Fixed Home Loans

Currently, there are no federal or state laws requiring a mortgage lender to give you the best rate available. These days, many lenders offer a variety of mortgage products, some carrying higher interest rates than others.

For example, many lenders offer reduced-documentation loans, also known as low-doc. or no-doc. loans. These loans require the borrower to provide little financial documentation.

They may, however, have pricing premiums attached and cost you more than a loan requiring full documentation (financial statements, proof of employment, etc.).

It is important to comparison shop and understand the loan terms and associated benefits and risks prior to choosing a product. Some mortgage lenders may advertise products that appear to carry substantially lower interest rates than others. These rates, however, may simply be introductory or “teaser” rates to attract customers. Typically, the introductory rate will adjust to a higher rate at some point in the loan term.

Federal law requires the lender to provide you with specific written disclosures during the application process. Federal Reserve Regulation Z, which implements the Truth in Lending Act, and the Real Estate Settlement Procedures Act (RESPA) mandate that the lender provide you with specific documents such as The Good Faith Estimate and the initial Truth in Lending Disclosures. These documents contain the terms of your loan: review them carefully before closing on your loan. They should accurately reflect the terms promised by your lender.

What you should ask the lender:

• Which of your products offers the lowest interest rate?
• Will my interest rate be fixed or variable (change periodically)?
• If the interest rate can change, when will it change and how high or low can it go?
• If the lender offers an introductory or “teaser” rate, ask, When does the rate expire and how will the new rate change my monthly payment amount?
• If the rate expires, what will the new rate be, and will it be fixed or variable?
• Would I qualify for a better interest rate if I went for a standard full-documentation loan rather than a low-doc. or no-doc. loan?

Source: FRBB Federal Reserve Bank of Boston - Know Before You Go... To Get a Mortgage