As a Mortgage Broker in South Florida (Palm Beach Gardens) I can't tell you how many times I have heard these words from my clients. "Just give me the Lowest Payment on My Mortgage" This is why when when preparing a quote for my clients I always layout their financing options. (As any true Mortgage Professional would)
Below is a typical loan scenario:
Loan Amount - $200,000
Fixed Payment for 5 Years 5 Year ARM 30 Year Fix Rate 30 Year Fix Rate
(Hybrid Option Arm) Interest Only 10 Year Interest Only
2.35% (Payment Rate) 5.875% 6.625% 5.875%
7.625% (True Interest)
$775 @ 2.35% $979 $1,104 $1,183
$1,270 I/O @ 7.6%
Now Lets Take a Look Over a 5 Year Period
Fixed Payment 5 Year ARM 30 Year Fix Rate 30 Year Fix Rate
$46,5000 + Balance increased Interest Only
Minimum of $29,700 $58,740 $66,240 $70,980
I/O Payment $76,200
What This All Means to the Borrower
While when buying a home most borrowers really only care about what their payments are many times they loose focus on the big picture. As you can see the Minimum payment of $775 might sound great but in actuality it would be the worst program over a 5 year period. Having a plan before meeting with your Mortgage Professional as to how long you will be in the home is the most important factor. Please keep in mind if you decide to go with the first two mortgage and have plans on staying in the home for more than 5 years you will incur additional costs of a Refinance. In addition, know one has a crystal ball and can see into the future of what rates will be in 5 years.
Please keep in mind the loan scenario is for people with good to excellent credit and have a minimum of 20% equity in their homes. Plus these are general rates intoday's market (1/25/08). Please meet with your Mortgage Professional and ask questions.
In closing, when looking for the lowest payment on your mortgage make sure you fully understand what the true interest rates are and what your choices are. Remember it is your money!
For more Mortgage Advice: Mortgage Advice in South Florida
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For the majority of folk this example goes a long way in explaining the base benefits.
Matthew, I am just trying to give some basic over view to the public. The hybrid option arms while look great on the outside are not for everyone. They are a good tool but for a select few clients. I see advertising crazy low rates as fix rates... as in my other post we just need to stamp those out!
Matthew, this is good information. I think alot of people think like they are buying a car.
Missy, Thank you.. Very true people just look at the payment and sometimes fall prey to slick salesman.
Matt - Oh boy do people need to read this!!! Notice there is no question mark there, that's a statement!
Jason, lol thank you thank you... :-)
Matt,
I second what Jason said. This is a great breakdown for the consumer.
Cheryl, Thank you.. I do try.
Good Post Matt. We all hear either they want the lowest payment or the lowest rate...in both cases...great example.
Jim, Thank you. Sometime people set themselves up to be taken advantage of by bad loan officers or brokers. They really need to see the whole picture before making a choice.