<\/a>Will you carry the loan long enough for the reduced monthly payment to make up what you paid in discount points?<\/p>\nFor example:<\/strong> A buyer taking out a $300,000 mortgage could take a rate of 4.5% with no points and pay $1520 per month, or could pay 2 points at closing to bring the rate down to 4% and pay $1432 per month.\u00a0 Since the buyer paid an additional $6,000 (2 percent of $300,000) to reduce the monthly payment by $88 per month, they need to carry the loan for 68 months (6,000 divided by 88) in order to break even. If the buyer sells or refinances before the 68th month it would have been cheaper to not pay the 2 points.<\/p>\n7) Don’t put yourself in a precarious position just to buy down the rate.<\/strong><\/p>\nIf there’s any chance that something like a major car repair or a family emergency that involves travel and\/or time off of work could endanger your ability to make a mortgage payment, then it may not be a good idea to part with a few thousand dollars in order to reduce your monthly payment by a relatively small amount.<\/p>\n
Note:<\/strong> The same concept applies to putting additional funds into a down payment. I sometimes see buyers who don’t have huge reserves putting themselves under financial stress by squeezing any extra cash into the down payment, just because they’ve been told it’s always the most responsible thing to do. In reality, every additional $10K reduces the monthly payment by approximately less than $50.\u00a0 I completely understand the importance of building up home equity, but it’s worth also keeping in mind that when people lose their homes to foreclosure it’s usually not because they were lacking $50 per month, it’s because something bad happened unexpectedly and the cash reserves to weather it were not there.<\/p>\nWhy Is APR Not the Easy Answer?<\/h3>\n
Annual Percentage Rate, or APR, is supposed to make comparing loans easier because it’s a percentage rate that takes into account both the interest rate of the loan and the cost of obtaining the loan.\u00a0 However, using APR as an evaluator is not always straightforward<\/strong>.<\/p>\nLoans with discount points will almost always have lower APRs, but as we noted above in Tip #6, discount points are not cost-effective for every buyer.\u00a0 The problem is that APR spreads the cost of the loan over its entire term, i.e. 30 years for a 30-year mortgage.\u00a0 If a buyer plans to pay off the loan early by selling, refinancing, or simply paying off the balance, then APR loses value as a comparison tool.\u00a0 Therefore…<\/p>\n
8) Many experts counsel home buyers to rely more on Tip #5 than on APR when comparing loan programs.<\/strong><\/p>\nAnd finally:<\/p>\n
9) Choose your mortgage professional carefully.<\/strong><\/p>\nI’ve seen home buyers have a scary experience with a mortgage person who was recommended highly by their own friends. Also, keep in mind that some real estate agents choose their “preferred lender” based on whether or not that person can shuttle business to them<\/strong>, seeing as loan officers who work for big banks where people already have checking and savings accounts often get walk-in business from home buyers who don’t have an agent yet.\u00a0 A good real estate agent will potentially forego referral business by recommending lenders based solely on their merits.<\/p>\nThe tips above will, I hope, come in handy when evaluating any lender and loan program.<\/p>\n
(I am not a financial professional and this is not meant as expert financial or tax advice. Please consult with a qualified expert regarding any home loan.)<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"After 16 years in the Seattle real estate market it’s frustrating to see how easy it still is for home buyers to be led in the wrong direction (or sometimes to wander that way on their own) when trying to get the best deal on a home loan.\u00a0 I’m a real estate agent, not a […]<\/p>\n","protected":false},"author":1,"featured_media":3291,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[36],"tags":[3,15,13],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/posts\/2728"}],"collection":[{"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/comments?post=2728"}],"version-history":[{"count":0,"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/posts\/2728\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/media\/3291"}],"wp:attachment":[{"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/media?parent=2728"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/categories?post=2728"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nash4homes.com\/wp-json\/wp\/v2\/tags?post=2728"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}