Today Chris shows you how much money you can expect to pay over the life of the loan, and provides tips to pay less.
Chris Ulrich
Vice President | Mortgage Lending
NMLS 215735
Payment, Rate and APR Assumptions as of 2/9/2023 Payment, rate, and APR example for a 30 YR, 20 YR & 15 YR Fixed loan: At a loan amount of $400,000 on a home values at $500,000. Payment shown only to explain how a loan is amortized. For demonstration purposes only, rate of 6.000% / 6.500% APR. Does not include taxes and insurance. Actual payment with those items will be higher. Scenario assumes a 740 credit score, 80% loan to value, 60-day lock period, and zero points for an owner-occupied, single-family detached home which will be used as a primary residence. APR stands for annual percentage rate. Additional requirements must be met. Subject to underwriting approval. Not all applicants will qualify. This is not a commitment to lend.
Chris explains Loan-Level Price Adjustments and how several factors can determine your interest rate.
Rate and APR Assumptions as of 11/10/2022 The interest rates and loan pricing shown are for demonstration purposes only. Actual interest rates may be higher than 6.000% / 6.322% APR. Assumes a loan amount of $100,000, 740 credit score, 80% loan-to-value, 60-day lock period, and zero points for an owner-occupied, single-family detached home which will be used as a primary residence. For the demonstrated owner-occupied condo and 680 credit score with a 1.75 discount point, rate and APR would be 6.000% / 6.827%. APR stands for annual percentage rate. Additional requirements must be met. Subject to underwriting approval. Not all applicants will qualify. This is not a commitment to lend.
Ever wonder what lenders look at? How much a single inquiries impact your scores? Just want some tips to keep your credit profile as clean as possible?
Bridge loans are especially helpful because they allow buyers to move fast, get more, and give non-contingent offers. Buyers can confidently make offers knowing that they are not in the limbo between selling and buying. Buyers can make non-contingent offers on prospective homes. These non-contingent offers are much more appealing to sellers as they eliminate risk and uncertainty entirely. They can also easily agree to the tight closing schedules that have become so common in today’s market. The sale of the existing home doesn’t have to be rushed. Buyers can take their time staging the home, reviewing offers, and going over any additional details.
Chris explains the 2-1 Buydown. A 2-1 buydown can temporarily reduce the homebuyer’s interest rate. This can be a useful tool for homebuyers that worry about rates continuing to rise, and seller’s who are looking for a creative way to get an offer in a market where interest rates are trending upward.
It’s been a wild few years and the housing market has been anything but normal, so how can you better prepare yourself for your next home purchase?
During the first quarter of 2020, interest rates dropped to historic lows. Not only were homeowners able to save money by refinancing, homebuying became more affordable to those that otherwise might not have been able to buy. In many cases move-up buyers could now afford higher priced homes.
Interest rates remained low and the purchase market thrived well into 2021… until it couldn’t. With a lack of inventory leading to a seller’s market, many homebuyers became discouraged competing for each home. Buyers constantly got outbid, often times over the listing price, so many decided to wait for the spring market to try again. Many sellers became reluctant to list their home because they either had trouble finding a home to move to or the market didn’t allow for a home-to-sell contingency.
What can you do to combat some of these homebuying obstacles? Here are some creative ways to help purchase a home in 2022.
The United Home Loans Bridge Loan
Yes! We can bridge the gap between your home purchase and home sale by tapping into the equity of your home before it actually sells. The United Home Loans Bridge Loan works by taking out a second mortgage on the home you intend to sell in order to fund the down payment on the new purchase. Even if your home is listed, we can pull the equity. The bridge loan gets paid off once the home sells. Restrictions apply, so please contact me for the qualification requirements.
Low down payment jumbo financing
As of January 2022, any loan amount over $647,200 is considered a jumbo loan. Most jumbo lenders require a 20% down payment; however United Home Loans offers jumbo loans to qualified buyers up to $1,000,000 with as little as 5% down*. Give me a call for more details.
Buy non-contingent with low down payment & recasting
If you have savings or the ability to borrow your down payment from family, 401k, etc., you may consider buying a home non-contingent upon your home sale. Once you actually sell your home, you can use the proceeds from that sale to do a one-time large principal reduction on the new home loan. Most lenders will allow you to recast or “re-amortize” the loan one time so your new mortgage payment is calculated off of the reduced balance. It’s best to get pre-approved before making any offers since there are additional qualification requirements, but if you’re comfortable holding both homes until your sale, this could be an option for you.
There are many ways to creatively give you an edge to buying your next home. It’s important to speak with a seasoned loan professional that understands how to tailor a loan to your specific needs and to guide you thru your various options in an ever-evolving housing market.
Written By: Chris Ulrich – United Home Loans NMLS# 215735
*Mortgage rates can and do change daily. Some products may not be available in all states. Jumbo program as of January 11, 2022 for a purchase/refinance of a primary residence with no cash out at closing. We assumed (unless otherwise noted) that: closing costs are paid out of pocket, this is your primary residence and is a single family home; debt-to-income ratio is less than 37% and credit score is 740 or higher. The lock period for your rate is 60 days.
