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.
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