Posts Tagged ‘Interest Rates’

Never Ask For or Buy Just the “Interest Rate”

Friday, June 19th, 2009

On my monthly radio broadcast on Moody Radio Chicago today (WMBI – 90.1 FM) we talked about the recent drop in rates again.  A couple of key tips regarding interest rates:

  1. It’s Not the Rate You Need to Know: When applying for a loan, never ask for just the “interest rate”, but always ask for the APR.  The APR is inclusive of fees and cost and is the ACTUAL cost for the loan on an annual percentage basis (if quoted accurately).  The interest rate alone does not.  Therefore, you may get quoted 5.00% interest, but after fees and costs have an APR of 5.50%.
  2. Check the APR: Once quoted an APR, always check it against a mortgage calculator (these are available free online at places like bankrate.com) to be sure it is accurate.  All you need is the loan amount, payment and term to check.  If the loan amount, payment and term you put in do not match the APR you were quoted, then you were misquoted and need to find out the truth.
  3. The Low Rate You See is Not Necessarily What You Get: Don’t be fooled – the low rates you see advertised are for the very best qualified.  This means 720 to 740 FICO or higher in today’s market, with verifiable income, maximum 80% loan-to-value and low debt ratios.  As your credit score drops and your equity usage or debt ratio increases, your rate most likely will too!  Also, there are lots of additional “premiums” for things like cash out, condominiums and the like.
  4. Rate IS NOT the #1 Consideration in Many Cases: As important as  rates and APR’s are, what’s more important is what you get for the rates and APR.  You can get a great rate and a bad loan or a competitive rate and a great loan.  It comes down to looking at more than just the rate and payment, but also: the term, the tax costs, the fees paid, the purpose for the loan and the all-encompassing cost or benefit.  In other words, if you got a greta rate, but extended your loan term, increased your taxes, paid unnecessary fees and did not capitalize on the best loan for your situation then it was not beneficial (this happens the majority of times in a rate and term refinance).  But if you cut your payments, terms, taxes, reduce debt, save money up front, improve your financial position and negotiate fair fees, you have really done yourself a great service!

To learn more,  get my book at www.mortgagempowered.com or at any major online book retailer like Amazon, Barnes and Noble, Christian Book Distributors, Books-a-Million, etc.

Let me leave you with this nugget of truth from Proverbs 24:3 – “By wisdom a house is built, and through understanding it is established”

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Ever wondered what APR really means and really is?

Wednesday, June 3rd, 2009

APR is the actual interest paid for the amount financed annually, based on the monthly payment and the loan term.

The key term in this definition is amount financed. Today’s Truth in Lending disclosures use two terms on the form: amount financed and loan amount:
1. The amount financed is the amount you actually borrow before the costs and fees. Simplified: it is the amount of money you actually get.
2. The loan amount is the amount you actually owe after including the costs and fees financed in the loan. Simplified: it is the amount of debt you actually borrow.

D I D Y O U K N O W ?
The APR calculation was established by the federal government’s 1968 Truth in Lending Act to help borrowers understand the true cost of their loan. The intention was to create a simple indicator to help compare loan offers between different companies and protect consumers from being taken advantage of or fooled. The reasons for the APR calculation were all good. Unfortunately, the reality is that it has not accomplished its purpose. The vast majority of consumers do not understand and are confused by the APR.

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Rates Are Rising – But It may not be too late to save!

Friday, May 29th, 2009

Although rates are rising, it may not be too late to save money! Even at mid 5%, we are still around historic lows and many can still benefit from the current rates. Do a quick check by comparing your payments and term on your current mortgage to the payments for a refi at a equal or lesser term to what is remaining. If the payments stay the same or reduce and the term reduces, it could still make great “cents”! The key is the savings must clearly outweigh the loan costs within 12 months. Everything after that is savings! As for purchasing, with the new tax credit of $8,000, these are still potentially great rates for purchasing. I’ll give more tips soon on other ways to take advantage of the rates to create great savings.

