Three Myths of Mortgage Financing
Taken from AAXA Newsletter - 2006
1. Myth: Good Faith Estimates are binding agreements
that disclose all costs associated with a loan.
For years, homebuyers would ask mortgage providers for
Good Faith Estimates and base their decisions according
to the lowest closing costs provided. Many of these
same customers were shocked to find out that they needed
to bring a considerably larger amount of money to the
closing table. Good Faith Estimates are just that, estimates.
One lender may include three months of taxes while another
uses six months; one broker may disclose origination
fees as points and another may call it a mortgage broker
fee. If a lender or broker is unwilling to guarantee
their fees and rates in writing, then it is time to
move on to a company that will. AAXA uses an Agreement
for Financial Services which discloses all lenders
and brokers fees up-front and in an easy to read
format before a rate is locked with an investor. This
allows all parties to move into the transaction without
any confusion. At AAXA, we honor our commitments.
2. Myth: It never pays to pay discount points.
It is not that black and white. Rather, it is a matter
of weighing savings versus cost recovery. Paying discount
points helps consumers buy into a lower mortgage rate
which, in turn, saves them money over the long run.
However, you have to be in a home long enough to recoup
the upfront costs.
Here is an example on how to calculate the costs
and savings:
1 point is equal to 1% of the loan amount.
Thus, if you pay one point on a $150,000 loan (loan
amount X 1%) you end up paying $1,500 for the
lower rate.
For example:
Loan Amount $150,000
30 Year Fixed Rate with Zero Points at 5.875%
Monthly Payment: $887.31
30 Year Fixed Rate with 1 Point at 5.625%
Monthly Payment: $863.48
Monthly savings by buying down the rate: $23.83
Savings over life of the loan: $8,578.80
Cost for 1 point: $1,500
Savings over 30 year term: $7,078.80 (savings minus
the cost of the point)
Number of months you would need to stay in the house
to recoup the cost of the point buy down: 63 (cost
of the point divided by the monthly savings).
Thus, if you are planning on staying in the house
for more than six years, it might be worthwhile to
buy down the rate. Points may even be tax deductible
in some cases so you should check with your tax advisor
for more details.
3. Myth: Using mortgage shopping services like
Lending Tree will always help you find the very best
deal.
Competition between banks is great and we encourage
our customers to shop around. However, what these
mortgage shopping services dont tell you is
that they get paid from their partners for sending
them their leads. Just because you get offers from
four different banks that they select, what makes
you think that the four banks are offering great pricing?
We suggest calling several companies both brokers
and banks and getting mortgage
quotes. Be sure that the companies are willing
to put their rates and closings costs in writing before
making a commitment. If they are unwilling to do so
or will only offer you a Good Faith Estimate, move
on. If you have any questions regarding your next
mortgage
refinance, give AAXA a call at 877-728-3569.