James Whitener

Arizona Loan Officer

Variable-Rate VS. Fixed-Rate Mortgages – Which Is Better For Your Financial Situation?

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Variable-rate Vs. Fixed-rate Mortgages - Which is Better for Your Financial Situation? When applying for a new home mortgage, many loan applicants initially consider applying for a 30-year fixed rate mortgage. This is perhaps the most common and traditional type of mortgage available. It allows you to enjoy the opportunity to pay for your home over the course of 30 years with equal payments every month. While this is one option, there are actually multiple choices available. For some applications, a variable rate mortgage may be more advantageous. If you are comparing the options between a fixed rate and a variable rate mortgage, you may consider a few points.

A Lower Initial Interest Rate

When you compare the fixed rate and variable rate options, you will immediately notice that the variable rates have a lower start rate. The interest rate will influence the mortgage payment amount. Because of this, you will benefit from a lower initial mortgage payment with a variable rate. However, it is important to understand that the interest rate on a variable rate mortgage will adjust periodically over the life of the loan. This means that the mortgage payment will also adjust.

Managing A Potential Rate Adjustment

The true benefit of a fixed rate mortgage is the ability to better control your budget and manage your funds. A mortgage payment can be a large expense item in your budget, and it may be the largest single expense you have by far. An increase to your variable rate and therefore your mortgage payment can be difficult to bear if you have a tight budget with no wiggle room. In some cases, the rate may go beyond what is affordable for a homeowner to endure. If you do take on a variable rate loan, it is important that you understand what the highest possible interest rate adjustment is and what your payment may be with that rate. If you can manage that payment, then you may confidently apply for a variable rate mortgage.

If you are thinking about applying for a mortgage, it is important that you consider all of the options carefully and that you understand the key differences between them. You can speak with a mortgage loan officer or lending representative in detail to get more information about the options available to you. This can help you to make a better decision about your mortgage application and to better plan and budget for your future as a homeowner.

Understanding The Key Factors That Affect Your Mortgage Interest Rate

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Understanding the Key Factors That Affect Your Mortgage Interest RateWhen you initially start shopping for a home mortgage, you may be drawn to advertisements for ultra-low interest rates. These may be rates that seem too good to be true, and you may gladly contact the lender or mortgage company to complete your loan application. However, the unfortunate truth is that all too often, mortgage applicants are unpleasantly surprised and even disheartened to learn that they do not qualify for the advertised interest rate. By learning more about the factors that influence your interest rate, you may be able to structure you loan in a more advantageous way.

Your Credit Rating

One of the most important factors that influence an interest rate is your credit score. Lenders have different credit score requirements, but most have a tiered rating system. Those with excellent credit scores qualify for the best interest rate, and good credit scores may qualify for a slightly higher interest rate. Because of this, you may consider learning more about your credit score and taking time to correct any errors that may be resulting in a lower score.

The Amount Of Your Down Payment

In addition, the amount of your down payment will also play a role in your interest rate. The desired down payment may vary from lender to lender, but as a rule of thumb, the best home mortgage interest rates are given to those who have at least 20 to 30 percent of funds available to put down on the property, and this does not include subordinate or secondary financing. If you are applying for a higher loan-to-value loan, you may expect a higher interest rate.

The Total Loan Amount Requested

In addition, the total loan amount will also influence the rate. There are different loan programs available, but one of the biggest differences in residential loans is for very large loan amounts. The qualification for a jumbo loan will vary for different markets, but these loans qualify for different rates than conventional loans with a smaller loan amount.

While you may be able to use advertised interest rates to get a fair idea about the rate you may qualify for, the only real way to determine your mortgage rate will be to apply for a loan and to get pre-qualified. You can contact a mortgage lender today to request more information about today’s rates and to begin your pre-qualification process.

How Low Can They Go: With Mortgage Interest Rates Low, Should You Refinance?

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How Low Can They Go: With Mortgage Interest Rates Still Dropping, Should You Refinance?Do you have a mortgage? You’ve likely seen or heard a lot about mortgage refinancing as interest rates remained low in recent months.

In today’s blog post we’ll explore the topic of mortgage refinancing, including when you should consider refinancing and how to take advantage of low interest rates.

What is Mortgage Refinancing?

