Why the Lowest Rate is NOT Always the Best Deal!
Special Report From No Down Payment
Mortgage
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After reading this document, you will
better know how to identify the best deals, and you’ll
realize that it’s not always the lowest rate that’s best for
you. This report will break the mold of common thinking that
it’s all about rate and reveal common sense financial
implications of various loan scenarios.
Myth: Fannie Mae and FHA loans offer the
lowest payments available.
Fact: Not necessarily. Fannie and FHA
require monthly mortgage insurance when you have less than
20% down, and the amount you need to pay depends upon how
much money you put down. A program that doesn’t require
mortgage insurance, even though it may have a slightly
higher rate, can have a lower payment, and more tax breaks.
By the way, mortgage insurance is insurance that protects
the lender in case you don't pay your loan, so there's no
value to you. An excellent borrower could pay $135 per month
in mortgage insurance on a $150,000 loan at 100% financing.
Even with a 6% rate, the payment will be about the same as a
non-conventional loan at 7.5% to 8.0% with no mortgage
insurance. The difference is that the mortgage insurance is
not tax deductible, whereas the extra interest may be.
Myth: The lower interest rate costs less
over time and I'll eventually get rid of mortgage insurance.
Fact: True, but if you’re not planning on
staying in the same loan for the life of the loan, this
point is irrelevant. With the average American staying in
their home just under 5 years before moving on, this
argument loses it weight. The savings you’ll have by not
paying mortgage insurance combined with the extra tax breaks
of paying extra interest instead of mortgage insurance will
far outweigh any potential costs of the higher rate. This
leads into why interest-only loans make sense, but that's
another topic.
REAL LIFE EXAMPLE:
We had a client who was offered a 5.25%
rate from another company, but with $289 per month in
mortgage insurance. When they were comparing rates, our 6.4%
rate was unacceptable to them. But, when that 6.4% had no
mortgage insurance or up front discount points, the payments
and up front costs were lower, much lower, making it a
better deal. The client will save thousands per year going
with our program. So, as you can see, it’s not always about
rate. You must look at the total picture. Up front costs and
monthly payment comparisons must be done to determine the
best deal. If we cannot provide you with the best deal, we
will help you identify which one of our competitors has it.
How to determine the best Closing Cost estimate is another
topic...Again, it's not always the lowest bottom line
number.
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