Buying Points on your Mortgage aren't EVIL - Just your thoughts are.......
Jeff has broken down a controversial topic in plain english.
Why is it controversial? Only because people who have no idea what they are talking about disagree.
The below article is 'Spot-On' and accurate information Timely as well, since paying points in this market is better than it was in the past!!
And the borrower screamed out from on top of Mount Olympus, "I want the cheapest mortgage, with no points and no costs."
The gods then just chuckled and said, No problamo, you want the infamous "no cost" mortgage or the "no closing cost" mortgage. It sounds cheap, but it comes with a higher price depending on your short and long term goals. Do you want to sell your soul to the devil? Oh, wait.... nobody asked you about those goals? hhhhmmmm - You might want to seek out someone that will explain to you the terminology and educate you on the basics of mortgages. You don't want someone that will tell you what you want to hear.
Now my borrower.... head out unto that dreadful world of lies and misinformation, and hope that you not only choose someone ethical, but someone that wants you to know what you are doing. And if they have a red tail behind them, just move onto the next one. Just because they are nice doesn't always mean that you will get treated fairly. Giving someone the benefit of the doubt for a long extensive period of time is not always wise.
Balancing your rate and perception vs Reality
In today's world of news and misinformation, you will typically hear the things that sound good to you. Rates are very low. Lowest rates ever. No cost mortgages. No points and or closing costs. But did you ever hear an ad that said lowest rates with no costs or points in one sentence? Ever read that fine print on the tv commercials? Oh, they don't give you enough time to read it? It's too small? I wonder why.... think about it.
I was talking to Ken Cook today, a very wise loan officer, that will just shoot straight from the hip as I do. He stated that we are getting many borrowers that want the low rates that are being advertised, yet they don't understand what costs come with those lower rates.
Before I start, just a quick educational piece. We all basically get the same rates from the same place. And when I say we, I mean banks, mortgage bankers, and mortgage brokers. It doesn't matter what animal you are, what type of lender you are. It all comes down to that companies profit margin. Some might be an 1/8 of a percent better in rate or $500 better in fees. In my opinion, if you are looking for the cheapest loan out there, that will usually turn out to be the most expensive one. Why is this?
- You might not get great service.
- Your loan officer might not respond to your phone calls or e-mails in a timely manner.
- You might get the bait and switch at closing. Yes, this does happen in some cases.
- Or you might just be dragged through the mud, just because the loan officer wanted to try and bring a loan into their office, to show some sort of production.
Conclusion : Everyones situation is different. Not one person is the same when it comes to getting a mortgage. There is a cost for doing mortgages, remember this. Just because you don't see the cost, doesn't mean there isn't one. Some key points to think about when speaking to your loan officer.
- Make sure you go over your goals. If you are going to be in the house for more than 5 years, if might be worth it to buy the rate down with points. You want to know what your break even point is.
- Points aren't a bad thing. It doesn't always mean that you are spending more money. This could be a wise investment. As it stands, it certainly is better than investing in the stock market and the points are tax deductible.
- Good faith estimates. These points and fees are spelled out on your good faith estimates. Make you sure you get one in a timely manner. Please read these two very important articles about good faith estimates.
Understanding how to read a good faith estimate
Getting a good faith estimate now, not later
UPDATE as of 3/31/09 @ 10:30 am - I am adding this because of some of the comments below. Some mention thatit's not worth paying the points because it could be a waste of money, people could move sooner, and most of all, that people refinance. I just wanted to add to that.... especially more than ever, with rates being the lowest ever in most cases in the last 20 years or so.... that lenders quidelines are more harsh now than they have been in the last 10 to 15 years, and that house values in some cases aren't appraising, I don't think you can use those reasons now. I never did in the past, because again, each borrower is different. But again, more now than ever before, why ignore the lower rates even if it costs more and it could better you in the long run? I am just curious on that one... thanks
PS.. Tom Burris makes an excellent point in his comment. Tom's Comment - Sometimes this doesn't make sense when the loan officer might be charging you more points for a larger profit. This can offset your breakeven point also.
PPS..... Brian Brady gives some good mortgage history in regards to the past vs the present and how it's much cheaper to buy down the rate in today's market. Brian Brady's comment
For more educational pieces and understanding mortgages? Please read :
The myths behind zero points mortgages
The APR vs the Mortgage Interest Rate
First Time Homebuyers Series :
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- Mortgages -
Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
Copyright © 2009 by Jeff Belonger
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