As a mortgage professional, my job is to provide my clients disclosures on what the true cost of borrowing money is going to be. In other words, we are supposed to hand out government required disclosures that will tell a borrower the whole truth and nothing but the truth.
Yeah...RIGHT! The truth and lending disclosures mortgage loan officers give their clients are a joke. The federal government expects people to believe that someone can honestly shop for the best mortgage possible by taking one of these truth and lending statements to various mortgage lenders and comparing the rate. We'll it's very unlikely that you'll ever have a mortgage company fill out their TIL the correct way, or will that Annual Precentage Rate disclosure be ever valid.
#1 Most home-owners buy or sell within 5-7 years. So why get a 30 year fixed rate mortgage if your planning on moving? The interest you pay on a 30 year mortgage is amoritized heavily in favor of the bank, especially during the first 10 years. Unless your willing to pay additional principal payments, you will never realize the true APR of the loan you signed. If you look at the actual interest paid, and then compare it to the actual principal, you'll find that your ACTUAL paid annual interest is much higher then 10%, and for every year earlier then 30 years your actual APR goes up significantly. So when someone tries to hang their hat on this rate is better because!!! Maybe...but you really should think about all the extra interest your going to pay every 5 to 7 years.
#2 Most mortgage lenders don't even fill out their forms correctly. We're trying to self regulate more efficently, but often mortgage loan officers you compete with will have their TIL's reflect the BEST possible situation.
#3 Most loan officers pick the loans that will make them the most money and cost them the least amount of heartache to sell. What I mean by that is selling a 30 year fixed mortgage is easy! Everyone is told it's safe, low payments, and banks pay allot of what we call Yield Spread Premium for selling this product to our clients. Why shouldn't they, they're making a killing on people getting these loans and then selling or refinancing 3 to 5 years later. Many loan officers either do not understand the other lending programs available to their clients or they intentionally ignore the reasons they should not stick someone in these type's of loans. Don't get me wrong, a 30 year mortgage has it place, but not with the average 30 to 40 year old American.
#4 So if my 30 year mortgage is bad, then shouldn't I get a 20 year term or 15 year term? This sounds logical, and if your only interested in paying off your mortgage then it's probably better then sticking with a 30 year fixed mortgage. But let me ask you one question? How much more do you want to pay each month to pay down principal on your mortgage? Do you really want to increase your mortgage payment 150-300 dollars a month?
With the number of mortgage programs available to most loan professionals, I find it hard to swallow when I watch "quote" experienced loan officers jam their clients repeatedly into loan progams that really do little benefit to their clients long term goals. In fact you'd be suprised how many mortgage loan officers neither care or want to know what their clients goals are. They just want to keep on refinancing this client, year after year after year!
As a mortgage planner I understand what programs help my borrowers and which ones they need to stay away from. Depending on their short and long term plans, it then helps me tailor a program that maximize their cash flow. Cash Flow is the key to financial success. Too often people are what we call, "House Rich and Bank Account Poor". Having a viable cash flow allows us opportunity and freedom to accomplish more and in a shorter period of time. Retirement, investment opportunities, vacaction homes, all these become a reality when you have strong cash flow. Why reduce your cash flow to payoff a liability when you could have that money working for you in an investment. Money in a can under your tulips, or money locked in your fire proof home safe still doesn't give you a return. IT won't grow and if you put in back into the mortgage it still won't provide you a rate of return.
So anyone who picks up their next truth and lending statement. I guess you can get worked up about how that lenders fee's is .25% better then the other guys. But I'd be more intrested in working with someone who asked me what my retirement income needs to be by age 65. I'd much rather work with someone who helped me design a long term financial plan. At that point the .25% better guy down the street doesn't matter! He surely wouldn't waste a second talking to you about mortgage planning. And if you still don't understand how to figure out your APR, don't worry, neither do most of the mortgage professionals out there. Be more concerned about the program your getting into and it's long term ramifications on your future wealth.
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