Trying to compare mortgage quotes with all the different rates, points, and fees is like trying to compare apples to oranges! The True Mortgage Value allows for the comparison of apples with apples so you'll know which one is the bad apple.
The True Mortgage Value is the mortgage costs as a yearly rate for the length of time the borrower plans to hold the mortgage. It is vitally important to consider the borrower's holding period because the yearly costs along with the interest rate are partially determined by how long the upfront costs such as paid points and fees are "stretched out" for the length of time the borrower holds the mortgage.
Determine the True Costs of Mortgage Quotes With Our True Mortgage Value Calculator to Compare Quotes Online!
When to compare mortgages
Refinancing
To save money with refinancing, the interest savings of the new loan must cover the fees of the new loan. When there is a 2% spread between the new interest rate and the rate on your existing loan, you will normally save money by refinancing. When looking to refinance, shop other lenders first and then ask your present lender if they are able to beat the best price you found elsewhere.
When to compare mortgages
Home Buying
Once an offer is accepted on a house, you will have time until closing to compare concrete mortgage offers. Before you begin to look for a new home, it is best to pre-qualify for a mortgage so you will know your budget. Just because you are pre-qualified for an amount, doesn't mean that you should spend that amount on a home. Look over your budget and determine for yourself what your comfortable spending on your mortgage payment.
Who Gets Cheapest Mortgages?
Please note that ALL, ANY, and EVERY lender advertised loan rate does not account for your own risk profile, so DON'T assume that the company that advertised the lowest rate in their ad will actually give you a rate that is lower than their competitors for a person of your risk profile.
What is the Best Mortgage?
The best mortgage is the one with the lowest costs over your expected holding period. The True Mortgage Value allows you to compare the mortgage costs as a yearly rate for the length of time you plan to hold the mortgage.
Why compare Mortgages
Only a small percentage decrease of .08% in the True Mortgage Value on a $100,000 loan will save you thousands of dollars over the life of a 30 year mortgage. Use the True Mortgage Value to compare different quotes to help you save thousands of dollars.
Why Is the True Mortgage Value Better Than the APR to Compare Quotes!
Once you get a quote from a lender, to compare it to another quote, you can use the True Mortgage Value which takes the interest rate, points, and fees to compute a yearly rate for the mortgage cost for the length of time the borrower plans to hold the mortgage. This calculation is the sister to the APR which calculates the yearly cost of the mortgage for the whole term of the mortgage which is required by law to be disclosed by the lender due to the Truth in Lending Act.
Whereas the APR, Annual Percentage Rate, that you see so often, is a yearly rate of costs over the whole mortgage term, normally 15 or 30 years; the True Mortgage Value is the yearly rate of costs for the length of time the borrower plans to hold the mortgage.
The APR minimizes the extent to which upfront costs such as points and fees are added to the borrower's cost, because these costs are "stretched out" to the maximum extent possible. The APR is effectively the True Mortgage Value for the cost of a mortgage only when you plan on holding the mortgage for the whole length of its term.
Since over 50% of borrowers sell or refinance their home within 6 to 12 years and over 90% of borrowers do not hold their mortgage for their whole term, you will probably expect to hold your mortgage for less than its term. That is why it is vitally important to consider the borrower's holding period when comparing mortgages because the yearly rate of costs are determined by how long the paid points and fees are "stretched out" for borrower's expected holding period.
How Is the True Mortgage Value One of the Most Useful Thing You Have Ever Known!
Let's say I received two quotes below.
| Quote #1 | Quote #2 |
| Interest Rate: 7% Points: 1 Fees: $1,000 Loan Amount: $100,000 |
Interest Rate: 6% Points: 3 Fees: $2,000 Loan Amount: $100,000 |
Both are for a $100,000 loan. Quote #1 has a higher interest rate but lower up front fees and points while quote #2 has a lower interest rate and higher up front fees and points. Which quoted would be the best to select?
