Getting the Lowest Interest Rate is NOT Always a Good Thing!
Did you know that the most important factor in choosing the right loan is NOT always the interest rate ??
Many customers that I speak to concentrate heavily on getting the lowest interest rate possible in the market today, and completely ignore what they are actually paying to get that rate. We all want the lowest rate possible, but you must always factor in the closing costs you are having to pay or finance in the loan to tell if this lower rate is the best option for you.
2 most important questions to ask yourself:
How long am I going to be in the home ?
How many years will I actually keep this loan before selling, refinancing, or paying off the loan?
Take a look at this example:
Loan amount: $ 150,000
Term: 30 years Fixed
Today’s Rate: 4.875% with -0- points and -0- origination
Monthly Payment: $ 793.81
OR
Loan amount: $ 151,500 (Financing the 1% discount point)
Term: 30 years fixed
Today’s rate: 4.625% with 1 point and -0- origination
Monthly Payment: $ 778.92
In the above scenario a 1% origination fee costs you (or adds to your loan) $ 1500.00. The difference in the payment between the 4.875% rate and the 4.625% rate equals $ 14.89. If you took the lower rate, you paid $1500 to save $ 14.89 per month. That means you would have to keep the loan for at least 101 months (divide the cost ($1500) by the savings ($ 14.89)) for you to break even on what you paid. Statistics show that the average homeowner keeps their mortgage loan for 3-5 years.
Don’t let a smooth talking salesperson claiming to have the lowest rate in town COST YOU MONEY !! Always consider ALL of the terms of the loan when comparing which offer is going to be best for you. The length of time you are going to keep the loan (before selling, refinancing, etc) is THE most important factor in deciding which type of loan is best for you and your family.
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This is great information Patrick! Definitely learned something. Thank you!
By Jenny Williams on 1 July 2011