Confused about mortgage rates?
A lot of shoppers out there are always looking to find the best possible deal available on the market, and that’s fine, you’re entitled to it. As mortgage professionals our goal should be to give YOU the best rates available in the industry at all times. However, unless the interest rate is locked nothing is guaranteed. Furthermore, if the rate gets locked and the loan is not closed before the lock expires then there could be additional adjustments to the rate or additional out of pocket cost for the rate you want. Not to mention other unforeseen events that could occur before closing, which may require a rate increase. I know this can be a bit technical and confusing so let’s go over a scenario to help illustrate. There are other factors that could be worse than mortgage rates, and as a prospect buyer you shouldn’t let a small rate hike stand in the way of you buying your dream home, because after all, isn’t that the goal?
So here are some breakdowns of possible deterrents that every homebuyer should consider before buying their dream home. These factors could cost or save you more than a small hike in mortgage rates.
- Property Taxes – every house has a different amount due at the end of the year. The bigger the home and the more expensive it is, including great location, the more in taxes the homeowner will have to pay. With that said, finding a smaller home, in a slightly less desirable location, at a cheaper sales price will yield a lower monthly property tax payment than a bigger, more expensive home in a desirable neighborhood. This simple change from one property to another could save you anywhere from $30-$80 a month just on property taxes. Just keep in mind that the higher the property taxes are, the more your home is worth, which is a good thing.
- HOA (Homeowner Association) – A lot of people don’t like to pay HOA and I can see why. Some of the services provided are minimal compared to the amount of HOA you have to pay every month. HOA monthly bill can be very steep in some places, ranging anywhere from $35 a month for a small community to over $300 a month in a nicer community with more amenities. When the HOA provide greater amenities and service the HOA monthly dues may be justified and not much of a burden. It can add increased value to your overall lifestyle. However, it becomes a problem when the HOA is not providing much and charging a lot for little service and no amenities. That could be an additional $100 a month wasted on HOA for nothing. The Solution? Don’t buy a home in a HOA community that doesn’t provide enough benefits for you and your family. Make sure you’re getting your money’s worth before deciding on whether or not you want to be part of a community that charges HOA. At the end of the day if it’s out of your budget then it’s not worth it.
- LPMI (Lender Paid Mortgage Insurance) – A lot of prospect buyers don’t know about this, but your lender can pay your mortgage insurance upfront for you. The catch? (There’s always a catch). The rate for these types of loans are usually higher, but if the numbers make sense, you can still save an additional $25-$50 a month by simply getting a higher interest rate in return for not having to pay any mortgage insurance for the life of the loan. This conventional loan option is great if the buyer is not putting 20% down on a new home.
- Another very important factor to keep in mind is your credit score. Not only do you need decent credit to qualify, but it also helps you get a better interest rate the higher your credit score is. If you really want to have the best mortgage rates on the market you should focus on having an excellent credit score in the 700+ range. Of course not everybody will have it, but if you do you will be in great shape. If you’re not quite at 700 don’t worry, we’re talking about a very small difference on your monthly mortgage payment. For example, a $275,000 loan amount for 30 years fixed at an interest rate of 3.875% will give you a mortgage payment of $1,293.15 (not including hazard insurance, property taxes, HOA, or mortgage insurance). If the mortgage rate increased an eighth of a percent (⅛ or .125%), going from 3.875% to 4%, it will only cost an additional $20 a month ($1,312.89) on your mortgage payment. That’s far less than all the other items I mentioned above.
These are just some of the common things that could spike your mortgage payments. There are other factors not mentioned that could also increase your monthly payment, but these items highlighted above are the main ones to watch for.
Conclusion:
There are far more important factors to consider than just the mortgage rates. The main goal that every prospect buyer should focus on is their budget and how much they are willing to pay on a mortgage every month. Having a budget will significantly improve your decision making process instead of just hoping for a better interest rate. As mentioned above, a slightly higher interest rate is not necessarily all that bad, it will only increase your monthly mortgage payment a few dollars depending on the loan amount. Also, remember that if you choose to go LPMI the rate will be much higher, but with no mortgage insurance resulting in a lower mortgage payment. These are all stuff to consider. The goal at the end of the day is to stay well educated and strategize to obtain the lowest monthly payment on your mortgage.
