What is really in a rate selection??
Most people feel the lower the rate, the better deal I received! The truth is that selecting an Interest Rate should be an "Economical Decision and NOT an Emotional Decision" When determining an interest rate for your loan you should consider some compensating factors such as:
How long will I keep this loan? This question alone should change your thought process about the rate selection for your loan. The truth is that the lower rate may not always be the best and most economical decision for you!
For example, suppose a borrower could get a $400,000 loan at 6.50% with no origination fee or discount points. The payment would be $2528.27. Instead, however, the borrower chooses an alternative rate - 6.25% - and pays a 1% discount point for a total of $4000.00 in extra closing costs. The payment drops to $2462.87, a monthly savings of $65.40. It takes about 61 months for the monthly savings to offset the increased closing costs. Beginning in the 62nd month, the borrower will realize an actual savings of $65.40 a month. However, if the loan is paid prior to the 62nd month via refinancing, by selling the property or payment in full, the borrower has spent money unnecessarily.
In addition to those facts, the 6.25% rate has a lower APR (Annual Percentage Rate) tied to it. Using the APR as your sole determinant in choosing your rate could be a mistake. When comparing an APR you must again evaluate how long you will have this loan. Some borrowers will use discount points to help offset taxes paid in an annual year: As most discount points are deductible in the year paid (see your tax advisor for further information) so they can reduce your tax liability in the current year and help provide lower mortgage payments over the term of the loan.
Many times the selection of a lower interest rate is driven more by the amount of the mortgage payment the borrower can afford (or qualify for) rather than the economic value of this decision.
A conscientious Loan Officer who works for a reputable company and that has the ability to offer the most up to date loan programs is an invaluable resource for any home buyer. Ensure the Loan Officer you select has both the ability and the desire to provide you with the most competent service and current information available to fit your specific situation.
For a no-cost no-obligation discussion, please feel free to contact me at 541-383-2093 or toll free at 866-890-0278 ext 229. If email is more your style I can easily be contacted this way as well at "David_Winfrey@countrywide.com"
Expect Excellence
David Winfrey
"Turning Realty into Reality"
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