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This week we are going to describe how we can arrange financing that
best suits each of our long and/or short-term goals. Up until the late
1980s this was not so easily done, especially with VA or FHA. Prior to
that time the government set the VA and FHA rates and the seller was required
to pay any discount points necessary for the buyer to obtain this "set
rate". Conventional rates were set by the lenders usually a little
lower than VA or FHA in order to compete for the business. In those days
the question "what is the interest rate?" was valid because
the rates were set and controlled.
With few exceptions (PERS-CHAFA-etc.) rates are no longer set or controlled.
In fact, we can now arrange interest rates and terms to fit each person's
goals and objectives. The question "what is the interest rate?"
is no longer valid because it is not complete. We can arrange just about
any rate we want and it just depends on how much we want to pay or not
pay.
Most, if not all fixed rate mortgages are sold on the secondary market.
It is easy to understand that these investors are willing to pay more
for a loan with a rate of 7% than one with 6 3/4% because the return is
higher. We can arrange loans so that a borrower can avoid paying any points,
origination fees or any costs at all if that is what suits a particular
persons goals and/or circumstances.
This is where the planning comes in. The shorter time a person is liable
to own a property, the less he or she should pay in upfront costs and
fees. For instance, if you pay a 1% origination fee or whatever the lender
calls it, you will usually buy the interest rate down 1/4 of a percent.
It will take about 5 years to recoup your investment in this 1/4 percent.
Even if the plan is to own the property for more than 5 years, it still
depends on where the money is that is going to be used to buy the interest
rate down. Many people have their money in mutual funds or other investments
and are earning 10 or 12 percent or more. In this case, it would require
serious consideration of long-term goals before using this money, or money
that could be used to earn at this rate to save a small amount on mortgage
interest.
It is time well spent to counsel with a mortgage broker to determine
which rates and terms best suit your goals.
Compliments of CenCal Mortgage - 805/238-5626
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