Can lower mortgage interest rates play tricks on your mind? Does it help when the government advertises that they want to lower the interest rates to the low 4's? Are you sitting on the fence, waiting for these promises to happen?
Here is a great example of how you might do yourself some wrong, just because one interest rate sounded better than the other.....
I was referred a client last week who wanted to do a zero point refinance, because he will only be in the house for 3 years at the most. He was originally getting 5.375% from Wells Fargo and the best I could do was save him $980 in fees, yet keep the same rate. He decided to use me and proceeded with the mortgage. Two days later, I called him up and said that rates have dropped considerably and would you like to lock in. I was able to offer him 4.875% at the same no costs. He was very excited about the new change and said yes. As I gathered his information, I then went to lock him in. Rut row.... the market already moved. I could now only give him 5.00%, but it was only an 1/8 of a percent more, yet still cheaper from the original interest rate. When I called him back to tell him this, he was hesitant, almost like he didn't want to do it now. What to do??
The interest rate fairies were dancing in his head. 4.875% sounded like a million dollars better than just the old measly 5.00% rate. But wait, even at 5.375%, he was going to recoup his total costs in less than 16 months. With the 5.00% interest rate, it was going to take him 11 months to recoup his costs. He almost blew a good financial decision just because he couldn't brag about the 4.875% rate. And keep this in mind, that small difference of 1/8 of a percent was only a difference of $19 a month. Sure, it's $19, but at what cost? The change was semi drastic. About a $3,000 difference. A good loan officer will explain the difference to you.
The end result? I basically told him that the rates were playing tricks on his mind and showed the numbers of what it would cost to get that rate. Telling him that it was all in his mind and that he needed reality, not fantasy. Because of his goals, it still made sense, even with the rate change. The problem is that the government and the media are throwing out some many lower interest rates out to you, that can't worry about this when shopping.
Conclusion : In the first 5 minutes of a conversation, a good loan officer is going to ask you your goals and what payment that you are comfortable with. This should be asked no matter if you are purchasing a new home or refinancing your current home. In my opinion, if loan officers ignore these two important questions when interviewing you, and try to see what you qualify for the most, then you might want to second guess your choice of who you are using. Sure, in regards to refinances, they are a little different when it comes to payment. Your biggest focus should be, does it make sense? But knowing your goals is a huge part of this.
Just don't let the interest rate fairies play tricks on your mind. Don't base your decision on the interest rate, base it on payment and if it makes sense. Your rate shouldn't be used for bragging rights. Nor should a loan officer convincing you that saving $60 a month on a refinance is advantageous for you. Again, each borrower is different. And keep in mind, mortgage interest rates are different on FHA loans and conventional loans, depending on your credit scores. Please read :
I want that same deal that my friend got !!!!
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Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
Copyright © 2009 by Jeff Belonger
How right you are you need the whole picture of what the buyers needs are-thanks for sharing.
It is all the perspective of the client. In this case the loss was more powerful than the gain.
Jeff,
Well stated!
We don't believe golfers, fishermen, or Casanovas! Why should we believe what people tell us about the final sale/purchass price of there home or the low interest rate they just got! 4.875% is 4% isn't it? "Luke, It's true. At least from a certain point of view."
Today with so many add ons for credit, LTV, location, location, location it's extremely unlikely two friends can get the same rate!
People that shop for the lowest rate normally find the biggest lyre!
The only protection the consumer ever has is the personal integrity of his loan originator!
If it makes sense, get the best affordable loan rate and subtract 0.625% before bragging to friends and nabors! Your intrest rate is not public information your friends will never know.
Bill
Jeff,
Good post. I believe another thing a good loan officer would after asking about the clients goals is to check those goals for reality. Sometimes what people want just is not realistic and to avoid losing on down the road you need set expectations for what is realistic.
JP Lowry--President--Preferred Financial Funding--
It is hard for some people to really understand that it is more than a rate - but that is all they know. That is why we are supposed to educate them.
Good work Jeff. It is a mortgage broker like yourself who takes the time to break it down into easy to understand numbers on paper that will be able to show a consumer how silly it is to care about an 1/8 of a point.
Jeff - good advice _ have a client fretting about the rate even though they are going down - they have locked in and had to extend costing them extra money while the rates have come down - why lock a rate if they are falling?
