Myth #10: The relationship between Rate and cost does not matter
If you are searching for a low mortgage rate, it is important that you consider the relationship between your mortgage rate and your closing cost. This relationship is rarely discussed, but it is a key element when it comes to mortgage shopping. This is important because lenders have the ability to adjust closing costs based on mortgage rates, which means that even if you get a low mortgage rate, you might lose out on any savings due to an increase in closing costs. This can lead buyers to feel as if they are playing whack-a-mole when shopping for a mortgage.
Mortgage rates and closing costs are inversely proportional. This means that when you get a lower mortgage rate, your closing costs will inflate accordingly. Likewise, higher mortgage rates entail lower closing costs. The reason behind this inverse relationship is that lenders tend to increase closing costs in such a way as to compensate for any lowering of mortgage rates.
This is meant to ensure that lenders earn the same amount of money regardless of if you have a lower mortgage rate or lower closing costs. If your mortgage rate is low, your closing costs will increase to compensate. Conversely, if you increase your mortgage rate to something that is higher than what the market is at, your closing costs will be lower, as the lender will be paid in credit. Much like in whack-a-mole, you might be able to push down your mortgage rate, but that pesky closing cost is likely to pop up just as you get a lower rate.
This closely-guarded secret of the lending industry can make things tricky when it comes to mortgage shopping. You might be seeking a mortgage rate that is below market, but if you get it, how much will it increase your closing costs? This can lead to a lot of uncertainty about your potential total costs.
If you are struggling to calculate the relationship between your mortgage rate and closing costs, a mortgage payment calculator can help you to sort through the different costs and details. Using a parlend mortgage calculator will help you to match your own risk profile to a rate and corresponding closing cost that fall within your budget. This will save you the time and stress of trying to calculate the numbers on your own. It will also ensure that your numbers are as accurate as possible, as mistakes in this type of calculation can cost you thousands of dollars. A parlend mortgage calculator is sure to be your secret weapon when it comes to beating the game of mortgage whack-a-mole.