Weekly Market Recap

Most Common Mortgage Misnomers

An industry survey was conducted this month analyzing the borrower’s knowledge of the mortgage process, what they understood, and where the misconceptions were.  From that survey, here are three of the most common misnomers regarding the mortgage process:

Mortgage Discount Points: Nearly half (45 percent) of those surveyed believed they always had to pay discount points when obtaining a mortgage.  That is very often not the case.  Because mortgage discount points are an upfront cost that is recouped through a lower interest rate over the life of the loan, the decision is dependent on a number of factors: how long you intend to own the home, what your upfront cash availability is, and the interest rate scenario and is it more efficient to finance these points.  It is a trade-off between paying some of the financing costs upfront (higher upfront points, lower interest rate), or financing the points/costs over the life of the loan (lower/no points up front with a slightly higher interest rate).  I can help you analyze the options and together we will determine which scenario is best for you.

Avoiding Various Loan Options: Many people may automatically avoid certain loan products, like Adjustable Rate Mortgages (ARMs) because they don't understand how they work and because “they are what caused the mortgage meltdown in the first place” (a statement that is just not true).  ARM products can be valuable for a variety of different borrowers: upwardly mobile borrowers who are just starting out and know that their income will increase over time, borrowers who do not intend to stay in the home much longer than the duration of the fixed portion of the ARM, and refinance candidates who know that they will pay off the refinance around the time that the fixed setting adjusts.  Also, ARM reset rates do not always increase (ask anyone who has had a hybrid ARM reset over the past 24 months).  But when asked if interest rates on 5/1 ARMs always reset to a higher rate after five years, the majority of those polled (57 percent) said yes.  Whether an ARM makes sense for you depends on your personal situation such as your appetite for risk and how long you plan to live in the house.  As you consider different loan products I will go through many scenarios to avoid any surprises during the life of the loan.

Not Understanding Basic Terms: As you begin to think about securing home financing, you may hear terms like FHA loans and pre-qualification get bandied around.  However, many people don't know what those terms mean. 42 percent of prospective home buyers thought only first time buyers could qualify for FHA loans, and 37 percent believed if they pre-qualify for a loan it means they've secured financing.  Familiarizing yourself with basic mortgage terms will only make the borrowing process that much easier.