I’ve gotten calls from a non-confoming lender in San Jose, CA1 offering me a mortgage rate that is quite a bit lower (4.5-4.75% was his guess2) than our current rate (5.375%).
The lender claims that they can offer this kind of rate because they are the bank as well and they don’t have te overhead of brokers, etc. This makes a certain amount of sense I suppose. However, I’m quite skeptical – 
If it sounds too good to be true… 
Of course, I’d love to leave CitiMortgage and I’d love to have a lower interest rate.
Anyone have any experience with this sort of thing? If I could really get a 4.5% rate, it would certainly be worth paying a lawyer to make sure the contract is on the up and up.
Alex,
Ask the following questions:
– Fixed or flexible interest rate?
– Does their mortgage product have an ‘interest only’ option?
– If so, what is the yield based on? Published mortgage rates, Libor, MTA?
– Where are the ‘points’ accounted for? Most lenders make money off the spread, and even those that promise no points account for their spread somewhere.
The term non-conforming is a strange term. It doesn’t mean much to the consumer; something like 60-70% of loans these days are non-conforming. Don’t let that bother you.
Yes, you can get 4.5%, or even below that, if you have a FICO score above 720. The chances of you getting that as a fixed rate, however, are very, very low. So, this would be the first question that I would ask.
Another question would be whether the prepay penalty was a soft one or not. What’s that mean? Well, most mortgage lenders make an extra $500 or so by putting in a prepay. The ethical ones will make it a soft-prepay, meaning you won’t be penalized for prepaying if you sell your house. The tighter form of prepay will penalize you for any sort of prepayment, or even monthly overpayment, of your loan.
My bet is that you could easily beat your current Citi rate by shopping around a bit. Doesn’t hurt to walk into a local bank branch and ‘work a deal’ with the loan rep. They are comp’ed much like car dealers are, so they will work with you.
I could dig a bit deeper here, but the items listed above will begin to flush out how real this is.
[…] Some excellent questions have come in from my previous post: is it a fixed rate for the life of the loan or does it float? […]
I am a mortgage broker and am looking for some non conforming lenders to work with. Pleqse if anyone knows of such I would be gfreatfull. I will check them out.