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Home Mortgages >> What You Are Rarely Told

Ever wonder what mortgage companies and other creditors want?  Of course you do, we all do. They all want the same.  They want you to:

  • Finance your new home purchase with them
  • Refinance your home and take advantage of your equity
  • Buy your vacation home through them
  • Tap into your home equity and buy the vehicle of your dreams (its tax deductible!)

It's the American dream and everyone wants a piece of the American dream.  I'm sure right after you hear the commercial encouraging you to use the equity in your home to buy whatever your heart desires you have heard this on the news:  Credit card debt and home foreclosures are at all time highs in our country and climbing. 

Bankruptcies were in the news a couple of years ago and were at an all-time highs until congress tightened the reigns and made it harder to file bankruptcy.

It's the American dream.  Graduate from high school, go to college, buy a home, buy a boat, buy his and hers cars, join a country club.  Caching, Caching, Caching!  Creditors love these kinds of people and love it when they walk through their doors.

I know you have been told this but the interest you pay on all this debt is amazing and makes the mortgages companies and credit card companies a lot of money each year.

Compound interest works real good.  It works real well in favor of creditors when you and I pay it and it works really good for us when we save.

  • Did you know that for every $1,000 you finance over 30 years at 6 ½% you will pay more than double that amount in interest at the end of 30 years?
  • Did you know if you pay just an extra $50/month on a $100,000 home loan at 6 ½% for 30 years you will cut your loan from 30 years to 24 years and 4 months?
  • Did you know that the rate you pay on the loan is not the true cost of borrowing money? 

100% loans have been popular for years.  The problem when you finance 100% of your loan you pay dearly for financing your down payment and closing costs as I have shown when you finance just $1,000 over 30 years at 6 ½%. Do the math and you will see what it costs you to finance $5,000 to $15,000 over 30 years.

I have a handful of clients as a Realtor that paid off their home mortgages in 10 years or less!  They did this by making an extra principal payment on their loan each month and an extra yearly principal payment when they received their tax return.

Too many people focus on the payment and interest rate quoted on a mortgage loan or any loan for that matter.   What you need to be looking at is the cost of obtaining that mortgage which is affected by "Closing Costs".  These closing costs can vary dramatically from lender to lender.  I have seen closing costs vary as much as $3,000 on the same loan amount!  This will affect the true cost of borrowing money and is disclosed in the "Truth in Lending" form you should receive before you commit to any loan.  Excessive loan fees can raise your APR or Annual Percentage Rate which is the true cost of borrowing money.  The closer the APR is to the note rate you were quoted the less your closing costs are.

The American dream of owning a home is a wonderful dream if it is purchased wisely and not abused.  Think twice before you are lured into low cost mortgage loans.  Read the fine print and learn what your true cost of borrowing money is.

Think twice before you tap into your home equity as well.  Home prices sky rocketed in 2005 in many parts of the country.  Many homeowners ran out and borrowed money on their huge equities and I don't have to tell you what has happened to many of those homeowners.

This is a great time to buy a home and get a good price on one.  This is also a good time to take these tips into strong consideration and look at building up wealth instead of giving it all away.  Pay as much of your own down payment and closing costs you can instead of financing them into your loan.  Borrow a monthly debt you can handle comfortably and prepay whatever you can and discipline yourself to do it.  The reward will be a nice equity to buy your next home or a free and clear home and the years to enjoy it.

You can take the money that you have saved on your home mortgage and finance a college education or fund your retirement account.

This is the smart way to get a home mortgage and a smart way to use it.

 

 

www.SearchIdahoHomes.com

Native Idahoan and Boise Idaho Real Estate specialist serving Boise, Meridian Eagle, Nampa, Caldwell and the surrounding Treasure valley area of southwest Idaho. Specializing in residential, investment, land and commercial real estate. Search thousands of MLS listings at Boise Homes for sale and learn all about Idaho by visiting Search Idaho Homes

Comment balloon 21 commentsGeorge Tallabas • August 20 2007 08:58PM

Comments

Tank you for the post. Very informative.
Posted by Richard Thewissen (ERA Realty Pros) over 11 years ago
You are welcome Richard
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

George - I am working with a young couple that are looking at a lot more house than they have.  They have the credit scores, they have the income.  And from the start they have wanted to look at homes in the upper end of their pre-approval.  I have discouraged this to a great extent and been talking to them a lot about not getting over extended.  They are slowly 'getting it' but it's hard to get through to them and not feel like I'm squashing their dream.

