Adjustable-Rate Mortgage Indexes Are Easy to Follow; Fixed-Rate Ones Are Not.
One difference, however, between a fixed-rate and an adjustable-rate mortgage is that the indexes used for adjustable-rate mortgages are widely available to the general public; they are probably listed in your newspaper right now if you look for them. Common adjustable-rate indexes are the one-year Treasury index, the six-month Treasury, six-month LIBOR (London Interbank Offered Rate), and six-month CD—practically any universally traded index could be used to set an adjustable rate.
When Getting Rate Quotes, Get Quotes on the Exact Same Rate, Term, and Type.
If a lender is not competitive on your loan program, she'll steer you in another direction.
While the APR is a useful tool for comparing rates and fees from different lenders, it's really effective only when comparing loans that are exactly alike. A 30-year mortgage from Blue Bank can be compared with a 30-year mortgage from Red Bank, but not with a 15-year mortgage from Yellow Bank.
An APR of 5.125 percent on a 15-year loan is incomprehensible when compared to an APR of 6.36 percent on a 30-year loan. And don't even think about comparing adjustable-rate mortgages with fixed rates.
If you've decided which loan program you want, use that loan program to get rate quotes, and stick to it. Don't change. Changing the program is the oldest trick in the loan officer's book. If you call to get a rate quote for a 15-year fixed-rate loan, but the loan officer suggests other programs instead, then you'll know what's going on.
"Hi, I'd like to get your rate quote today for a 15-year fixed rate, please," you say.
"Sure, but first let me ask you a few questions. Are you going to keep this property for a long time, or might you sell in a few years?" she inquires.
"I'm really not sure," you say.
"Well then, we can reduce your monthly payments while still allowing you to pay down that principal, which, since you want a 15-year fixed, is what you're trying to do, right?" she says.
"Yes, that's right," you reply.
"Well, I suggest a better approach. How about a 25-year fixed rate that allows you to make extra payments with no penalty? Your payments are lower, your principal can be paid down more quickly, and you have the option each month of doing either. How does that sound?"
"Sounds great!" you say.
Does this make the loan officer sound like a used-car salesperson? It might, but remember, loan officers don't eat unless they sell, and if they provide you with another alternative that works in your best interest, then why not, right?
Of course, more choices can be better. But if you do get a rate quote from that loan officer with the 25-year fixed rate, you'd better get back on the phone to the other companies you've already spoken with and get their quotes on a 25-year loan.
When you change loan programs in midstream, you've lost. You're no longer in control. You must, absolutely, decide which loan program you want before you go mortgage hunting.