Beyond your Interest Rate lies Strategy
In the industry, we like to call it “cocktail conversation”. This lingo refers to the emphasis Home Buyers place on interest rate when searching for the perfect mortgage.
While the interest rate you pay for a home loan should certainly play a factor in the decision-making process, it can be short sighted to only focus on this component of your financing.
The “Cocktail Conversation”
“The ‘brag’ factor or small talk at happy hour to boast about the gas mileage on your new car or the interest rate you locked in last week.”
Evil Mortgage Insurance
The rate of interest you pay on your mortgage will directly impact the payment. Almost as much as the many other overlays such as taxes, insurance, mortgage insurance and association dues. There are a number of other overlays that have a much larger impact on payment.
Many Lenders fail to implement a strategic approach with their clients and do not take the time to adequately educate their Borrower on the many (many) strategies available to them. Having experience and a pinch of creativity on the other end of your loan application is critical to designing the perfect financing tool for you and your family.
So, you are looking at your bottom line payment? Affixed on interest rate to get that monthly obligation down? Consider the scenario below:
*Based on a 720 FICO score, Sample Price $350,000, 5% Down payment
A higher interest rate in Option B, yet the total monthly payment is over $100 less! In addition, the mortgage interest is all tax deduction, unlike that evil mortgage insurance that only offers protection for the investor.
Mortgage Term Makes a Difference
The mortgage term is equally important. By simply shortening the term of your mortgage, you can often lower the interest rate. But more importantly, you should consider this analysis:
The difference in the two scenarios above is approximately $509. This can be a hefty difference in monthly payment. That is unless you are considering a longer-term strategy and want to pay off your mortgage as quickly as possible.
Take something important into consideration: The total interest paid on a 15-year fixed rate mortgage at a 3.875% interest rate is $85,938.79 The amount of interest paid on a 30-year fixed rate mortgage at 4.125%? $200,680.61*. Yes, you read that correctly: by simply paying a few hundred dollars more per month now, you’ll pay over $110,000 less in interest over the life of the loan at those example rates.
*Loan scenarios are examples only and may not reflect current interest rates available as they are subject to change daily. Individual Borrower loan types may vary based on client’s eligibility, credit history, down payment, interest rate, insurance fees, property taxes, etc.
Strategic Planning is Key
As you can see, your mortgage is simply another financial tool, that when leveraged strategically can help you more quickly gain financial freedom. Thinking about this tool from a holistic perspective will allow you to borrow smartly and not focus only on interest rate or one spoke in the wheel.
Rest easy knowing that the Lending Professionals at American Liberty Mortgage are experienced, credentialed and strategic financial professionals that are committed to building the very best mortgage for your long term financial goals.
We don’t force you to fit in a box.