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Careful – You Might Refinance to a Lower Rate and Payment Just to Lose Money! (part 2)

Thursday, April 23rd, 2009

So how then do you get a mortgage that REALLY saves money?  Here’s the first, key – don’t just lower your payments, but reduce your term! Let’s look at our last example again:

You were going to refinance your current 30-year loan with a balance of $250,000 at 6.0% and payments of $1,558 that you have had for 3 years to a rate of 4.96% for 30 years.  But instead of refinancing to a 30 year loan you refinance to a 25 year loan.  Now you not only reduce your payments by  $111 per month, but you also reduce your term by 2 years!  That is a savings of over $61,800 in payback!  And although there was still a drop in your interest deductions due to the reduced rate, it is less with the 25 year term.  The cost in the next year is only $676 in taxes (based on a 28% tax bracket) versus $747 with the 30 year loan.  Now this is a mortgage of REAL VALUE!  You may say, “Why not just get the 30 year loan and pay more?”  Too much risk you won’t!  Saving both short term (payment reduction) and long term (term reduction) on a guaranteed basis is a much safer and smarter play!  In addition, because of the shorter term you are getting more principle reduction each month and building an equity savings account faster!  For more tips that could save you thousands immediately or to purchase my book – Navigating the Mortgage Maze: The Simple Truth About Financing Your Home – go back to my website.  You can also access FREE articles, resources and a free down-loadable .pdf of Chapter 1 – Avoiding the Top 10 Mortgage Traps! On my next blog I’ll show you how to save money monthly AND reduce your term AND cut your taxes even more!  Stay tuned…

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Careful – You Might Refinance to a Lower Rate and Payment Just to Lose Money!

Wednesday, April 15th, 2009

Here’s a little known fact: most people who refinance and lower their rate actually lose far more than they gain!  That’s right.  Why?  Three reasons: Loan costs, loan term and tax impact.  When you refinance to simply lower your rate with no other purpose, unless you do it right, you will put yourself in far worse shape!  For te majority of people refinancing to a 30 year mortgage, this is almost always true.  Let’s take an example:

Assume you were refinancing your current 30-year loan with a balance of $250,000 at 6.0% and payments of $1,558 that you have had for 3 years to a rate of 4.96% (today’s bankrate for 30 year loans), what would be your savings?  Answer: Nothing for at least 2 years!  Yes, the payments would drop $202 per month or $2,424 per year, BUT when you add back closing costs and fees of $3,750 (assume only a 1.5% total for fees – most are higher than this), a reduction of  $2,670 in interest deductions from the reduced interest rate (which results in $747 in added taxes in the first year alone) and the extension of the term by 3 years making debt freedom and retirement 3 years further away, the savings is almost non-existant.  So how do you actually save money on a refinance and reverse this mistake?  Stay tuned…

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Waiting for Rates to Go Down Could be a BIG Mistake!

Wednesday, March 25th, 2009

With rates at or near 40 year lows, now is a great time to get a mortgage refinance! There’s been a lot of talk about waiting for rates to get to 4% from people who have not been in the mortgage biz. Although that may happen, and would be great, what historical proof do we have it will? Fact is, it has never happened before. In these volatile economic times, mortgage rates are the one bright hope for saving or getting access to money! With prime rates now south of 5%, why wait any longer? If you are wrong and they go down another quarter or half percent – it will change your payments by $15 to $30 per month per $100,000. But if they go up, which the chances are just as good, if not better of happening, you miss out. Look, at worst if you refi to 5 and they go to 4 you can do it again. If they go up, they may never be this low again! Ultimately it’s your choice. What’s the saying – “A bird in the hand is better than two in the bush!?” Oh, one more thing, FHA decreases there LTV limits from 96.5% to 85% April 1st and Fannie Mae is set to add premium pricing on many loans including cash-out and condos (to name a few). Just two more reasons to act now!

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