The Lowest Interest Rate Isn't Always the Best Deal
As a El Dorado Hills mortgage broker, I am sometimes asked by clients, “What is your rate?” Little do they know that I have scores of different rates offered by more than 50 lenders! Interest rates are a very interesting subject to most people when financing a home.
Everybody seems to want the “best rate”. When I hear that, I sometimes ask, “What is more important to you a lower cost loan or a lower interest rate loan?” Many buyers are solely focused on interest rates without considering the closing costs and actually having enough cash to close.
An interest rate comes with a corresponding cost or credit. A lower interest rate will cost more than a higher interest rate. Let’s take a $200,000 loan amount, for example, and compare the interest rates:
5.0% gets (2.0%) credit ($4,000) and a principal and interest payment = $1,073.64
4.5% gets (0.0%) credit ($0) and a principal and interest payment = $1,013.37
So the question is, “Would you rather pay an extra $60 per month in payment OR come up with an additional $4,000 to close the deal?”