Greetings to all and a warm
welcome to new subscribers.
Firstly I would like to extend
a heartfelt apology for not getting the newsletter out to you in March and
April. Technical and administrative
challenges prevented me from sending the newsletter out these two months. Thankfully everything is back on track and I
appreciate your patience and loyalty as we smoothed out the wrinkles!
The focus of this month’s newsletter
is saving money on mortgages. The
amount of money you can save on a mortgage will directly affect your
wealth. Saving a single percentage
point on a 25 year term can put a great deal of extra cash into your pocket or
investment portfolio. If your goal is
to attain wealth by buying and selling real estate it is a good idea to
understand how the interest game is played.
There are three things that
determine how much interest you will pay on a mortgage loan:
1. overall interest rates in the market
2. your personal credit history
3. the type of loan you choose
There is not a lot you can do
about the interest rates however shopping around or utilizing the services of a
mortgage broker can get you competitive rates.
You cannot go back in time and undo past credit mistakes however you can
take steps to get back on track and improve your credit rating. When it comes
time to financing a loan, there are some choices you can make and this is the
information I would like to pass onto you this month.
I recently came across an
article written by Real Estate expert Justin Ford who is editor of a
publication entitled Main Street Millionaire. The piece What’s “THE POINT” in a Mortgage shows a great way to significantly reduce the cost of a
mortgage loan. Loan-discount or
“buy-down” points are a one-time cost you may choose to pay your lender that
reduces your interest rate. A point is
equal to 1% of the size of the loan and is paid at closing. For instance, on a $100,000 mortgage, if you
decide to pay a point up front, it will cost you $1,000 at closing. Here is a step-by-step approach you could
use in a scenario where you are going to buy a house for your family, you
intend to live there at least 10 years and the interest rates are low, or you
are purchasing a revenue property that you plan to keep for a long time.
1. Get mortgage quotes from three lenders by asking for the
same thing from each lender: a 25-year
fixed mortgage with no buy-down points.
2. Compare the fees each lender is going to charge you. To do that, ask them to provide you with a
“good faith estimate” of the total loan and closing costs. All of the lender’s fees should be itemized
along with estimates for closing costs that they have not control over such as
taxes and lawyer costs.
3. If the lender fees
are roughly equal, choose the lender offering the lowest interest rate.
Sound simple? It is but once you begin to work with a
lender he may offer you different options on that loan – particularly regarding
buy-down points.
He may, for example, tell you
that instead of getting a 6.5% rate, you can get a 6.25% interest rate if you
simply pay a half-point up front. If we
use the example of our $100,000 loan that means you would pay $500.00 to bring
the interest rate down a quarter of a percent.
The lender may give you
another choice – perhaps telling you that you can get a 6% rate if you pay a
full point up front. In that case it
would cost you $1,000 to knock half a percentage point off the loan.
How do you know when it pays
to pay the point? Here is a simple way
to figure it out by comparing only two options: a 6.5% interest rate with no buy-down points vs. a 6% interest
rate after paying one point (your cost is $1,000).
Ask your lender what the
principal and interest payments will be under the two interest rates he is
quoting you. You are comparing
principal and interest only, not insurance and taxes because the lender has no
control over them.
Your lender tells you that at
6.5%, your monthly P & I is $633.
At 6%, it is $600. A $33 difference.
To calculate how soon the
extra point may save you money, take the cost of that point and divide it by
your monthly savings. That will give
you the number of months it will take to recoup the extra money you paid to buy
down the interest rate. This is called
your “payback period”.
In our scenario, $1,000
divided by $33 gives you 30. This means
that after about 2 ½ years, you will have recouped the $1,000. After that, the savings are all yours. If you extend these savings over the
remaining life of the 25- year loan, it ends up saving you $10,890!
The exact payback period will
differ depending on market rates and the lender you are working with. Generally, however you can expect it to be
about 2 ½ to 3 years.
There are some instances where
using this buy-down strategy is not beneficial. If you are buying a property to “flip”, you don’t want to buy
down the interest rate. If you are
pretty sure you’re going to refinance in the next year or two, you’ll once
again be better off not paying points.
Another reason you might skip the points is if you are short of cash and
need every dollar just to make the deal happen.
To quickly summarize, if you
have the money to buy down the interest rate and you plan to own the property
(be it your own home or a rental property) for a long time, buying down the
interest rate can turn out to be a very good deal.
end.
Hot Deal Alert!
A discount 2nd
Mortgage in fort McMurray, Alberta yielding over 15% per annum. This one is
good but slightly risky!
Call me to find out more
information. 1 888 281 0111
(May
7, 2003)
Today’s
ProLink Interest Rates on First Mortgages are as follows:
Rates
are subject to change without notice.
|
Description |
Best
Rate |
|
2.49
% |
|
|
6 Month
Closed |
4.95
% |
|
1 Year
Closed |
4.35
% |
|
4.85
% |
|
|
4.90
% |
|
|
5.10
% |
|
|
5.20
% |
|
|
5.78
% |
|
|
6.09
% |
|
|
15 Year
Closed |
6.28 % |
|
18 Year
Closed |
6.38
% |
|
25 Year
Closed |
6.54
% |
Rare Products:
A) No proof of
income and up to 90% Financing for self employed clients. (Personal Res)
B) 75%
Loan To Value Revenue Properties, Self Employed no income verification.
C) 65%
Loan To Value no income verification.
Regards,
Dan Heon
ProLink Mortgage & Financial Corp.
Phone:
403-257-1801
Fax:
403-206-7622
Toll Free:
1-888-281-0111
Email: ProLink@telus.net