Monday, February 13, 2012

Great Investment

If you invest in a savings account, you'll make less than 1% and will have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment on a regular basis and you'll essentially, earn at the mortgage interest rate which is certain to be more than you're earning in the bank.

Making additional principal contributions on your mortgage will save interest, retire debt and build equity. An extra $100 a month in the example shown will save thousands in interest and short the term of the mortgage as well.

Reducing your cost of housing is another way to improve the investment in your home. Becoming debt-free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.

Monday, February 6, 2012

Risk Determines Rate

Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

  • Loan amounts - conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
  • FICO score - the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
  • Occupancy - borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
  • Loan purpose - purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
  • Debt-to-Income ratio - a borrower's monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower's ability to repay the mortgage.
  • Loan-to-Value ratio - the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower's ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.