Ok, obviously you want to get the best rate, lowest costs, and right loan term on your new loan. But are most loan hacks forgetting to ask the most important most important mortgage planning question? If your goal is to save money, then the question you need to ask yourself is – How long will you have the loan?
It seems simple right? But when I meet with folks they often tell me that the most important thing to them is to get the lowest rate possible. Well of course that’s a great thing, but is it always? The truth is that the lowest rate possible could actually cost you more money than a higher rate. It’s true! This is true in a number of diffent aspects of your loan –
- The cost or credit of a given rate
- The term of the loan
- Mortgage Insurance
Let’s look at a quick example just on the last one here, Mortgage Insurance. We have loan programs that we offer No MI even with less than 20% down. Great, right? Yes, in some cases… In some not so much. On a $250k loan, with 10% down a loan WITH MI with have a higher initial monthly payment, but a lower interest rate. So which one is better? Well for the first handful of years the No MI structure wins due to the low initial payments. However, the MI loan wins over time. Why? Because that loan has a lower rate, and once the MI is gone (which it can be removed) then you’re left with a lower rate for the life of that loan.
This can also be played out for a number of different components of your loan including rate and loan type. So how do you choose? You do the math, or find someone who can do it for you. The worst part? Many folks are in the wrong loan structure even now! If you’d like to find out more about the changes you can make to your loan right now to save you money, just click here to send me a quick email. I’ll share a couple quick formulas with you to determine how you could save money right now.
- Jeremy Beck
- Mortgage Planner
- Recreational Break Dancer