I agree with you Jeff... there is still a part of every person out there that wants to stand by the fence while they are watering the flowers and say "I am at 4.875. where are you?" It is a silly thing, but it is part of the psyche of america.
Jeff - Great point ! The interest rate fluctuations can certainly cause folks to be hesitant and perhaps greedy with all the volatility. Yes, they may get a lower rate but also take the risk that the rates tick back up which I think have happened already ! Either way, right now the rates are simply incredible. ~ Chris
PAT..... . I ahve always been a firm believer and still lose deals to loan officers that just tell the borrower what they want to hear, without asking the appropriate questions. And in some cases, they wonder why things change or don't close... oh well, you can't win them all, right?
JOHN..... . I think I lost you, unless I am tired. How was the loss more powerful than the gain in regards to my blog. ?? thanks
WILLIAM aka Bill..... . you make some excellent points. Overall, who can you believe. It does come down to the person that will educate you. Not the one that says, hey, I am honest. Those are the ones that usually lie.
Overall, as you stated, if it makes sense. But I have known some clients that were talked into it, being told that it makes sense. Or... not getting them to think if it makes sense or not... and thanks for the compliment.
JP.... . that's a good point I guess. Not 100% sure how you would check on their goals though. Seriously, just trying to understand what you are trying to say. How would you check on someone's goals, if I would to say my main goal is to stay in the house for 6 years... ???? thanks and thanks for the compliment.
NAOMA.... . yes, it is hard for some to understand that it's more than just rate. So, bingo.. we need to educate. But I even hear it in my office, from a guy that works for our company. He scares me when he explains things to his clients. And often says that he is honest... that scares me even more. thanks
BILL..... . I truly believe in that, yet so many do care about that 1/8 of a percent. It shouldn't truly matter, unless it didn't make sense to begin with. Now, there could be some argument to this, but again, each client is different. Each argument would need to be dissected. thanks
JUDY.... . well, as much as I agree with part of your statement, I will disagree with the other part. You said, "why lock in when rates are coming down."
A few things....
Yes, you need a true professional that can put all of this together, give you a realistic view point and not just fluff.... and to be able to dissect all scenarios and possibilities. thanks
DAVID..... . it is a silly thing. And I think the more we write about this, the more people should start to understand it. One thing that you can never get a great feeling for is what that rate cost you. No points, but $3,000 in fees might be a lot more than just paying 1 point and no fees. It then comes down to the size of your loan amount. Thanks, because I will now be writing a new blog about this, breaking it down.
CHRISTOPHER & STEPH... . yes, get greedy, which many have lost because of this. And as you mentioned, crap, rates are low enough to begin with. Why gamble for lower...??? Okay, you didn't say crap, but I did...lol Just trying to get a point across to others. thanks for the compliment.
Jeff - LOL The Interest Rate Fairies. It did seem like the rates were changing ALL THE TIME for quite some time. We have finally seen some stability over the past few weeks, with minor adjustments. It does seem to play tricks with people though. Had a conversation with someone today over .125%. The difference was $10.47 a month. Had to show them why they should save $640 and go with the slightly higher rate. Its just that it sounds better to have 4.875% than 5.00
We use to have a lender that would give us 5.99% instead of 6% LOL Made people feel better about it.
Jeff, this is good stuff. I am glad you explain this stuff to borrowers because it really makes a difference. So, when are we going to be able to clone you?
Nice piece, Jeff! I've had a number of clients hedge on refinancing and choosing to wait for 4.875% (or better). It's as if breaking the 5% barrier is magical......maybe like Roger Bannister breaking the 4 minute mile. People so easily forget that a 6% rate was awesome not so long ago. I'm glad you were able to help the client see the light.
Jeff, I am constantly amazed at the disconnect between rate and benefit and payment and that good LO's get it and bad ones do not. Really...it is not rocket science.
Good post
Bo
Hi Jeff,
Numbers so close together can sound so far apart and that's what marketers know and play on.
Hello Jeff,
Thanks for the insight into your world!
I have reblogged this post - but wanted to give you the heads up! You spelled Mortgage wrong in the title!
Jeff: Great info. as always. My clients are prepared for a general range on rates. The ones I never get as clients are the ones who are always waiting for something better. Usually they're disappointed! Thanks again for the post!