By Tammy Engel
Mortgage Advisor
Which is the better deal?
Mortgage Matters
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Shopping for a home loan isn’t fun. You hear a bunch of numbers and aren’t really sure how to make sense of it all. Have another look at my website article “Comparing Loan Offers” if it interests you. Here is some practical advice to weigh competing offers to see which one is the better deal.
As an example, one lender might end up with a bottom-line monthly payment quote for $1168 per month, at a cash-to-close figure of $5400. Lender B might quote $1206 per month after spending $3800.
Assuming your quotes are apples-to-apples, and everything is disclosed the same way by each lender, you can do some quick math to measure which plan makes sense for you.
The difference in monthly payments is $38 per month, and the difference in upfront cash is $1600. Quick division tells us that if you spend $1600 now to save $38 per month, it takes 42 months for the first plan to pay for itself. In other words, you’d need to save $38 over and over for 42 times before you’ve saved $1600.
Your financial consideration would be: Will I hold this loan (not the house, but this actual loan) for at least three-and-a-half years? If so, you begin saving some money after that time.
Your practical considerations are: Do I have the extra cash available today? Can I afford the extra monthly payment? What’s the reputation of the lender I’m considering? Will I get one point of contact during the loan process? Do they have local, seasoned appraisers?
Your Realtor or local escrow officer may have insight into lender performance records, and you can do the calculation for a break-even point. Either way, take the time to consider the facts when choosing how to finance your home.
Tammy Engel is your local Mortgage Advisor, and has been working for your best interest since 1990. Contact her at 661/822-7325 for purchase, refinance, and reverse mortgage.
