My good friend and colleague, Mike Nelson, has put together a fantastic primer regarding the importance of the term of the mortgage loan versus the interest rate of that same loan. I’d highly recommend clicking HERE for more.
Mike’s point is a very good one – don’t get emotionally invested in the lowest possible interest rate. It’s a big factor, for sure, but it isn’t the be-all-end-all of the conversation. It’s very important that you identify your goals before you make any binding decisions.
“Customers always want to talk about interest rates. It is the first question I get – how low are your rates? My answer is this: the interest rate is important for sure, but the term of the loan should get equal consideration.”
Is it the single lowest possible monthly payment, or the lowest interest to be paid out over the course of the loan? These are just a few questions to consider – so make sure you get with a reputable mortgage professional in order to find the best loan for you.
“I can’t tell you how many times I have worked with borrowers who are so fixated on the lowest possible interest rate that they will finance $5,000 in points to have a rate discounted by 1/8 or 1/4 – without a considering the term of the loan.”
As Mike talks about, if you are sure you will stay in the house over the course of the next 25 to 30 years – spending thousands of dollars on discount points can be a financially sound decision.
However, if there is a possibility that you will sell or refinance a 30 year mortgage in the first 7 to 10 years of the loan – have your loan officer do the math and calculate the “actual” cost of the $5,000 discount. Most of the time you will be surprised at just how much more money that “low” interest rate actually costs.
It would be my privilege to help you and anyone you know find the right mortgage product that best suits their needs!