Getting best mortgage deal

Personal Finance
Jean Chatzky - NY Daily News

Alan Greenspan and his Federal Reserve Open Market Committee recently raised short-term interest rates for the seventh time in a row. Greenspan also indicated he's starting to worry about inflation. And, not surprisingly, mortgage rates - which rose in anticipation of the meeting - popped.

Today, a 30-year fixed-rate loan is averaging about 6.13%,according to HSH.com, the country's largest publisher of mortgage rate information.

That's about a quarter of a point higher than it was a month ago, and nearly a half point higher than it was at the beginning of the year. And chances are, the hikes aren't over.

Experts are looking for rates at 6.4% two months from now and 6.75% by year's end.

That may not be pricey by historical terms, but it's a douse of cold water to a country that got pretty used to rates in the low fives.

If you're out shopping for a mortgage in this rising-rate environment, what do you need to know to get the best deal possible?

Time it right.

Choosing the mortgage that's best for you is a matter of pinpointing the amount of time you expect to spend in this house.

For example, if you think you're going to be there until your babies go to college (or longer), then you want to lock into a 30-year fixed-rate loan where the payments in year 30 will be the same as they are today. But, if you think you'll be out of there in, say, five or seven years tops, you can shave a bit off your interest rate by opting for a 5-1 adjustable rate mortgage or a 7-1 ARM that is fixed for the first five or seven years respectively before the adjustments begin.

Right now, 5-1s are about a half a percentage point cheaper.

Shop around.

There's no one best source for mortgages, says HSH.com mortgage guru Keith Gumbinger - unfortunately that means you have to really do your homework to find the best deal.

Start locally with the banks in your area, then check credit unions, an online lender (LendingTree.com, for instance) and have a mortgage broker give it a go as well. Don't worry that all this hunting will damage your credit score. All inquiries into your file from mortgage lenders within a 14-day period are considered a single look.

Don't bite off more than you can chew.

Look, I know the New York (and for that matter, Connecticut and New Jersey) markets are all a little overheated - there are very few places in the country that aren't. But buying a home that you can only qualify for with an income-only loan is a very dangerous proposition. It means you're stretched too thin.

If something happens to your income stream - if you fall ill or are unable to work or lose your job - it's likely you won't be able to maintain your house payments. And although people in recent years have been able to count on appreciation in the equity of their home to bail them out, with rates rising you simply can't do that anymore.

Mark Zandi, chief economist with Economy.com, explains that there's a real risk - not necessarily a big risk, but a real one - that if rates rise higher or faster than economists are expecting we could see home prices fall.

Then people who've borrowed most or all of the equity in their homes may find themselves under water. If they need to sell, they may owe more on the loan than they are able to get from a buyer. Ask anyone who went through that the last go-round - it's absolutely no fun.