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Jeannie O'Grady Mortgage Loan Originator, NMLS #209607 Creative Mortgage Lenders, NMLS #247952 Phone: Cell/Text: (727) 542-7001 Fax: (727) 823-0687 License: 209607 Jeannie@CreativeMortgageLenders.com www.CreativeMortgageLenders.com |
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April 2010
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Putting Things in Perspective Factors to Consider When It Comes to Your Mortgage In last month's You Magazine, Barry Habib, Chairman of Mortgage Success Source, discussed how home loan rates may well buck the phrase, "March comes in like a lion and out like a lamb" due to the Federal Reserve ending its Mortgage Backed Securities (MBS) purchase program on March 31st. And the last week full week of March did in fact feel the "roar of the lion" as in two days, interest rates increased sharply following financial uncertainty and action within the bond markets. With uncertainty surrounding the months ahead in the mortgage arena, here is some information to help you put things into perspective. First Things First That being said, everyone wants to get the best rate for their mortgage. When the last interest rate wave came across the land in 2003, happy homeowners couldn't wait to brag that they received an interest rate below 5.50% for a 30 Year Fixed, which was then the lowest rate we had ever seen. We are still well below that level. Would $1 a Day Keep You from Your Dream Home? While no one wants to pay more for their mortgage than they have to, most people would agree that $46 a month is typically not enough to prevent them from buying the home of their dreams. After all, $46 a month is less than the cost of one tank of gasoline for many people. Combined with the after tax benefits of deducting the interest on a mortgage payment, for many families we are talking approximately $1 a day. Lower Payment vs. Lower Rate of Interest Through the first twelve weeks of this year, 15 year fixed rates according to Freddie Mac have averaged a better rate of just over .50% as compared to a 30 year fixed. The greatest benefit of choosing a shorter term is knowing that the mortgage will have a zero balance in 15 years, saving the borrower over $110,000 in interest payments over 30 years. However, the lower rate and shorter term do come at a monthly cost for borrowers. The difference in monthly payment for a 30 year fixed at 5.00% and a 15 year fixed at 4.50% is $477 a month higher for the 15 year fixed. And in these tough economic times, "cash is king." That is, "cash on hand" is king. Many people would be better served having a smaller mortgage payment under a 30 year fixed, and then saving or investing the extra money. Note, saving and investing rather than spending the extra money is the key point here. In particular, people who find themselves without a job or who have a pressing financial need would benefit from being able to access these saved funds. Many industry experts state the average time a mortgage is in place is seven years. Seven years is a long time. People move to different homes, relocate for employment reasons, and see their children get older, go off to college, or move out completely. It's important to consider these types of factors when selecting a mortgage. According to Freddie Mac, over the last twelve weeks, the interest rate for a 30 year fixed has been just north of .75% higher than that of a 5/1 ARM (where the interest rate would be fixed for 60 months before incurring an adjustment). If you know that you may be moving either before the interest rate is subject to change or shortly thereafter, that .75% would save approximately $90 a month in the same $200,000 example above. For those looking for a little more security, a 7/1 ARM (meaning the interest rate would be locked for 84 months before incurring an adjustment), offers an interest rate that is nominally higher than a 5/1 ARM (perhaps .125-.25% in interest) but still quite a bit below that of a 30 year fixed rate. For people who expect to have shorter time frames for their mortgage, these two loans offers a fantastic rate while still assuring that the monthly interest rate and payment will not change for a specified period. Best Path for all Prospective Borrowers Contact the professional supplying you with this month's issue of YOU Magazine to discuss what options you should consider based on your short and long-term financial goals and objectives. Ask for a breakdown of the projected costs of any option, not only for the complete term of the mortgage but also for the time you expect to have the mortgage in effect. | ||||||||||||||||||||||||||||||
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