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Old 08-22-2008, 09:21 AM
 
86 posts, read 218,476 times
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The seller finally agrees on the price. Now i'm shopping for mortgage. Can anybody share some recent mortgage shopping experience? By the way, I'm in Chapel hill, NC. Have excellent credit score (around 800), 50% down payment, the loan amount is 400k, full documents. I'm interested in 15 years fix and will also like to buy down 1-3 points.
Any info and recommendation will be deeply appreciated.
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Old 08-22-2008, 09:51 AM
 
Location: Charlotte, North Carolina
5,137 posts, read 15,113,733 times
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I wouldn't buy down the rate...
Rates for a 15yr mortgage were around 5.625-5.75% with 1 origination fee these past few days.

In April they were as low ast 4.75% for a 15yr fixed.

Rates change everyday, and you need to be in the position to LOCK IT.
Some many borrowers look for a rate, then are unable to lock in the rate due to not meeting the lender conditions.

Quote:
Originally Posted by meimei88 View Post
The seller finally agrees on the price. Now i'm shopping for mortgage. Can anybody share some recent mortgage shopping experience? By the way, I'm in Chapel hill, NC. Have excellent credit score (around 800), 50% down payment, the loan amount is 400k, full documents. I'm interested in 15 years fix and will also like to buy down 1-3 points.
Any info and recommendation will be deeply appreciated.
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Old 08-22-2008, 10:12 AM
 
86 posts, read 218,476 times
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Quote:
Originally Posted by renriq02 View Post
I wouldn't buy down the rate...
Why?
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Old 08-22-2008, 10:16 AM
 
Location: Charlotte, North Carolina
5,137 posts, read 15,113,733 times
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If rates were at their lowest then it would be good to buy down the rate.
If you buy down the rates now, and if the rates go lower, then it would be a waste of money.

Quote:
Originally Posted by meimei88 View Post
Why?
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Old 08-22-2008, 10:39 AM
 
86 posts, read 218,476 times
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Quote:
Originally Posted by renriq02 View Post
If rates were at their lowest then it would be good to buy down the rate.
If you buy down the rates now, and if the rates go lower, then it would be a waste of money.
Got it!
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Old 08-22-2008, 04:00 PM
 
Location: Cary, NC
1,036 posts, read 3,632,240 times
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But.... no one says they aren't at the lowest they will be for years. Saying they were lower before and buying it now is a waste if rates go down again is ASSUMING that rates will decrease again.

What happens if rates only continue to increase and you have no option to refinance in the next 10-15 years? You missed the opportunity.

Have your mortgage lender do an anlysis of points vs. no points. They can show you how much each point will cost (1% of loan amount) and how much it will save you. Dividing the total cost by the monthly savings gives you an idea of how long it will take you to "break even" on paying the points.

For example, if you are paying $4000 in points and saving $40/month.... then it will take you $4000/40 = 100 months to "break even".

This doesn't take into account your tax rate, inflation and other factors... but it gives a good approximation. Your lender or a CPA can do better calculations on your specific situation. In this expample, if you keep the loan for >100 months then it might be worth paying points. If you sell or refinance in <100 months, it is not.

We can always try to predict what rates and the market will do in 4-5 years.... but look at what happened to everyone that took a 2 year ARM assuming that they could refinance in 2 years to a better program. You have to make some assumptions, but stick to the factors you can CONTROL, like time in the home and your financial situation... and try to minimize "hopes" for lower rates or appreciation of 5%/year from your analysis.
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Old 08-22-2008, 07:14 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,597,955 times
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if you want to pay down faster, you have the option of taking the qualifying rate and closing with it. instead of buying the rate down apply the 1-3% ($4000-$12,000) to the mortgage after a couple months. you send in your monthly check and send a 2nd one a few days later with a note for principle only. dropping the principle balance can have dramatic effects on the term(length) of your mortgage. a lot of people don't know they can do this to actually pay off mortgages in a shorter amount of time.

lets assume you qualify for $400,000 @ 6% = $3,375 per month. but over 15 years you will have paid a total of $607,577, $202,577 in just interest.

now i cant tell you how much will change how much on your loan. i cant give everything away for free.

