How Important is Rate? Often times, borrowers are fixated on their mortgage rate because its the one aspect of their home financing they know to ask about. But, its important to look beyond mere rates into the bigger picture surrounding whats significant when it comes to your specific mortgage needs. If we dollarize the difference between 2.99% and 3.04%, for instance, it works out to an additional $2.66 in your monthly payment per $100,000 of your mortgage. Over the course of a five-year term, this culminates into just $159.60 per $100,000. While no-frills mortgage products typically offer a lower - or more discounted - interest rate (like the 2.99% used in the example above), when compared with many other available products, the lower rate is really their only perk. The biggest problem with looking at rate alone is that you may end up paying thousands of dollars in early payout penalties if you opt for a five-year fixed-rate mortgage, for instance, and then decide to move before the five years is up. No-frills mortgage products wont let you take your mortgage with you if you purchase another property before your mortgage term is up - ie, portability is not an option with this product. Portability is an important option that could save you money over the long term if the home of your dreams is within your reach before your mortgage term is up and rates have risen, which they have a tendency to do over a five-year period. This type of product is only plausible for those who have minimal plans to take advantage of benefits that will help pay off your mortgage faster - such as prepayment privileges including lump-sum payments. Essentially, this product is only ideal for: first-time homebuyers who want fixed payments and have limited opportunities to make lump-sum payments during the first five years of their mortgage; and property investors who need a low fixed rate and arent concerned with making lump-sum payments. Its understandable why these products may seem appealing. After all, not everyone feels they have the extra cash to put down a huge lump-sum payment. And who needs a portable mortgage if youre not planning on moving any time soon? But its important to remember that a lot can change over the course of five years - or whatever term you choose for your mortgage. You could get transferred, find a bigger house, have babies, change careers, etc. Five years is a long time to be anchored to something. Many people wont sign a cell phone contract for longer than three years that they cant get out of, so why would they then sign a mortgage for five years that they cant get out of? The thing is, you can still obtain great mortgage savings without giving up the perks of traditional mortgages. For starters, many lenders are willing to offer significant discounts if you opt for a 30-day quick close. And there are many other ways to earn your own discounts. For instance, by switching to weekly or bi-weekly mortgage payments, or by obtaining a variable-rate mortgage but increasing your payments to match those of the going five-year fixed rate, youll be ahead of the typical discount of a no-frills product before you know it - and you wont have to give up on options. Banks dont give anything away for free - theyre there to make money. Thats why its essential to discuss the full details surrounding the small print behind the low rates. Its also important to take into account your longer-term goals and ensure your mortgage meets your unique needs now and into the future. As always, if you have questions about mortgage rates, or other mortgage-related questions, Im here to help!
Posted on: Wed, 30 Jul 2014 17:35:57 +0000
Trending Topics
Recently Viewed Topics
© 2015