06 Jul Money You Will Never Get Back
Here at Two Roads Lending we like to say that there are two kinds of money: yours and not yours.
Money spent up front on a loan closing and money spent on interest each month are both “not yours” and will never come back to you. Take the time to consider all the costs involved in getting a loan and make the best decision for your individual financial situation.
Attention-grabbing low rates fill our email inboxes, our “snail mail boxes,” billboards, and banner ads online. However, what these ads usually overlook are the upfront costs associated with that loan. Make sure you understand all of these costs.
It’s possible to not have a rate that is “billboard” worthy, but that may best meet your needs and keep more money in your pocket in the long run.
Here’s what we mean. On a 30 year fixed rate mortgage of $200,000, a 0.25 point higher interest rate would average out to about $500 per year in interest expense over the first few years of the loan. That may sound like a lot of money, but since most people refinance or sell before the end of their loan term, the higher rate costs are not as important. What may be more important is the upfront costs associated with obtaining the loan. With a higher rate, there will be lower upfront costs.
So, if the lower rate $200,000 loan costs and additional $2000 upfront, but you are not likely to have the loan for more than 3 years, you would be better off with the higher rate loan (3 years x $500/yeah less in interest = $1500)
A lower interest rate may sound appealing but be careful. The lower rate could come with higher upfront costs – finance charges, fees, and points. This is more of your money you will pay just to get the loan, and you may never get it back.
We understand that each borrower’s situation is unique and their financial goals are different, too. We specialize in helping you think through the process and weight your options so you can have the best shot at keeping your money YOURS.
Still not sure? Contact us today and see how much clarity we can provide you in about a 10 minutes conversation.