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Choosing the Right Rate and Program

There are a lot of different things to consider when selecting a Mortgage.  It’s not as easy as “I’ll take the lowest rate today.”  There are things your loan provider should ask you as everyone’s situation is different and their goals in owning a home are different.  You may have done your “homework” and decided that you want a 15 year mortgage because you want to pay it off at a faster rate.  But what you maybe didn’t consider was taking out the 30 year for a lower rate, paying your monthly mortgage at what the 15 year would have cost you and building in a sort of “safety net” so that if you ever had a period of time that you couldn’t pay the full amount you can lessen the payment without any penalty from the lender.

A mortgage is an investment and you should be able to speak about how you’d like your money to be used.  You wouldn’t go to a financial planner and say, “Hey, I’ve got some money, and I want to buy some mutual funds. Pick something for me.” You would sit down, and you would discuss, “What are your short term goals? What are your long term goals?” Then, buy the appropriate products that match your goals.

Matt O’Brien:  Welcome back to another segment of “Arizona Mortgage News.” We’re here with Mike Goblet, United Mortgage and Financial Group. Good morning, Mike.

Mike Goblet:  Good morning, Matt. How are you?

Matt:  Not too bad.

Mike:  Good.

Matt:  Got another cool wonderful day here, in Arizona, in the month of June. We’re going to talk about how to choose the right rate and program for your mortgage. Is that correct?

Mike:  That’s exactly. I thought would be a very good topic, as part of a series of the 10 things and terms to really know about a mortgage. It’s not as simple as one may think.

Matt:  I’m sure it isn’t, and you’re going to enlighten us.

Mike:  I’m going to try. All to often, too many people simply look at a mortgage as a loan their getting from the bank, but it’s actually much more than that. It’s actually designed to be or should be designed to be a financial management tool to help them manage what is probably, in many cases, their biggest asset.

That’s their home. You wouldn’t go to a financial planner and say, “Hey, I’ve got some money, and I want to buy some mutual funds. Pick something for me.” You would sit down, and you would discuss, “What are your short term goals? What are your long term goals?” Then, buy the appropriate products that match your goals.

A mortgage is actually much the same.

Matt:  Makes sense.

Mike:  While a 30 years fixed is considered the gold standard of the industry, there are a variety of other considerations that should be part of your decision, before you even choose what program to go with. OK? First you should really decide “Is a fixed program the right program for you?”

ARMS got adjustable rate mortgages got a bad wrap, a few years ago, coming out of the meltdown that we all went through, of the mortgage industry, but it got it for the wrong reasons. What happened is the industry got involved with just getting to the lowest rate available for whatever period of time, because housing values were going up so fast, everybody said, “Well, you can just refinance out of this, when it comes to readjusting for you”.

We found out, one, home values quit going up and, in fact, retreated. ARMS were a bad because of why they got into them. OK? But ARMS were designed for a specific purpose and goal and if you follow for that, they’re a good item. Part of that decision is based upon, “How long are you going to be in that mortgage?”

Not just the home but that mortgage. For instance, you might be moving. You’re just in for a job relocation. You know within five or six years you’re going to be moving out. Or maybe you’re planning on refinancing after home improvements are done. You’re taking money out now to get cash. Then going to look to refinance after you’ve improved the value of the property.

So, there can be times that ARMS are good value and actually can save you thousands of dollars over that period of time.

Matt:  Makes sense. Is there are rule of thumb with ARMS over fixed as far as number of years?

Mike:  No. No. It really just gets into your own specific scenario and having someone show you all the options, including about what may happen when your loan goes to readjust. In fact, on the other hand, we recently had a call from a client that was planning on buying a second home here in Arizona from Florida.

They were going to move here but not for three years. Then sell their home in Florida, use that large chunk of cash to pay down the principle on the loan they were going to buy and put down less here than they might have otherwise. So, we considered and ARM, but here’s where it really gets into more strategy.

We also have a lender that will allow a client to do a one‑time recast of their loan while keeping the same rate. Bottom line, this client after they’ve sold their home in Florida, and now had the cash, were able to put down a large chunk, reduce their principle balance, have the loan recast at the new lower loan amount, and still stay in their 30 years fixed.

