrower defaults on the mortgage. It can be quite costly. If you're close to the PMI percentage cutoff, look for lenders that accept lower PMI percentages or try to dig up more money for your down payment.

If you must use PMI to get your mortgage, keep tabs on your home equity level. When your equity in the house reaches the required percentage for down payment, you can cancel your policy. Many PMI policies don't include automatic cancellation provisions, which means that you must ask the lender to cancel your policy. Otherwise, the PMI company happily continues to accept the insurance premium that you no longer need to pay.


Mortgages come with all sorts of fees that can really add up, including discount points you can pay up-front to obtain a lower mortgage rate. After you find mortgage candidates, it's important to identify the mortgage that costs the least, taking interest and fees into account. In addition, when you pay fees and points up-front to refinance, you save money only if you own the house long enough that your cumulative interest savings exceed the fees and points you paid. For example, paying 2 points to drop a 6 percent rate to 5.5 percent means an up-front payment of $2,000 on a $100,000 mortgage. The lower rate saves you $31.76 a month, so you won't break even for 5 years.

To learn all the ins and outs of mortgages, you can read free articles online at the HSH web site or purchase their pamphlets (http://www.hsh.com/catalog.html#3primer). The cost of HSH pamphlets covers printing, shipping, and handling, so they are reasonably priced, particularly when you consider how much they may save you in the long run. The following articles and pamphlets highlight some of the information HSH provides:


The HSH Mortgage Glossary

Navigate to http://www.hsh.com/library.html and click the Mortgage Glossary link for this free online article that defines mortgage terms.


How to Shop for Your Mortgage

Navigate to http://www.hsh.com/hmk_toc.html to purchase this 56-page pamphlet ($10), which educates homebuyers about mortgages and includes how-to advice for getting the best deal. The pamphlet describes the types of loans available today, explains the options and features you can get, outlines the steps to picking the right loan, identifies factors that can save or cost you money, and provides tips for reducing up-front fees. In addition, it includes worksheets for determining your loan qualifications and monthly payments. You can also obtain the pamphlet when you purchase the Homebuyer's Mortgage Kit ($20 for the pamphlet and one weekly survey of mortgage data).


Ten Best Ways to Improve Your Mortgage Experience

Navigate to http://www.hsh.com/library.html and click the link for this free online article, which offers tips to make your mortgage process as smooth as possible.


A Homeowner's Guide to Prepaying Your Mortgage

Click the link on the HSH home page to purchase this pamphlet ($4), which explains the benefit of prepaying your mortgage and when it makes sense not to.


A Homeowner's Guide to Mortgage Refinancing

Click the link on the HSH home page to purchase this pamphlet ($4), which explains the costs and risks of refinancing your mortgage and how to refinance successfully.


A Homeowner's Guide to Private Mortgage Insurance

Click the link on the HSH home page to purchase this pamphlet ($4), which explains types of mortgage insurance, payment options, and cancellation procedures.


Learn How ARMs Work

Click the link on the HSH home page to read this free online article, which explains ARM features and how they work with indexes, why you would use an ARM, and who can benefit from them.


What to Do When Mortgage Rates Are Rising

Navigate to http://www.hsh.com/library.html and click the link for this free online article to learn ways to keep your mortgage rate low when interest rates are on the rise.

2 Screening Mortgages

Each weekly HSH Associates Mortgage Survey provides the current terms for all types of mortgages from more than 2,000 lenders nationwide. You can purchase one Mortgage Survey for $10 and receive a print version, or download a spreadsheet or plain-text file. To screen for mortgages, choose the email delivery option and the spreadsheet format (either Excel 5.0, which corresponds to Office 97, or Lotus 1-2-3).

The HSH Homebuyer's Mortgage Kit ($20) includes one weekly HSH Mortgage Survey and the 56-page How to Shop for Your Mortgage pamphlet. The first time you use HSH, purchase the Homebuyer's Mortgage Kit. When you buy another house or refinance, purchase only the Mortgage Survey.