In simple terms, refinancing refers to the practice of taking out a new mortgage and using the proceeds to pay off your old one in its entirety. You’ll go through the full borrowing process with your chosen lender, including the credit check, financial history and employment history in order to ensure that you have the ability to pay your new mortgage – even if your monthly costs are lower.

Depending on your financial goals, you may refinance to tap into some of the equity you’ve built up in your home, or you may refinance in order to secure a new mortgage with a lower interest rate or better payment terms. Whatever the case, know that if you decide to refinance you’ll be engaging with a lender for a brand new mortgage.

When Should I Consider Refinancing My Mortgage?

When you should refinance depends on your reason for refinancing. If you’re looking to reduce your interest rate and your monthly payments, you should refinance your mortgage whenever interest rates drop enough that you will be able to save more in monthly payments then you will be paying in closing costs and fees.

Consulting with a mortgage professional is the best way to understand how much money you can save, but to get a quick idea simply take a look at how much you owe on your mortgage, your current interest rate and the types of rates you may qualify for. If you owe $200,000 at 4% percent interest and you can refinance down to 3% percent you’re going to save a considerable amount over the long term.

How to Take Advantage of Low Interest Rates

Refinancing your mortgage is a major financial decision and not one that should be taken lightly. Careful research is needed to determine if now is best time to switch up your mortgage to one with a lower interest rate.

FED Update & Remembering Directions Before Navigation

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FED Update

Yesterday the FED released their minutes from their March Meeting and in a rather rational move they left things somewhere in the middle.  It seems as though some lawmakers think that under certain circumstances that rates could be increased.  However, others think that it could shift in either direction.

I realize this news doesn’t really give any insight into expectations for rates.  It does tell me though that we can expect rates to rise and fall in small increments and we shouldn’t see any major movement in rates for the remainder of 2019 unless there is a major increase in the economic outlook.

Today’s rates are up slightly by 19 basis points (for those not familiar with this terminology it means that rates are up 0.0019%).  To put that into cost terms for you that means if you were to get a $200K loan, the cost of your rate would be up about $380 at closing (or reduce your credit by $380 at closing).  It could also mean a slight in crease in your rate by about 1/8 of a percent (going from 4.5% to 4.625%).

Remembering Directions Before Navigation

On to a little more fun topic that I’m sure some of you can relate to.  I was driving yesterday to an appointment with a realtor that I have yet to do business with.  I was slightly familiar with the area but not enough so that I didn’t need directions.  If you’re wondering, the meeting went great!  I’m excited to say I may have found a new partner that has as much passion for the industry as I do and I can’t wait to work with her to get the absolute best for our shared  clients.

How Things Have Changed…

While driving it got me thinking about the days without GPS.  No navigation in the car (which mine doesn’t have as it’s a 2004 Tahoe and they didn’t offer that feature then), no smart phone or smart watch to guide you.  It got me thinking about the days of having to ask for directions, right them down… look at maps and draw out your path.  I reminisced about the days of getting lost and frustrated because there wasn’t a quick and easy solution to re-route yourself to get back on track.

Being in the real estate industry I am constantly driving to new places and going to meetings in unfamiliar areas.  Without google maps and navigation life would definitely be more complicated. I would most likely have added stress and frustration.  Now, I don’t think all technology has made life easier.  I can’t imagine I’m the only one to get frustrated at self-checkout in the grocery store.  When my computer isn’t working properly it feels like the end of days.  However, in this one instance it was humorous to think about the days when directions weren’t fun, especially for those of you not good at taking or giving directions.

Things Could Have Been Different?

I can’t help but wonder if we had this technology years and years ago when I was young.  It would have prevented my father and I getting lost in Los Angeles when I was 5 or 6.  This was the trip that turned a former smoker back into a smoker. Maybe with this new technology he’d still be a non-smoker?  Who knows but I am thanks for the ability to have a device that tells me where I’m going without having to ask someone for directions.

Have a wonderful weekend! I hope to be your mortgage guy when you are in need of some directions when it comes to a loan for your new home or refinancing your current.

Do you LOVE your Mortgage?

