Shopping for mortgage rates

Shopping for Mortgage Rates
Shashank Shekhar
CEO, Arcus Lending

About Arcus Lending
• Arcus Lending is Mortgage Lender based in San Jose,
California
• Products Offered: Residential Mortgages- FHA,
Conventional, VA, 203K, HARP, HomePath, Reverse
Mortgage, CHDAP, 80/10/10
• Geography Served: California, Washington and
Oregon
• What are they known for: Legendary customer
service, quick closing and rates that are consistently
better than the leading banks
29/17/2013 Arcus Lending

Ab About Shashank Shekhar
• Shashank is the Founder and CEO of Arcus Lending
• An Amazon.com Best-selling Author, Shashank is
widely regarded as California’s #1 Mortgage Expert
• He is a National speaker, and a blogger who is
frequently tapped for his expertise by various
national and local media including FOX, CBS, ABC and
NBC

• The information contained within this document
is for educational purposes only. Every attempt
has been made to provide accurate, up to date,
reliable and complete information. No
warranties of any kind are expressed or implied.
Readers acknowledge that the author is not
engaging in rendering legal, financial or
professional advice.
Disclaimer

Agenda
• Where do mortgage rates come from?
• What is LLPA and how does it impact you?
• What are the factors that impact mortgage rates?
• Why a borrower may not qualify for the lowest
advertised rates?
• Should a borrower pay points to get a better rate?
• The #1 advice you can ever get on rate shopping

Where Do Mortgage Rates Come From?
• Mortgage rates are based on Mortgage Backed
Securities (MBS).
• MBS is a kind of a bond that trades on Wall Street
every trading day. If there is more demand for MBS,
the price of MBS goes up and mortgage rates go
down. If there is less demand, then the inverse
happens and the rates go up.

• The price of MBS gets impacted by several factors,
but most importantly macro economic news. Better
economic news usually means good news for stock
market and bad news for bonds. For example when
unemployment news is reported better than
expected (meaning more jobs are created),MBS
prices go down.
• Bottom line–better economic news is bad for
mortgage rates.

• It’s a common misconception that the Fed sets the
mortgage rates.
• While Fed’s policies may have an overall impact on
rates, it doesn’t control the day-to-day changes to
mortgage rates.
• So even though Fed some times doesn’t change the
rates for several months or even years, mortgage
rates can change on a daily basis.

Where do mortgage rates come from?
• Mortgage rates and fees are determined on a theory
called “Risk Based Pricing.” If a borrower is perceived
to be a bigger risk, he might need to pay a higher
rate and/or a higher fees.

Understanding Loan Level Price Adjustment
• Loan Level Price Adjustment (LLPA) is adjustment to
the rate/fees charged to a borrower based on his/her
credit qualifications. This applies to conventional
loans backed by Fannie Mae/Freddie Mac.
• LLPAs are assessed based upon certain eligibility or
other loan features, such as credit score, loan
purpose, occupancy, number of units, product type,
etc.

• Credit Score–For conventional mortgages 740+ is
considered an excellent score.
• Any score under 740 can result in higher cost or fees.
• Assume a borrower’s credit score is 719. If he/she is
getting a loan amount of $400,000 with 20% down,
he/she will pay a fees of $3000 extra compared to
someone with a 740 score (see chart on slide 13).

• Loan to Value Ratio (LTV)–Higher LTVs mean higher
rates.
• So if a borrower is getting a loan with as much as
40% down payment, he/she should get better rates
than someone who only has 10% down.
• Again, assuming a 719 score, that would mean a
difference in cost of 1.25% or $5,000 for a $400,000
loan amount. (see chart on the next slide)

• Loan Program–Fixed rate mortgages would typically have
higher rates than an Adjustable Rate Mortgage (ARM)
• Occupancy Type–A primary residence or second home would
get a better rate than an investment property
• Property Type–A condominium with less than 25% down
payment will have a higher rate than a single family residence

• Loan Amount–The conforming loan limit is $417,000. But in
some high cost areas like San Jose, CA the loan limit is
$625,500. But the rates are higher on loan amounts over
$417,000. Call us to learn about conventional loan limits

• Subordinate Financing–If a borrower is getting a second
mortgage along with the first, he/she may end up paying a
higher rate on the first.(See chart below)
• You can see how sometimes even a small difference in
qualifying criteria could result in a significantly higher rates
and/or fees. Usually the advertised rate assumes best case
scenario- 40% down payment,740+ credit etc. Most of the
borrowers normally don’t qualify for those rates 159/17/2013 Arcus Lending

Questions to Ask A Lender When Shopping
Rates
• What’s the duration of Lock period?
• Make sure that when you are quoted a rate, you are
asking the broker what the lock duration is. Make
sure that lock period allows you enough time to
complete your purchase transaction.
• Also, ask for lock extension policy. What happens if
the lock expires and the loan hasn’t closed? How
much is the lock extension fees and who pays for it?

Rates
• Do you know what impacts mortgage rates?
It’s important you work with a Loan Officer who
knows what impacts mortgage rates and how they
can change on a daily basis.