Every HSH Mortgage Survey includes the following fields:

Loan type
Amortization term
Lender name
City and state
Phone number
Down payment
Interest rate or initial interest rate for adjustable-rate mortgages
Discount points
Origination points
A.P.R.
Maximum loan amount
Application fee
Rate lock time
Lock-in period
Adjustment term (adjustable-rate mortgage)
Per-adjustment cap (adjustable-rate mortgage)
Life cap (adjustable-rate mortgage)
Index on which the rate is based (adjustable-rate mortgage)

The A.P.R. (Annual Percentage Rate) is the effective mortgage rate that represents the total cost of the mortgage including fees and points. If you want to compare mortgages with varying fees and points, use A.P.R. to find the lowest cost mortgage.


After you receive your Mortgage Survey spreadsheet, you can use the features in your spreadsheet application, such as AutoFilter in Microsoft Excel, to filter out mortgages that don't meet your needs. For example, if your ready cash is limited, look for mortgages with no points and down payments less than 20 percent. If you simply want to find the 15-year fixed-rate mortgage with the lowest interest rate, filter for CON in the Type column (a conventional mortgage, not an ARM), 15 in the TERM column, and look for the lowest value in the A.P.R. column.

The criteria you use for screening depends on your circumstances. If you don't know what to look for, read the How to Shop for Your Mortgage pamphlet first.


To filter an HSH Mortgage Survey using Excel for the lowest rate on a 15-year mortgage, follow these steps:

  1. Open the Mortgage Survey in Excel.

  2. Select the column ID for the Type column and choose DataFilterAutoFilter.

  3. Click the AutoFilter arrow in the Type header cell and choose Custom from the drop-down menu.

  4. In the Custom AutoFilter dialog box, keep equals as the test, and type CON for the test value.

  5. To filter for 15-year mortgages, apply AutoFilter to the TERM column. In the Custom AutoFilter dialog box, select "is less than" in the test drop-down list and type 15 for the test value.

  6. To sort the mortgages by interest rate, choose DataSort. In the Sort dialog box, select A.P.R. in the Sort By drop-down list, ensure that the Ascending option is selected, and click OK.

3 HSH Calculators

HSH Associates provides numerous online and downloadable calculators to identify what you can afford, calculate monthly payments and interest for potential mortgages, or determine how long it will take to recoup refinancing fees. Navigate to http://www.hsh.com/calculators.html and click the following links to crunch mortgage numbers:


Credit Grade Calculator

If your credit is less than perfect, use this calculator to estimate your credit score before you start looking for an impaired credit mortgage.

The HSH site separates mortgages into Perfect Credit and Bruised Credit categories. If your credit is less than perfect, you'll have to pay higher rates than someone with perfect credit, but HSH can still help you find the lowest possible rate.



The Payment & Amortization Schedule Calculator

This calculator figures out the monthly payment, the amortization schedule using monthly or bi-weekly payments, and the total interest you would pay over the life of a mortgage. You can specify prepayments you plan to make to calculate how much you would save by prepaying your mortgage.


The Refinance Calculator

Use this online calculator to compare an existing mortgage to a replacement mortgage, and calculate your new monthly payment and the number of months to recover the closing costs for the new mortgage.


The Income Qualification Calculator

Find out much income you need to qualify for a specific monthly payment.


How Much House Can You Afford?

Determine the house price you can afford based on your income, current credit payments, down payment, and mortgage terms.


The HSH Home Buyer's Calculator

This downloadable tool is top-notch. What's more, it's free and runs on Windows 95 through Windows XP. Its 10 functions include calculating the loan amount for which you qualify, comparing the effect of different interest rates side by side, comparing refinance deals, comparing renting versus buying, estimating closing costs, and calculating the savings you can achieve by making biweekly payments or prepaying principal on your loan. It also includes a more robust version of the online Payment & Amortization Schedule Calculator. It includes additional features, such as sample text for closing credit accounts to clean up your credit reports, a Documentation List to help you collect the paperwork you'll need, and a Home Inspection form for evaluating houses. Because this program runs on your computer, data entry is easier and faster and you obtain results more quickly.


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