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Admittedly, this is a dumb question.  Of course you don’t.  However, this being Valentine’s day with all the love in the air it seems appropriate to speak of love.  In my business though it’s more like are you content with your mortgage or are you unhappy?  Moreover, are you in love with your house, content with your house or unhappy?

The Deeper Question

A lot of this situation really comes down to your finances and your wants.  Are your finances in a place where your mortgage makes sense?  Is the home your living in exactly what you want (or pretty close) or are you still using your current home as a stepping stone to get to that dream house?

Your Plan

What is your plan if you can answer no to any of these questions?  Have you sat down with a trusted financial adviser?  Have you spoken to a mortgage professional to weigh out all of the options you have to reduce current payments, maximize equity or just flat out look for a new home?  Do you have a trusted realtor that can help you with market trends and set expectations?

Where to Start

Where do you start in all of this to get to that place of contentment in your living situation? Is it your job, is it your pay, is it your budget or lack there of, is it your house… so many questions!

Simple Advice

The easiest solution to all of the questions is start somewhere.  Talk to a financial adviser, a mortgage professional, a realtor, your partner… start somewhere and build a plan.  It doesn’t matter if you are a home body, jet-setter, a workaholic… you’re still going to have to have a place this is yours.  A home that is functional but comfortable.  A house that fits your needs and feels safe.  A place that you’re excited to show off and gleam every time you walk through the front door (or garage entrance door like most these days).

Life and Love

Life is fleeting and you deserve so many wonderful things, don’t wait to find love and don’t wait to live the life you want.  A lot of that starts at home and most homes start with a mortgage.  Let’s get you to answer yes to that dumb question, love your mortgage as it leads to loving your dream home.

The 15 Year Myth

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The 15 year myth has been going on for a while mostly fueled by Quicken Loans.  They have been sending out content via social sites and commercials saying that the new fad in Mortgage is to have a 15 year loan.  While the 15 year loan is a great option in certain situations but is NOT for everyone.  In fact, in most cases it is not your best option.

There are definitely some advantages to a 15 year mortgage. The primary advantage is that it will save you a ton of money on interest over the life of the loan as it cuts your “term” in half as compared to a 30 year loan. A 15 year loan usually has a lower interest rate because you are a lower risk to the bank.  However, there are a lot of factors in life that can change your financial well being. A 15 year loan can put you into a situation where you have now locked yourself into a higher payment and don’t have the flexibility to lower your payment.

Let’s take a look at what I mean by that.  Let’s say you’re getting a $270,000 loan and putting 10% down which makes for a purchase price of $300,000.  We are going to use today’s par rates for a conventional loan and that you have a 680 credit score.

By the Numbers

30 Year Loan – Rate = 4.5% and has a principal and interest payment of $1,368.05

15 Year Loan – Rate = 4.125% and has a principal and interest payment of $2,100.15

The total interest you paid on the 30 year loan if you didn’t make any additional payments or pay above the minimum would be $222,498.12

The total interest you paid on the 15 year loan if you didn’t make any additional payments or pay above the minimum would be $92,540.24

 

You saved yourself $129,957.88 by going with a 15 year loan.

In Conclusion

However, as stated before we all know that life can put a lot of barriers and speed bumps in front of you.  What happens if you locked yourself into a 15 year loan.  You still have to make that $2,100 payment every month.  Where as, if you went with the 30 year loan but made the payment every month like you were on the 15 year loan you can still save yourself almost the same amount of money but if you were to lose your job you can reduce the amount you’re paying every month from $2,100 to $1,368.

I’m not saying you shouldn’t save yourself the money. I’m saying you should treat your 30 year loan like it’s a 15 year loan and make that monthly payment when you can (and hopefully that’s the full term). Now when life throws you a curve ball you have the flexibility to reduce your payment.  Now you have not put yourself in a situation where you have to drain your bank account, possibly need to sell or even refinance because you locked yourself into a higher payment and didn’t stay flexible.

I hope you found this information helpful and gives you food for thought when considering what term you want to go with.  Again, i’m not saying the 15 year loan shouldn’t be an option but it is a very situational loan for those who have a lot of extra monthly income and are in a situation where they have a sizable nest egg to be able to get through those major speed bumps that can and do happen.  Please feel free to call me to discuss or click the link below and submit your information to find out what loan term is best for you!

 

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