What's My Rate?

Here's a secret about rate shopping: all loan officers worth their salt give "great rates" because, otherwise, we'd be out of business. Most mortgage rates are a commodity, after all, so their levels are set by the market -- not by the lender.
This is why home buyers would be well-served to get past "rate" and get onto the important stuff like choosing a responsible mortgage product, or choosing an appropriate structure.
When we get past the rate part of everything, it becomes clear that it actually matters from where a person gets those "great rates". This is because in the mortgage business, there's a well-known math formula:

(Great Rate) + (Poor Mortgage Structure) = (Financial Failure)

Now, to be candid for a minute -- if you've never had a quality mortgage experience, this formula reads like a complete crock, I know; structure is silly, right? Well, I understand that line of thinking so let me add an objection-killer to the mix:

Getting responsible mortgage planning advice comes at the same interest rate and with the same loan fees as getting no mortgage planning advice. And most times, it gets delivered for less.
People often overlook this point, thinking that loan officers are like lawyers, where more skill means a higher the "bill rate". This is false -- it actually works the other way. Truly great loan officers understand that the client-servicer relationship is a long-term one whereas struggling loan officers just "needs to make money fast".

The expert doesn't charge you more for his time because it's not the deal he's after -- it's the relationship. The expert knows that you'll need 8 mortgages or more in your lifetime and he wants to be the first phone call that you make on all of them; the average loan officer only focuses on the first one.

It's a counter-intuitive twist, but people usually get better advice at lower prices from experts than from run-of-the-mill loan officers. Remember, the experts don't have to pump up rates or fees to be profitable -- they have their big book of clients that assures them of it.

And so, just like that, we've changed the math formula we look at earlier to something better:

(Great Rate) + (Sound Mortgage Structure) = (Better Outcomes)

Now, for an added twist on the math, remember that "rate" and "structure" are only two parts of the mortgage process. They're two important parts, of course, but they're not the only parts. There's also what happens after the rate and structure are set.

And strangely, for as important as interest rate is to a lot of people, many of them tend to forget what their rate is shortly after locking it in. Instead, what they remember most from their mortgage is the process and what happened after their rate got locked.

Author's note: Next time you're with friends, you can test this theory. Ask a homeowner about their mortgage rate and they'll fumble. But, ask them about their mortgage experience and then watch what happens.

1) Were phone calls and emails returned immediately?

2) Were regular status updates delivered to everyone involved?
3) Did the money show up in time for the closing?
4) Did the final mortgage terms match the original agreement?

It's the answers to questions like these that define a person's mortgage experience.

In another way, comparing interest rates between lenders is like comparing menus between restaurants -- you never know how good the food really is until after you've eaten. It's no wonder that trendy restaurants fail at such a high rate; it's for the same reason that loan officers do. All packaging, no product.

So, because rate and fees are generally within a tight range from lender to lender, it tells us that home buyers may be better served to shop for expertise instead. And if you're not sure whether your loan officer is an expert in his field, chances are, he's not.

Expert loan officers will often give better service at a lower cost than their peers, and they'll also give you piece of mind for a smooth closing. And in the end, it's the latter part that matters most -- the lowest guaranteed rate doesn't matter a bit if the money never shows up at closing.

MY TAKE: This stuff is powerful. Do you want an amazing rate or do you want an amazing rate and the right loan program for you? Oh yeah, do you want money to be there at closing? Do you want a relationship with the lender or do you want to shop online until you are blue in the face and deal with a lender out of California or New York because they don't charge for an appraisal?

Kevin Wade

Cherry Creek Mortgage Company

970-243-7800 - Office

970-201-2310 - Cell

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