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An Insiders Guide for Smarter Second Mortgage Shopping, Part 2

If you own a home you have probably asked yourself, "How do I find the right mortgage company?" Whether it is a mortgage refinancing, second mortgage or home purchase loan you are seeking, the choices are numerous. Do you go to a bank, mortgage broker or mortgage banker? Do you ask a friend, look in the phone book, or shop online? Regardless of your answers to these questions, here are three additional tips not covered in Part 1 that you need to know when shopping for a mortgage refinancing, second mortgage or home purchase loan:

  1. Seeing is Not Believing - Most people know they cannot believe everything they read. However, people do tend to trust their local newspapers and reputable internet sites. Unfortunately, when it comes to mortgage refinancing, second mortgage and home purchase loan advertising, you cannot believe everything you read. This includes publication of both closing costs and interest rates. Many companies will publish unrealistic interest rates and closing costs for mortgage refinancing and second mortgage loan programs just to make the phone ring. With regards to closing cost advertisements, it is important that you find out if the closing costs published are ALL closing costs or just the mortgage broker's fees. While the mortgage industry has strict guidelines about publishing interest rates, there are not enough resources to regulate the validity of these advertisements. Remember that if a mortgage refinancing or second mortgage interest rate advertisement is much better than others you have received, do your due diligence and ask the loan officer for a Good Faith Estimate. You will likely find it is either not accurate or you are being charged excessive fees to get that mortgage refinancing rate.

  2. APR May Not Matter - Most of us have been taught that sophisticated mortgage refinancing and second mortgage shoppers look at the APR (Annual Percentage Rate) when they are comparison shopping. Unfortunately, there are a number of problems with using APR to shop for a loan. First, and most likely, is that the loan officer may not know how to correctly calculate the APR for a mortgage refinancing or second mortgage. Next, the term of the loan impacts the APR. A 30 year fixed rate mortgage refinancing, second mortgage or home purchase loan will have a lower APR than the exact same loan on a 15 or 20 year term. Finally, the number of days of prepaid interest on a loan affects the APR. Again, assuming duplicate mortgage refinancing scenarios, a loan with 5 days of prepaid interest will have a lower APR than a loan with 15 days interest. Technically, prepaid interest is not a closing cost, but rather a "prepaid," and is simply a function of the day within the month a mortgage refinancing or second mortgage closes; therefore irrelevant when comparing loan scenarios.

  3. Daily Comparison - If you are receiving competing mortgage refinancing quotes from a few mortgage companies, it is important that you receive the quotes on the same day. This is especially important if you are shopping for a conforming or "Alt A" (an alternative to a standard conforming) loan. These loan programs' interest rates will vary based on the daily bond market. Therefore, comparing quotes from different mortgage refinancing or second mortgage companies on different days will not likely reveal which company is offering the best program, due to the possibility of interest rate movements from day to day.

As you work to integrate these guides into your shopping process, remember that the lowest cost mortgage company is not always the best. You want a mortgage professional that is knowledgeable, committed to your situation, and who will be there to answer questions long after your closing has occurred. Ultimately, using these guides will help you become a smarter shopper.

Bob Peckenpaugh is a manager with The Home Loan Group, providing both home purchase and refinance transactions. He is a professional first and second mortgage planner assisting clients with increasing cash flow, reducing liabilities, and building equity by integrating a client's mortgage decision within their overall financial plan. Chris received a B.S. in Finance from Indiana University, and has over 10 years lending and banking experience. He is also Fair Credit Reporting Act certified. Chris can be reached at 1-800-943-9472.

For additional questions or comments about smarter second mortgage shopping, please contact Bob Peckenpaugh at homeloangroup@att.net or 1-800-943-9472.

The Home Loan Group, Inc. is located at 9190 Budd Run Drive, Indianapolis, IN 46250. License No. 06-0140 LB.