As a
Mortgage Broker in
South Florida (
Palm Beach Gardens) I can't tell you how many times I have heard these words from my clients. "
Just give me the Lowest Payment on My Mortgage" This is why when when preparing a quote for my clients I always layout their financing options. (As any true Mortgage Professional would)
Below is a typical loan scenario:
Loan Amount - $200,000
Fixed Payment for 5 Years
(Hybrid Option Arm)
2.35% (Payment Rate)
7.625% (True Interest)
$775 @ 2.35%
$1,270 I/O @ 7.6%
5 Year ARM Interest Only 5.875%,30 Year Fix with 10 Year Interest Only 6.625%
$979 $1,104
30 Year Fix Rate 5.875%
$1,183
Now Lets Take a Look Over a 5 Year Period
Fixed Payment
$46,5000 + Balance increased Interest Only
Minimum of $29,700
I/O Payment $76,200
5 Year Arm Interest Only
$58,740
30 Year Fix with 10 Year Interest Only
$66,240
30 Year Fix
70,980
What This All Means to the Borrower
While when buying a home most borrowers really only care about what their payments are many times they loose focus on the big picture. As you can see the Minimum payment of $775 might sound great but in actuality it would be the worst program over a 5 year period. Having a plan before meeting with your Mortgage Professional as to how long you will be in the home is the most important factor. Please keep in mind if you decide to go with the first two mortgage and have plans on staying in the home for more than 5 years you will incur additional costs of a Refinance. In addition, know one has a crystal ball and can see into the future of what rates will be in 5 years.
Please keep in mind the loan scenario is for people with good to excellent credit and have a minimum of 20% equity in their homes. Plus these are general rates intoday's market (1/25/08). Please meet with your Mortgage Professional and ask questions.
In closing, when looking for the lowest payment on your mortgage make sure you fully understand what the true interest rates are and what your choices are. Remember it is your money!
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