The Ventura Mortgage Guy

This is a question that is asked many times. Everyone has heard of points but do you know what they are and if you should be paying for them?

Basically, points are up front fees (which I call investment) paid by the borrower to obtain a better interest rate on their loan. One point is equal to 1% of the loan amount. For example, on a $400,000 loan, if you paid a point investment, it would equate to $4000 in costs. Typically paying a point versus not paying a point will lower your interest rate. The key in determining if you should buy down the interest rate (pay points/costs) is how long you will be in the loan and to compare current interest rates to historical market trends.

Let’s take my example a little further. Let’s say paying $4000 on a $400,000 loan over not paying a point (saving $4000 in costs) would save you $50 per month (remember paying the points will get you a lower interest rate thus saving you on your monthly payment). What this means is that it would take you 80 months to recoup your $4000. What you do is divide the savings per month ($50) into what it cost ($4000) you to get that savings. If you decide to refinance or sell you home within 80 months then your money is lost. In this scenario, you would benefit from paying the points if you were to stay in the house for 80  months or longer.

Can I pay more than 1 point investment. Of course, the more you invest in buying odwn the interest rate, the lower that rate will be. Typically, rates are quoted with 1 point or no points..but you have the option to go for it and pay more than 1 point.

It is also important to take a look at where rates are from a historical perspective. If rates are at a all time low (like they are today), and you plan to be in the house for an extended period of time, it makes more sense to pay points and take advantage of the SUPER low rates. If it’s unlikely that rates will go down in the near future, then there will be no need to refinance…one and done!

On the opposite side, if rates are high, and there is a good chance rates will drop down, then paying points may not be in your best interest. The reason why is if rates drop, chances are you will refinance again and you will not have been in your current loan long enough to re-coup the points paid on your current loan.

Another consideration is tax deductibility. Let’s remember I am not an accountant and you should refer to them for advice as well. On a purchase, interest from both your points paid and your mortgage are tax deductible up front. For refinances, however, points are not deductible up front. Instead the deductions are spread out over the term of the loan, making points more costly in comparison.

Ultimately, there is a lot to consider when it comes to points and whether or not they are a worthwhile investment. An experienced mortgage professional will work with you to determine the best course of action based on your SPECIFIC needs. You should always request a loan comparison to see if paying or not paying is best for you. If you would like more information please contact me or your local lender.

So you are in the market for a mortgage in Ventura County. Maybe you are purchasing a first time home, second home, investment property or just looking to refinance your newly adjustable rate mortgage into a fixed rate with these historically low rates (well, almost historically low rates).

What do you do?

Well the best approach is to call your mortgage professional that did your past loan, or if you do not have a mortgage then you ask your family and friends for a referral. This in itself could be a challenge due to the exodus of many loan officers from the business due to the “easy pickens” days are over. All that are left are those mortgage professionals that are grounded from years of experience (not so bad). Once you hook up with a professional then you are in good shape to get the best mortgage program and rate possible. Why?

For those that do not have a mortgage source to go to, they will call around and get mortgage rate quotes. This is backwards for a couple of reasons.

First, you may get a quote that you really like, go with it and then find out that the loan officer that quoted the “really nice” rate can not perform or the quote will not work in the time frame needed (I just got a random call today asking if I could refer a mortgage attorney due to failure to perform within the rate lock commitment..basically the customer lost their rate and now that rate does not exist).

Second, calling around and getting quotes does not work in today’s multiple rate sheet environment. What do I mean? Due to the volatility in the market, lenders price rates in the morning, then depending on how the market is performing (the mortgage backed securities..I’ll save this for a different blog post) you can get a mortgage rate re-price. So what? Well if you call my competitor at 10:00 a.m. and then call me at 2:00 p.m. and the market has improved to warrant a mortgage re-price, I will beat out my competitor just due to the improvement in the market.

You need to be able to compare apples with apples. In May, rates changed about every 4 hours. This makes it very challenging to shop for rates.

Back to my earlier point. Find a mortgage professional first, one that is established, has weathered the storm and understands the market, then stick with that professional. You will in the long run end up with the best program and rate.

If you want to follow mortgage rates on a daily basis, follow me on twitter were I give daily updates to how the mortgage market is performing.

Today, the use of a professional mortgage broker is one of the key strategies used by sophisticated borrowers.

Understand, I have worked for direct lenders (big banks) and as a mortgage broker. You can find professional loan officers in both environments.

But the topic of this article is why use a mortgage broker, therefore let me continue.

A mortgage broker is an independent real estate financing professional who specializes in the origination of residential mortgage loans. Mortgage brokers normally pass the actual funding and servicing of loans on to wholesale lending sources. A mortgage broker is also an independent contractor working with (on average) as many as 20 lenders at one time. By combining professional expertise with direct access to hundreds of loan products, your broker provides the most efficient way to obtain financing tailored to your specific financial goals.

In the volatile home lending market, mortgage brokers can serve as safeguards, offering their clients security, safety, and peace of mind. One of the broker’s most important functions is escorting your loan application through the entire process, constantly patrolling the transactions looking for possible breakdowns. A professional mortgage broker can wade through the mountains of rate data and program options, researching current market conditions to find the most accurate and up-to-date information about cost effective options.

There are literally thousands of variables that can affect the outcome of your mortgage transaction. That’s why you need a mortgage broker to act as a liaison between the title and escrow companies, real estate agent, lender, appraiser, credit agency, the underwriters, the processors and any other services which may affect your transaction.

A mortgage broker also:

• Discusses and expain financing program options
• Provide detailed spreadsheets on the total costs of the transaction
• Explains all associated costs to the loan application
• Explains the loan process from application to closing
• Provides you with a good faith estimate of costs and fees
• Communicated with you in a timely manner througout the entire process
• Coordinates the final closing of your transaction

As you can see, when you are preparing to take on your biggest investment, your mortgage, you need a professional handling all the steps to ensure a smooth transaction.