To know that answer you need a measure of the true borrower costs as a yearly rate over the expected holding period of the borrower. Notice with the True Mortgage Value calculations below how the yearly costs associated with the points and fees are lower the longer you hold the mortgage because their costs are stretched out over a longer period. The True Mortgage Value actually depends on how long you plan to hold the mortgage and stay in the house. As you can see from the True Mortgage Value calculations below, quote #1 with the higher interest rate would be the most cost effective loan to go with if you plan on staying in the house less than 3 years. Quote #2 would be the mortgage to go with if you planned on living in the house for 3 years or more.
| True Mortgage Values | ||
| Holding Period | Quote #1 | Quote #2 |
| 0 to 1.5 Years | 9.00% | 11.00% |
| 1.5 to 2.5 Years | 8.00% | 8.50% |
| 2.5 to 4 Years | 7.67% | 7.67% |
| 4 to 6 Years | 7.50% | 7.25% |
| 6 to 12 Years | 7.33% | 6.83% |
| 12+ Years | 7.25% | 6.63% |
What does this mean in the Real World? If you were to go with quote #2 and stayed in the home for 15 years you would average paying $2,223.38 per month versus $2,282.16 per month for quote #1. The savings are $58.78 per month which gives a total savings of $10,580.40 over 15 years. This is real money that you would otherwise be without, so it is vitality important to to compare quotes by calculating their True Mortgage Values.
How Do I Receive a Quote for Myself
The Application Process
To receive an actual quote for yourself, you will have to provide the lender authorization to look up your credit score and documentation which consists of providing the lender with information regarding your income, assets, and employment. Documentation ranges from "full-documentation" where the borrower has fully verified sufficient income for the last 2 years, to "no-documentation" where the borrower provides no information on their financial condition. The more documentation the borrower can provide, the lower the risk to the lender, so the better the deal they will receive. If the borrower can't provide full documentation, it is best to met the highest level of documentation they are able to provide, unless they voluntarily choose to avoid it and pay a higher price.
Please note that lender advertised loan rates do not account for your own risk profile so don't assume that the company that advertised the lowest rate in their ad will actually give you a rate that is lower than their competitors for a person of your risk profile. To compare the cheapest mortgages, you will have to receive a quote for yourself from each lender and then compare that quote to the other quotes you have received. Your credit score and ability to provide documentation of your income and assets to the lender are the keys to receiving the cheapest mortgage.
You must receive a good faith estimate of each expected fee at the time of application or within three days of application as required under RESPA, Real Estate Settlement Procedures Act. After you have found the best quote for yourself using the True Mortgage Value, you may want to obtain a written lock-in from the lender or broker since without a lock-in, the interest rate can change all the way up to your closing date depending on changes in the market.
The 3 parts of a mortgage quote are the interest rate, points, and fees. Read below to see how the interest rate, points, and fees work so you will be able to find the best mortgage for your situation.
The interest rate can be either a fixed-interest-rate where monthly payments stay the same or an adjustable-interest-rate where monthly payments fluctuate within cap limits according to changes in the market interest rate after the initial rate period. If you are in a tight budget and at risk to increases in your required payments, you should opt for the fixed rate mortgage or request an adjustable rate mortgage with caps and an initial rate period that protect you.
1 point equals 1% of the loan. Points are paid to lower the interest rate.
If you can afford paying points, in most cases it is a good investment if you plan to hold the mortgage for at least 3 years. The return from paying points increases as you hold the mortgage longer due to the cumulative effect of the lower interest payments.
Fees
The Loan Origination fee, read bank fee, is usually 1 point or 1/2 a point and is normally expressed as a percentage of the loan amount just as points are expressed. The Settlement fees are fees for the application, inspection, and property appraisal. Almost all lenders don't charge an application fee and fees are paid only if the loan closes.
The most valuable thing we have is our good name. Your credit report is the most common reflection of your reputation as someone who pays bills on time, is trustworthy, and financially sound.
Consumers rarely check their credit record until after they've been denied credit or otherwise encountered a problem. Your credit report is the basis of your FICO score. The FICO score evaluates the information in your credit report, and compares this information to the patterns in millions of past credit reports.
The FICO score is determined from the following 5 sections: 35 % for how recent the delinquencies are and how many times did they occur, 30% for how large outstanding balances are and the ratio of balances to credit limits, 15% for the age of the oldest account and the average age of accounts, and 10% for the number of inquiries and new account openings.