Buyers need to update
their relationships with their
local loan officer so they know
when to climb through the window
of opportunity that keeps
sliding wider these days. Have
you been looking at the interest
rates lately?
Favorable economic
conditions have allowed the
rates to slip below 6 percent in
some markets. Bankrate.com has
them listed at 5.68 percent for
a 30-year, fixed rate mortgage;
the Mortgage Bankers Association
of America has it at 6.06
percent. (Keep in mind, these
rates would be for a borrower
with premiere credit and low
debt.)
Nevertheless, if you've
been looking to buy, a buyers
market is where you need to be
buying -- and that would be now.
Plenty of inventory, stabilized
prices, and cheap money.
As you're seeking mortgage
rates, you obviously want to be
looking at the cost of the
mortgage as well. You want to
know how much you're going to
pay for points (equaling 1
percentage point of the loan
amount); origination fee;
document fees; appraisal,
courier, etc. All of these fees
will give you the real cost of
the loan besides just the
interest rate.
Nevertheless, the interest
rate is one of the most
important parts of the mortgage.
If you can determine your
interest rate, you'll know how
much a house payment will be
(within a few dollars) as you
start shopping. Your interest
rate will give you a different
cost for every $10,000 borrowed.
For instance, if you're in the
$300,000 range and you're going
to put down $30,000, and the
interest rate is 6 percent, then
every $10,000 borrowed will cost
about $60 per month.
If your rate is at 7
percent, it's $66.50 per $10,000
and so on. Thus, if you look at
a house for $320,000 at 6
percent, you know the monthly
payment would be $120
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more than the house for
$300,000.
This of course doesn't
include the taxes and insurance
which will differ quite a bit
from area to area. To determine
the total monthly cost per
$10,000, you'll also need this
information. For most
jurisdictions, the tax bill is
collected by the mortgage
company, held in escrow, then
paid out to the tax revenue
department. So if your taxes are
$3,600 per year, the lender adds
$300 per month to your mortgage
payment and holds it in escrow
till the due date.
As you can see, this
little bit of information can
assist you in determining what
the monthly expense would be for
each home you see in a different
price range without having to
run a whole new mortgage
calculation. Thus you would know
that a mortgage of $270,000 at 6
percent would cost you $1,620
per month. Then, as you move up
and down the scale, you can
calculate what that's going to
mean to your personal finances.
A $280,000 mortgage would be
$1,680 ($60 more) and a $260,000
mortgage would be $1,560 ($60
less).
Keep in mind, the above
number ($60 per $10,000) is only
principal and interest. If the
taxes for that house were at a
.89 rate per $100 in value, then
you could calculate the taxes
per $10,000 as well -- in this
case, it would be $89 per
$10,000. So we add that to the
amount -- so the total cost per
$10,000 for principal, interest
(at 6 percent) and taxes (at the
.89 per $100 in value) would be
$149 per month.
This way, if you see the
house up the street with the
garage is only $10,000 more --
you know it would run you an
additional $149 per month.
Understanding these simple
financial principals can help
take the mystery out of the
home-buying process and keep you
in control of your personal
finances. |