The interest rate of 3.625% (3.789% APR) assumes an $800,000 mortgage, 5% down with monthly P&I payments of $3,685. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater if you choose to escrow for taxes and insurance. Payment assumes a loan-to-value (LTV) of 95%.
Rate! Rate! Rate! So, you want the lowest interest rate? We get it.
Interest rates are determined by how mortgage backed securities are sold and traded on Wall Street. When the market is volatile, so are interest rates. While it’s my job as a mortgage banker to monitor the market and advise you on when to lock in your rate, when to refinance or suggest options that best fit your financial goals as a homeowner, it’s important to know that there are other ways to reduce the interest you pay on your loan other than simply lowering your interest rate.
Whether you’ve recently purchased a home or have considered refinancing, you should evaluate your mortgage and implement ways to save money. Let’s look at three methods to reducing the overall interest you pay on your loan.
OPTION 1: Shorten the Loan Term
Here’s some food for thought:
A person will pay more interest over the life of their loan on a 30 Year Fixed at 4.125% than they would if they chose a 15 Year Fixed at 8.000%!
It sounds like a no-brainer. If you pay off your loan in a shorter amount of time, you are going to pay less interest. However, it’s important to understand how an amortization schedule works. Even though your monthly principal & interest payment on a fixed rate mortgage never changes from month-to-month, the principal and interest amounts do. Every monthly you make a payment, your loan balance goes down, so, the interest you are paying on the loan balance also goes down. The principal goes up, keeping your payment the same. Here’s how the principal & interest break down at various points of the loan term for a $300,000 loan at 4.000%.
30 Year Fixed
1st Payment
60th Payment
120th Payment
Final Payment
Principal
$432.25
$526.02
$642.27
$1,424.70
Interest
$1,000.00
$906.23
$789.98
$4.75
Total Payment
$1,432.25
$1,432.25
$1,432.25
$1,429.45
Notice how much quicker the interest drops by paying more principal monthly on the 15 Year Fixed.
15 Year Fixed
1st Payment
60th Payment
120th Payment
Final Payment
Principal
$1,219.06
$1,483.52
$1,811.38
$2,212.62
Interest
$1,000.00
$735.54
$407.68
$7.38
Total Payment
$2,219.06
$2,219.06
$2,219.06
$2,220.00
The numbers become staggering. For the above scenario the person with the 30 Year Fixed will pay $215,607 in interest over the life of the loan whereas a person on the 15 Year Fixed will pay $99,432 in interest. That’s savings of $116,175! If you are comfortable with a 15 Year Fixed payment, it’s a great way to reduce the interest you pay on your loan while expediting your principal reduction.
OPTION 2: Biweekly Payments
If you pay your mortgage monthly, like most homeowners, you’re making 12 payments a year. However, most lenders provide an option to setup biweekly payments. Once enrolled in a biweekly payment structure, you’re paying half your monthly amount once every two weeks in lieu of 1 full payment per month. Since there are 52 weeks in a year, you will make 26 biweekly payments — This equates to 13 monthly payments for the year.
Because you’re making the equivalent of 13 monthly payments each year, you will have made the equivalent of 1 extra mortgage payment, all of which gets applied towards principal. So, you’ll pay less total interest while lowering your principal balance at a much quicker pace.
If we look at a 30-year fixed loan of $300,000 at a 4% interest rate, a person would save nearly $35,000 in interest over the life of their loan.
30 Year Fixed
Total Interest Paid
Time Loan Will Be Paid Off
Regular Payments
$215,607
30 Years
Biweekly Payments
$180,784
25.8 Years
Biweekly Savings
$34,823
-4.2 Years
OPTION 3: Paying Additional Towards Principal
Even though you may have a fixed mortgage rate and payment, you can always make an additional payment towards principal. This is similar to biweekly payments where additional funds are applied towards your principal balance, however you choose how much extra you want to pay and how often you want to apply an extra payment towards your loan. Whether you want to set up a recurring amount to be applied with each month’s mortgage payment, or if you want to just pay a little extra from time-to-time, you can choose how much to pay and how often, and the savings will add up.
Using the same $300,000 loan amount for a 30 Year Fixed at 4%, applying an additional $200/month will save you over $50,000 over the life of the loan. In addition to the savings your 30 Year Fixed loan will be paid off in less than 24 years.
30 Year Fixed
Total Interest Paid
Time Loan Will Be Paid Off
Regular Payments
$215,607
30 Years
Extra $200 Monthly
$165,196
23.8 Years
Savings
$50,411
-6.2 Years
Calculate Your Savings!
I am happy to provide a consultation to help you find ways to save money on your mortgage payment. Feel free to contact me for a time to discuss.
You can also use the chart below to estimate YOUR savings by incorporating one of these methods..