I would much rather guide them into responsible financing than quick and easy that will wind up costing them a lot more money. 

Posted by Carol Smith (Casmi Photography) over 11 years ago
Carol - Good for you.  Too many young couples want to jump in and buy over their heads.  You are welcome to share this post with them if you believe it will help.  I hope you had a wonderful day.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Excellent advice! Thank you.
Posted by Rosario Lewis, GRI, SRES - DDR Realty - Orange County, NY (DDR Realty) over 11 years ago
Rosario - You are very welcome.  Have a great evening.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Great advice for buyers George, particularly the part about now being a great time to buy (if you're ready and qualified), because there are deals to be had and rates (outside of Jumbo) are still very low.  Very insighful post George.
Posted by Adam Waldman, Realtor - Long Island (Westcott Group Real Estate Company) over 11 years ago

Adam - Thank you my friend.  Have a great day.

Michael - You are very welcome

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Hi George, great informative post!!  I pay extra on my rental property every month. I don't like debt.  I hope your day is wonderful!
Posted by Dianne Barody, Pensacola Florida Real Estate (Century 21 AmeriSouth Realty) over 11 years ago
Dianne - You are welcome my friend. All is well here in Idaho and be blessed!
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
Hey George great advice , we have been paying extra on our morgage and we are down to three years left on ours...
Posted by Vicki Bishop GRI - Alabama Real Estate (Coldwell Banker United Realtors®) over 11 years ago
George - Nice post and since I am in the mortgage industry, I'd like to throw in some other tips.  You are correct, the APR is the true measure of the total cost of the loan but even this number can be manipulated by some "mortgage professionals".  The cost is calculated by assigning the fee to the formula to calculate the APR, if the loan officer does not assign the fee to be calculated, guess what?  The APR will not reflect a true total cost and mislead a client into thinking something that isn't accurate.  Not every fee is calculated against the APR.  The most important fees to consider are the fees associated with the lender, generally, these are the fees on the Good Faith Estimate labeled in the 800 section.  Nearly all other fees on the GFE are third party fees and they are what they are, for example, home owners insurance, property taxes, title charges, etc.  As I am writing this, I feel I may write an article for my blog and go into much more detail, thanks.
Posted by Joe Bartolotta Florida's Upfront Mortgage Broker (Fidelity Mortgage Services) over 11 years ago

Vicki - Good for you...keep up the great work!

Joe - Thank you.  I just borrowers to look at paying off mortgages in a timely manner rather than financing 100%+ of their equites constantly as many have done.  I believe this would help our countries financial economy immensly. 

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George - thank you and 5 stars to you!!!  The blog I posted after reading yours is http://activerain.com/blogsview/180999/Calculating-the-APR-on, take a look when you have some time.
Posted by Joe Bartolotta Florida's Upfront Mortgage Broker (Fidelity Mortgage Services) over 11 years ago
Thank you Joe
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George - Great advice for buyers. Thank you so much for sahring!
Posted by abka defg over 11 years ago
Bonnie - You are very welcome and welcome to use any posts I write if you wish.  Take good care.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George, there's a lot of good information here. I figured that mortgage companies all got about the same amount for closing costs, and that some companies just made it sound like they charged less...not true?
Posted by Sue Argue, NH Home Stager (Staged First Impressions) over 11 years ago
Sue -not true...closing costs vary considerably between mortgage banks and mortgage brokers.  I have seen some mortgage brokers charge as much as $3,000 more for closing costs than other mortgage banks for the very same type of loan and the same customer credit score.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

Thanks George,

Good information I am going to start paying that extra 50.00 on my mortgage payment!

Posted by Maria Lechner, Home Stager Boise ID (The Added Touch Home Staging) over 11 years ago
Maria my friend - "Get Er Done" and you will see awesome results!  Your mortgage bank will hate to loose the interest but you and your family will benefit beyond your imagination.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

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