JustAnswer
|Lender |Quoted rate 10 year |EAR |15 year |EAR |30 year |EAR |Time to maturity |
|Quicken |3.75% |3.821% |3.375% |3.432% |4.25% |4.34% |Fixed |
|E-Loan |N/A | |3.45% |3.51% |4.28% |4.37% |Fixed |
|Lending Tree |N/A | |3.00% |3.94% |3.75% |3.82% |Fixed |
|GMAC |N/A | |3.500% |3.561% |4.250% |4.34% |Fixed |
|Loan Depot |N/A | |3.375% |3.432% |4.125% |4.21% |Fixed |
Discuss which rate is actually the cheapest rate.
The lowest rates, by far, from this data, come from Lending Tree.
What are three common mistakes most homebuyers make when looking at quoted mortgage rates?
Buying a home is the biggest purchase most people will ever make; yet many go into it without preparing for big (and avoidable) mistakes. Nevertheless, it is critical that the prospective homebuyers be familiar with their own credit score. Buyers considering buying a home must find out exactly what their FICO score is. If it is not very good, the best advice is to o whatever necessary to increase it. Too many borrowers ignore this step and get surprised when they get interest rate quotes. In other words, the lower that FICO score is, the higher the interest rates will be.
A second mistake involves the sales contract itself. When signing a sales contract, buyers usually have to put up 1% to 3% in "earnest money," which they don't get back if they pull out of the deal except under certain conditions spelled out in the contract. Sellers try to limit the grounds for canceling, and inexperienced buyers may sign contracts that don't include common exceptions, such as uncovering major problems during the home inspection, failing to obtain financing, and failure of the house to appraise.
Unfortunately, many first time buyers will not retain the help of a qualified lawyer because they feel it will just add unnecessary expense. However, just about everyone involved in a real estate transaction -- the seller, the buyer's real estate agent, the seller's agent and the mortgage broker -- has a large interest in getting the transaction finished because they only get paid when the house is sold. So they may push a deal even if it's not in the best interest of the buyer. Real estate lawyers are essential for such a large ticket price item like a house, mainly because they are objective in the transaction. They are definitely on the neutral side of the situation.
Based solely on the EAR, which rate is the cheapest? Does this make sense? Explain your answer.
On review, the cheapest rate based on the EAR is still the one provided by Lending Tree. This does make sense because the EAR is calculated using the value quoted by the company. However, the effective annual interest or yield may be calculated or applied differently depending on the circumstances, and the definition should be studied carefully. For example, a bank may refer to the yield on a loan portfolio after expected losses as its effective yield and include income from other fees, meaning that the interest paid by each borrower may differ substantially from the bank's effective yield. Nevertheless, the lowest rate listed here continues to be from Lending Tree.
Keeping the time value of money in mind, if an investor chose the 30-year mortgage, what does that say about their opinion of the time value of money?
The TVM is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. If the homebuyer chose the 30-year option, it basically says that they do not feel that their money will earn enough interest in that time to be of any real value.
Why do the different lenders have different rates?
Buying a home is always an expensive proposition, especially now given the poor state of the U.S. economy. While media outlets have been shouting about the falling prices of homes across the country, the buyer still needs to research and secure a loan to make the purchase. Comparing loans of different lenders is often the most difficult part of mortgage shopping. It is important to keep aware that mortgage packages listed online and elsewhere consist of more than just interest rates. In actuality, the published rates consist of a quoted rate, points, and closing costs. Moreover, mortgage rates generally rise and fall along with yields on Treasury notes and bonds because those government securities reflect the overall direction of interest rates for various different financial vehicles.
Is the difference in rates going to have a material impact on the cost to the homebuyer? Explain your answer.
Definitely. As mentioned, buying a home is a huge expense that lasts for many years. It will likely require a great deal of planning on the part of the buyer as well as the seller. When making this big decision, it is crucial to compare the rates for various different lenders at all the same values so you may compare the rates for the same products. To do anything less is tantamount to throwing away money to the lender that doesn’t need to be. It is also important to critically evaluate the ‘hidden’ costs when considering a mortgage. These may all add up and create a much higher monthly cost for the buyer.
References
Christie, L. (2010) 6 biggest mistakes homebuyers make. Last accessed August 29, 2011.
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