Rates
• How would you advise me when is the right time to
lock?
Check with the Loan Officer if the/she tracks the
MBS live. Even a small change of 12 basis points can
impact the rate a borrower qualifies for. If the Loan
Officer doesn’t track MBS live, he/she may not be
able to advise of the right time to lock the rate.

Rates
• Which of the estimated fees can increase at closing?
The loan officer will provide you with a Good Faith
Estimate (GFE) with details of your closing costs. But
it’s just an estimate and can change at closing. So,
ask the loan officer to explain every single item on
the GFE and ask which ones can increase at closing.
Understand why they would increase and by how
much they can increase.

Should You Pay Points or Not?
• Points are up front fees paid to obtain a better
interest rate on a loan.
• One point equals one percent of the loan amount. A
lower interest rate may result in a lower monthly
payment, but it is important to consider how long
you intend to be in the loan, and to compare current
rates to historical market trends.

• If you take out a $300,000 mortgage and decide to
pay one point, this translates into an up-front closing
cost of $3,000.Paying a point upfront saves $100 a
month but it will take 30 months to recuperate the
cost of that point.
• If you decide to refinance or sell the home before the
30-month mark, your money is lost. In this case, you
would benefit financially by remaining in the home
longer than the 30 months

• Rates run in cycles. When rates are at historical lows,
it is sensible to pay points if you plan to live in the
home for an extended period of time. It is unlikely
that rates will go down; hence, there will be no need
to refinance.
• When rates are up, there is a strong likelihood that
they will come down. This is no time to pay points.
The chances of refinancing in the future are
extremely high, and you will likely not be in the loan
long enough to recuperate the cost of the points

• When you shop different lenders you get several
interest rate and cost options. Sometimes it can be
very easy to compare them.
• See the example below:
– Lender1–Rate Quote–4.5%,Loan Fees-$1,000
– Lender2–Rate Quote–4.5%,LoanFees-$2,000
– Lender3–Rate Quote–4.5%,LoanFees-$3,000
• In this case ,it’s easy to figure out that Lender1 is an
obvious choice. At other times, it can be very
confusing to find out which one is the best option.
How to Compare Mortgage Rates?

• Let’s take a look at an example below:
– Lender2–Rate Quote–4.625%,Loan Fees-$1000
• Annual Percentage Rate (APR) was introduced to
make rate comparisons easy. But, different lenders
calculate APR differently.

Here’s an easy way to rate shop, so that it’s really easy to
compare different rate quotes:
Do not just compare rates, compare fees as well
A lot of borrowers make a simple mistake –they call
different lenders and compare the rates offered. They
forget to ask for their fees. A lender with a lower rate
could still turn out to be more expensive if their fees are
significantly higher than someone with only a slightly
higher rate.
1

Ask all the lenders to quote the same closing cost
For example, ask them to give a rate with $2000
closing cost. If you are looking for a no cost
refinance, ask for all quotes with zero cost. That
way, all you have to do is compare the rates.
2

Shop mortgage rates in a very short period, ideally
within couple of hours.
Mortgage rates change frequently. You should be
shopping with different lenders when the MBS is
trading at the same level. Else, you won’t be
comparing apples to apples. If you shopped with
Lender A on Monday and Lender B on Tuesday, the
market may be very different.
3

Don’t always go with the lender with lowest rates.
This may shock you, but it’s true
Bait and Switch technique–Sometimes when it’s too
good to be true, it’s exactly that. Some lenders will
rope you in with non-existent rates and then change
the terms of the deal as you move forward with the
loan process
4

• Bad reputation of lowest priced lenders – Most of
the lenders who advertise the lowest rates, have very
bad reputation. Don’t just look at their rates, be sure
to also check their rating with the Better Business
Bureau

• Closing turn times – Most of the purchase contracts
are good for 30 days. That means you need to close
the transaction within that time period. Make sure
the lender you are going with, will be able to close
the transaction within that time.
• Ask them to break it down with turn times for
different steps of the loan process and then have
couple of days of cushion.

• Accessibility – You need to work with a lender that
works beyond 9am–5pm Mon-Fri.
• It’s going to be one the most important financial
transaction of your life and you want to make sure
you are working with someone who is accessible
after hours. If you are a First Time Home Buyer, this is
especially important.

• Check on Lender’s Expertise and Credibility -
Consider the expertise and credibility of the
mortgage lender. Google them to see if they have
been covered favorably in media. Check their Yelp
and Google+ rating and read client reviews.
• A well-versed consultant will ask you many questions
about your short and long-term goals, and assist you
in choosing a loan program that is truly suited to
those goals

How do you apply for a mortgage?
• Call (408) 615 0655
• Email: Info@ArcusLending.com
• Website: www.ArcusLending.com
• Blog: www.LendingExpertBlog.com
• FaceBook: www.facebook.com/ArcusLending
Licensing Info:
Arcus Lending Inc, NMLS ID 1035734 and CA BRE #01857474
Shashank Shekhar NMLS ID 8176

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