April 2008 Mortgage by Randy Newsletter
Mortgage by Randy
a monthly update to our clients, colleagues, family & friends
April 2008
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One of the biggest lessons I have learned in my financial services career is that people are:
(1) thirsty for accurate, easy to digest knowledge
(2) skeptical of what they hear from competing print & television media
(3) looking for a reliable trusted advisor to address personal financial questions.
To address this need, Mortgage by Randy will arrive in your inbox as a brief but meaningful source of insights about mortgages, the economy, real estate investing, personal credit score management and other useful tidbits. Submit your feedback & ideas for topics to randy@mortgagebyrandy.com. Also, help your own family and friends by sharing this newsletter and asking them to forward me their email address to be added to our distribution.
Mortgage Market: The Roller Coaster Ride
We are deluged with negative headlines about the collapsing mortgage and housing market. What do you need to know? If you are looking to buy a new home or vacation home, this is a great time. Long-term rates are attractive and housing prices continue to drop due to oversupply and desperate sellers. Many mortgage originators have left the business either on their own or have been displaced by the larger banks. Having a licensed mortgage professional on your team of financial advisors has never been more important.
Personal Credit: Let's Separate Fact from Fiction
Did you know that having your name spelled incorrectly several times on your credit report results in minor point deductions? The next time you go for that 10% discount at your favorite department store for opening a credit account, make sure the store associate has your name spelled correctly. Consistently use your middle initial to avoid mix-ups with other people having the same name as you. A lot of misinformation is in the public arena about credit scores and what makes them go up and down. A detailed analysis of your personal credit report can result in easy tips to significantly increase your score. Contact me if you or a friend needs help.
Economy & Financial Insights: The Crystal Ball
When asked for my opinion on specific investments, the best answer is "it depends". The first step is to think through financial goals (why are you investing? When will you need the money? If you lost all your money tomorrow how would you sleep?). The answers to questions like these help narrow down the types of investments best for you. Future newsletters will address investor psychology and trends to help you see the bigger picture.
Question of the Month: "Points of Interest"
A client asked me the other day to explain "points" to them. Those of us in the mortgage business sometimes takes terms like this for granted (we use them constantly). However, unless you are a fan of The Sopranos, this term may not make sense to you. Points are a powerful investment tool that borrowers can use to buy down their mortgage interest rate. One point is equal to one percent of the loan amount. For example, a lender may offer a choice of 7.00% rate with no points or 6.875% rate with one point (meaning the borrower would pay a fee of one percent of the loan amount at closing in exchange for the lower rate). As if mortgages weren't confusing enough! Why is this such a powerful investment tool?
Assume we are borrowing $300,000. The monthly interest payment at 7.00% for 30 years is $1996. At a rate of 6.875% the monthly interest is $1971, $25 lower. Big deal right? How much did that lower payment cost at closing? One percent of the loan is $3000. Divide $3000 by $25 and you get an important number....120. That means in order to break even on your $3000 up front investment you would need to stay in the same property with the same mortgage for 120 months. After 120 months you begin earning a positive investment return on your $3000. Over the full life of this loan you will save $6000 in interest. Points are a useful tool, especially for the borrower who knows they will be in their home for a good number of years.
Giving Back: Supporting our Communities
Many of us have interests beyond our careers. Supporting our youth means a lot to me and Susan. Do you have a fundraising event upcoming? Need volunteers? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 15th of each month and we will do our best to include your information in the next issue.
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Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
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