Self Serving or True?
by Evan Vanderwey on 31/08/10 at 9:26 am
This post covers something I often think but rarely say because it sounds as though I am being very self serving. But because blog readers are volunteers, I think this is the right medium in which to present it.
COST AND RATE SHOPPING…
This is very important but I would like to present the reality of what a 1/8th of one percent in the interest rate and/or $600 in closing cost really are. I use these amounts because it’s over this kind of difference that I see some jump ship from one lender to another. Now I’m Dutch, and I like saving money. So hear me when I tell you that it’s not wrong to shop around and make sure you’re getting a good deal. Just make sure you understand what the numbers are really worth.
Anyone who says they think they know for sure what will happen tomorrow (about rates or anything else) is at best naïve and potentially lying. This may be you, this may be your loan officer. Either way, if you’re looking at a great deal but holding out for another 1/8% or a few hundred dollars, think about whether that’s worth the risk.
Remember, this deal could be over at any moment.
China could start lending money to India instead of buying OUR bonds. Our rates rise at even the thought of this happening. Earlier this year, China’s financial leaders threatened it and our rates went up ¼% – and they never even stopped buying.
Corporations could start investing their cash again rather than parking it in Mortgage Bonds for security. This would help unemployment and your stock balances, and I for one would welcome it, but it would bring the price of bonds down and rates would rise.
The US government could change its stance on printing money and buying bonds due to political pressure. I’m all for this one too. But again, it’s another cause for the 60-year low in interest rates.
If any ONE of the above happened, rates would rise to some extent. If two or three of them happened at once, rates would rise quickly, and if you’re not locked, you’ll feel a pain in your gut like someone just erased $165,000 from your bank account.
One of my recent posts described how one of my clients erased all of his past real estate loss by saving $165,000 in interest by refinancing with us. What I did not go into in that post was how much more he could have saved, had he held out for an 1/8th better rate. He could have saved $3500 more. wow. That’s not a lot.
My point isn’t that $3500 is not a lot of money. My point is that $165,000 is too much to risk for the benefit of getting $3500 more by waiting for rates to go down just a little more or by signing on with an unknown source.
Here are a few questions to help you say yes to the LO you are working with right now:
- Do you trust him or her? Will he or she make sure that the deal they promise you up front is the deal you get?
- Is the deal competitive? By that I mean is it at market rates and prices? Anything within 1/8% in rate or $500 or so in cost of the competition is fair. It also helps if you can float down between the time you commit and the time you close. This isn’t the most important thing, but it could be nice if rates really improve after you’ve locked in. Most lenders offer this.
- Did the LO help you understand your situation and see exactly what the benefits are compared to the cost? Did you learn something? Are the benefits good enough to make sense for you?
- Does this person have time to process your loan right now?
If you have to say no to any one of these questions, then walk away and keep looking. But if you CAN answer yes to all of them, you should make a commitment, stop looking around, and take the market gains that are present today.
They could be gone an hour from now.
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