well, ok i will. instead of buying down the rate you paid $1000 in an extra payment per month you would pay off the loan in 10.2 years your total paid would drop to $535,861, $125,861 just in interest.

now imagine doing this with $2000, loan paid off in 7.8 years with a total paid of $501,504, $101,504 paid in interest.

how about making double payments? $3,375 pays the loan off in 5.9 years, total paid is $475,566, $75,566 in interest payments.

now imagine really buying something realistic that you can afford double payments on. most people buy at there limit. (this is where most beginner investors trying to buy rental properties make there mistake)


ok lets say we compare this to a lower rate that is bought down. typically each discount point bought (which is 1% of loan per point) you lower your interest rate .125%

$4000 (1 pt) with get you a lower rate of .125% making your rate 5.875% payment of $3,348, 15 year term, total paid $602,725, $303,725 in interest paid.
$12,000 (3 pt) with get you a lower rate by .375% making your rate 5.625% payment of $3,295, 15 year term, total paid $592,087, $193,087 in interest paid.

decide what you would like to do. it all just depends on your goals.

it may be weird to think of making extra payments as an "investment", but it turns out that making extra payments is nearly identical to placing the money in a savings plan (like a CD). if the mortgage interest rate is the same as for the savings plan, then the amount of reduced interest expense from making extra payments is identical to the amount of interest "gained" in the savings plan (assuming both rates are fixed and compound monthly). the main difference is that with a savings plan (or other similar investment), the cash is more readily available.


the bottom line has to do with two questions (which you will have to answer for yourself):
  1. what approach provides a better interest rate?
  2. where should the investment be tied up? (home equity or a savings/investment account?)
what about taxes? I'm not going to answer this one, but remember that the amount of interest paid on a mortgage is usually deductible and the amount of interest gained in a savings/investment account is usually taxable.

there may be good reasons to make extra payments, but make sure you understand what you are doing, first.

Last edited by brokerdave; 08-22-2008 at 08:22 PM..
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Old 08-23-2008, 04:41 PM
 
Location: Spring Hill, Florida
58 posts, read 183,357 times
Reputation: 18
Default Rate

Meimei,

400 K ... you're putting down 200 K and you got an 800 FICO. Walk into any bank or M.B. and YOU tell THEM what YOU expect ... and you should get it. Whatever they say ask for a point less ... ask for 2 less ... then when you get what they say is their absolute best deal ... walk out and go to another bank and do the same thing ... you are NO risk. Where the hell are you anyway? If you were here in central Florida I'd find you an absolute mansion for 200K ... one that sold for 400 two years ago. What do you need a 400 K house for? wherever you are I'm pretty sure they got short sales and foreclosures ... check THEM out FIRST.

Keith G.
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Old 08-23-2008, 08:58 PM
 
Location: Durham, NC
426 posts, read 1,297,809 times
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Keith, not in Chapel Hill, NC. The triangle has been unaffected by this mortgage meltdown mess. And Chapel Hill is very pricey for a small town.
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Old 08-24-2008, 12:00 AM
 
Location: Cary, NC
1,036 posts, read 3,632,240 times
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That is the kind generic advice (FL = NC) and all that matters is price that got us into the mess. Luckily NC took licensing and regulation a little more seriously and we were able to avoid a large part of the housing mess. We are still affected by it, the whole US will be (in taxes and higher cost of credit if anything).

You can go and beat up banks and brokers on points and treat it as if you were shopping for a microwave at Walmart vs. Target.... or you can try to find an honest professional that will show you VALUE. Ask for recommendations, check up on the person's experience, reputation and education. Make sure you are getting proper advice and not just a bunch of smoke and mirrors from "sales people".

You are an excellent risk and you should be able to get good pricing. But this is an important financial transaction.... would you walk into CPA's offices ask them their fees and then go to HR Block to badger them about the same thing? You get what you pay for, and when it comes to professional services perhaps there is a little value in honest advice even if it costs a little more.

A lot of people got the "best price" on a teaser rate, stated income loan or other inadequate product. They aren't chearing about their "low rate" mortgage these days in FL from what the media says.
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