WARNING…WARNING…
information overload...
In the last few days, I have seen several blogs talking about the 4.5% rate. Fred Chamberlin wrote this post. Could Mortgage Interest Rates Drop to 4.5% with Treasury Intervention? He put some good information out there which ended up with some thought provoking comments. But are lower rates just a quick fix???
I have read all the comments and I am a little disturbed at the lack of knowledge and or the lack of common sense that some of us show. I feel that there is something lacking in these comments, lacking in today's society, and in our profession of lending & real estate. Yes, this is my opinion... but I want to share a little thought.
Just for the record, before I move forward. Some have said that I come across harsh, or like a know-it-all with a twist of ego. I will admit, I have come across harsh sometimes in comments, but for reason. It's time to wake up. I take my job seriously...Not saying that you don't. I have a lot of pride in what I do... and lots of passion. And I truly believe in taking that extra time, educating the consumer with more than opinion that just blows in the wind. We need to tell the consumer what they should hear, instead of what they want to hear. I want real thought with my comments and stats. The kind of talk that I am talking about is hard core real estate talk. Lenn Harely is very good at this and she tells it like it is. Chalk full of real information and not fluff, allowing the reader to make up their own conclusions and not false thinking because it was just a happy blog with good news. Today she wrote, The Housing industry is in a recession, what are you going to do about it. Don't get me wrong, I despise the doom and gloom type of blogs, but we do need specific details with a positive twist.. back to the issue at hand.
Watch out for the trap..... The credit trap aka the mortgage trap aka the RATE TRAP !!!
Here is my thinking on this. More than half the comments stated :
- Hurray for lower rates. 4.5% would be awesome.
- Wow, business will pick up. Those on the fence should get off.
- This should jump start the economy.
Yes, I will admit, when hearing a low rate, that sells. But haven't rates been low for the last 3 to 5 years? Didn't people buy with 12% or 18% rates back in the 80's ??
Again.. payment should be key. Rate just makes payment. You live with the payment, not the rate.
Opinion or Facts……
Here is my issue with everything that I mentioned above. To many people focus on rate and loan officers in general don't help with this. This post is about 1 1/2 years old, but the basic concept is the same. Rate vs Payment
When I first speak to a potential client, my first question usually is, "what payment are you comfortable with?" Not, how much house do you want.... how is your credit.... what kind of money do you make. I really do stress payment over rate. Yes, a lower rate lowers your payment or increases your purchase amount. But as a loan officer, we not only need to educate, but set reasonable expectations. Here are my top 6 questions that I ask any borrower.
Let's take a quick look at today's rate vs lower rates and payments......
|
Mortgage Amount
|
$120,000
|
$120,000
|
$120,000
|
|
Interest Rate
|
6.00%
|
5.50%
|
4.50%
|
|
P & I Payment
|
$719.00
|
$681.00
|
$608.00
|
|
Difference in Payment
|
--
|
+ $38.00
|
+$111.00
+$ 73.00
|
As you can see, going from 6.0% to 4.5%, you would save $111.00. Now, it's a savings, but nothing spectacular when you say that you are going to lower the rate 1 1/2%. And keep in mind, if this was a refinance, now you have costs that you would add onto the loan amount, which would reduce your savings.
|
Mortgage Amount
|
$200,000
|
$200,000
|
$200,000
|
|
Interest Rate
|
6.00%
|
5.50%
|
4.50%
|
|
P & I Payment
|
$1,199.00
|
$1,135.00
|
$1,013
|
|
Difference in Payment
|
--
|
+ $64.00
|
+$186.00
+$122.00
|
As we know, real estate is local. In some parts of the country, many people don't see purchase amounts above $100,000, or $150,000. In some areas, you will see an average of $250,000 to $400,000.
As you can see, the higher the loan amount, the greater the savings when the rate is lower. If you go from 6% to 5.5%, you save $64.00 a month. But if you go from 6% to 4.5%, you would save $186.00 per month. But look at this... if you went from 5.5% to 4.5%, you would $122.00 per month.
Summary : Keep in mind, these are just rate comparisons, not to include closing costs, points, or lender fees. It also doesn't take in consideration of pricing hits if you are putting 5% or 10% down with credit scores under 680 on a conventional loan. As many of us know, FHA loans don't have pricing hits until you get under a 620 score. Overall, these are just examples without profit margins to make my points.
Keep this in mind..... just because they said that rates would be lowered to 4.5%, you don't know at what cost to the consumer. So again, hence why I consider many of these blogs that talked about lower rates to 4.5%, don't mention information such as what was discussed in this post. It's almost like misinformation. How can you truly gauge the difference of a lower rate to what rates are now, until you know what it will cost? What will this cost us long term? Just food for thought...
One last thing..... look at it this way... >> This is a 3 part - food for thought...
1. If $200 extra in your pocket was going to make or break the deal for you. Now by saying, I will have something left over... ouch. You should have more left over than that. You can't survive, especially in today's market with just $200 extra in your pocket. Maybe if you are single, but not if you have a family. Things happen last minute. Hence why I sell payment and not rate.
2. If you told me that you didn't want to go over a payment of $2,000. I tell you that you could qualify for $300,000 and you are shocked at such a high purchase price. Then I tell you that your rate is 20%... you say, no %$#$ way. Okay, but it fell into what you wanted and so did the house. Again people, rate is just a thought stuck in the head. We want things at a discount, it makes us feel happy. We feel like we got a great deal. That comes with shopping at the store. Buying a home is one of your biggest investments ever. You need to focus on payment, not rate.
3. Here is one another reason for my fear of lower rates. It could be a part of this.... inflation vs deflation, which could lead us into a great depression. And that is no joke.
4. Lastly, even though much of this post was about payment, the underlying message is that lowering rates now, could hurt our economy in the long haul. There are many reasons for this. But basically because we will be paying for this ourselves, even though the gov't will be in charge of this. Robert Ashby wrote about this in his 4.5% rate blog, which is a must read.
All pictures from istockphoto
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Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. : The FHA Expert
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags
Copyright © 2008 by Jeff Belonger
Last night, I attended a networking reception held by the Camden County Hispanic Chamber of Commerce and sponsored by Verizon. The event was held at the Victor Lofts in Camden, NJ. The Victor is in a building where Victrolas used to be manufactured. It's an interesting building. 