Matt:  That’s very cool. One recast in a loan? Is that how it works?

Mike:  No. This lender allows it.

Matt:  Wow.

Mike:  You may go to a lot of banks. They may say, “No. What are you talking about?” Well, we only have one lender that I’m assured that will allow that. Again, that’s one of the advantages of being a mortgage broker over a banker in many instances, because I have other loan options available to me and different lenders that have different guidelines.

Matt:  It’s good to know you.

Mike:  I hope so. Once you’ve decided whether a fixed or an ARM is the right. The next question is, “What terms should you use? How many years?” If this is a purchase, and you know you’re going to stay in the home for a long time, a 30 years fixed becomes the obvious goal, if your lowest payment is your objective, because 40 years mortgages don’t exist anymore. If you’re looking to manage that term or that payment 30 years…

That’s why it’s the gold standard or the one used. There are some other decisions to make as well. For instance, say, “You know, I want to pay this off at a faster rate. So, should I take out a 20 years or a 15 years or a 10 years,” and the answer is, “Maybe”. Or, if you want to build in a safety net, let’s take out a 30 years but make a 15 years payment.

On a 200 thousand dollar mortgage if you did that scenario, it would probably take you 15 years, eight months approximately to pay off that loan. Yet, you left yourself the real advantage of, if for any month or period of time you needed to make a lesser payment, you have that ability. Again, it gets into a strategy. OK?

Matt:  It makes sense.

Mike:  We also have a lender who will allow us to choose any number of years that you wanted to do, 21, 17, 15, 12, whatever it is. If you’re doing a refinance, for example, and you don’t want to start over again and don’t want to add years to your loan from where you are, we have a lender that will allow us to do the term based on the exact number of years you wanted.

Matt:  Very nice. I haven’t heard that before.

Mike:  Finally, how do you choose the best rate? It’s not as easy as just saying, “What is the rate today?” As we talked about in other videos, there’s a lot of things that go in, besides daily changes in rates. There’s things like your FICO score or your loan devalue, even the loan amount that goes into the rate.

But probably one of the most impactive and the least understood or explained is YSP, yield spread premium or the term banks use, Service Release Premium. This is the amount of the rebate or cost buy down that a specific rate provides. It is how you get to such things, terms you hear in mortgages, like “No closing costs”, “No origination fee”, “We’ll pay for your appraisal”.

It all gets involved in that. Yet, the majority of banks will never tell you what all of your options are, with that YSP and SRP. I actually provide the lender’s pricing sheet, and you choose.

Matt:  Seems like an honest approach.

Mike:  There’s no right answer. It gets involved to you individual circumstances in a lot of this. But candidly, like any financial tool, if you make the wrong decisions it can cost you thousands of dollars. You need to treat your mortgage like the financial management tool it was designed to be.

Don’t just get a quote from a lender without an in depth discussion of the options available to you depending upon your scenario. Actually even on my card it says “I’m a mortgage planning specialist.” I’m not just a loan provider. I will ask the questions and help you decide what program is best for you.

Matt:  Make sense. Another interesting segment, it really does pay to evaluate a lot of those options. Do you get many people that go with funny years? Like 21 or 25 or 15?

Mike:  Not many. Most people I make it offerable to them, but not many take advantage. They just want it rounded out, because that’s what they’re used to dealing with. But it makes a lot of sense if you’re in 21 years of a 30 years mortgage. Thirty years might get you a new lower rate but starting over again, adds years onto the mortgage which can offset some of the benefits depending upon how long you’re going to stay in that loan.

Matt:  Makes sense. Mike, if people want to follow up with you, have some questions, what’s the best way to get in touch with you?

Mike:  You can call me here at the office, at 480‑503‑3533, or call my cell phone direct, at 480‑220‑2329, or email me at [email protected].

Matt:  Thanks for another great segment, Mike. We’ve got a round of applause for you.

[applause]

Mike:  Thanks. That’s appreciated. Thank you very much. Speechless, Obviously.

Matt:  Speechless. Until next time.

Mike:  You have a good day.

Matt:  You too. Bye Bye.



This post first appeared on Phoenix Arizona Home Mortgage Lender-United Mortga, please read the originial post: here

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Choosing the Right Rate and Program

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