|
Myth: I can save money by not using a mortgage broker.
Fact: A really good mortgage broker helps, and a bad one hurts.
Like in any business, dealing with the right person means everything. Some lawyers get people acquitted while others get them convicted. Every business I know of has good people who really help along with the bad that really hurt. I know that a really good mortgage broker saves people money as they can shop hundreds of lenders and programs to meet your needs. Please click on my "Testing Your Loan Officer" tab to see how you can tell the good from the bad.
Myth:
I should keep
my mortgage for
a tax deduction.
Fact:
You will pay
more in interest
than you get
back from
deducting.
(See your CPA)
If you have a
$100,000
mortgage at 6%
interest, you’ll
end up paying
$6,000 in
interest that
year. The
government is
not going to
give you back
more than $6,000
as a result.
Myth:
Debt
consolidation
loans get people
out of debt.
Fact: These
only work when
borrowing is
stopped
permanently.
These loans do
not remove debt
as they just
move the debt to
another place.
They can be a
great tool to
reduce interest
and outgo which
can result in a
faster payoff.
Trouble occurs
when one does
the
consolidation
loan and then
continues to use
credit cards or
to finance cars.
They ultimately
over-extend
themselves and
have little or
no equity.
Consolidation
can be a
powerful
get out of debt
tool if done the
right
way.
Myth:
Adjustable
Rate Mortgages
(ARM) are a great
way to save.
Fact: Only
if you
really
know what you’re
doing.
ARM’s work in
some cases,
however I think
only the most
sophisticated of
mortgage
borrowers should
try them. Most
people (who have
them) really
don’t understand
it and get
burned. You
must understand
and track the
index it is
associated with,
the history of
that index and
its risk, know
the caps, the
margin, etc. In
doing thousands
of free reviews
for people with
ARM’s currently,
I’ve found that
nearly all do
not understand
those things,
yet they have an
ARM. I have met
many loan
officers who
cannot explain
it yet they
continue to put
their customers
into these loans
just because the
initial payment
looks good. If
you have or are
attempting an
ARM, be sure you
really
understand it,
and are able to
take the risk
that it brings.
Myth:
Large websites
where banks and
lenders compete get the best deal.
Fact: These
sites add even
more costs and
fees you could
avoid.
These sites are
usually just a
“lead source”
for banks,
lenders, and
brokers. You
apply on-line
and the site
then sells your
information only
for you to end
up with a broker
who shops for
you anyway. The
fees the broker
or lender paid
the site to
obtain your
information or
their “lead” is
then passed on
to you in some
form. Remember
that
mortgage-backed
securities
influence rates,
not banks and
lenders.
Getting the
right mortgage
is more about
how it’s put
together to
match your
income, your
finances, and
your ability to
pay it off so
you don’t have a
mortgage (the
ultimate goal). In reviewing
many situations
from customers
who got their
current mortgage
from such sites,
I found there
was no better
deal, and in
some cases it
was worse than
if they had just
found a really
good mortgage
broker.
Myth:
It is OK to
have a car or
truck loan because
everyone does
Fact: Everyone
would be much
better off not
having any
auto payments.
In doing
thousands of
free mortgage
reviews, I have
found that over
50% own autos
that are really
hurting them,
and preventing
them from
building any
kind of
savings.
Financing
something that
will lose over
half its value
will be very
costly.
Financing or
leasing $20,000
plus automobiles
with little or
no savings is
really asking
for it. The way
to get a nice
car is to be
patient for 3-5
years and invest
the payment you
would have had.
Later pay cash
for the car and
keep the rest.
You avoid the
interest hit,
and if you buy
used with low
mileage you’ll
also avoid a big
part of the
depreciation
hit. Impulse
buying a brand
new vehicle and
financing it is
one of the most common and worst
financial
mistakes one can
make.
Myth:
It is best to
escrow for taxes
and insurance
Fact: It
is better to pay
your own taxes
and insurance
It’s a minor
difference, but
it is better to
do it yourself.
You can
sometimes pay
early to get
discounts, earn
interest over
the year, and
manage your own
money. You also
can avoid costly
errors.
Myth:
I should
borrow on credit
cards and other
loans to build
my credit
Fact: If
you’re doing it
right, you’ll
never need
credit
Ask yourself
this question:
Why do I need
credit? Paying
interest to
build credit in
order to borrow
more money to
pay more
interest
costs
you money. Take
that money and
build your
savings account
and you will
qualify for a
good mortgage
which is the
only loan you’ll
need. If you
already have
damaged credit,
then you certainly want
to improve that,
and the way you
do it is not
making late
payments on the
debt you already
have. If you
have credit
problems and you
borrow more, you
are only putting
yourself at risk
of further
default and
paying interest
to increase a
credit score you
really shouldn’t
need.
Myth: I must lower my rate by 1% or more for it to be worth refinancing
Fact: There are several other factors to consider as well
There is a big difference between someone who owes $500,000 saving 1% versus someone who owes $50,000. Wouldn't it also make sense for someone to go from 8% to 7.5% as long as there are zero costs involved? All the math and risk must be considered before making a refinance decision. Things like how much one owes and for how long are factors just like what the rate is doing.
Myth: An interest only loan at 7% is the same deal as a fully ammortized loan at 7%
Fact: Interest only means you pay even more interest
Interest is paid daily on the balance owed at the time. If the balance is not dropping the amount that you pay interest on remains at its highest point resulting in more interest paid. If you take out a 100K mortgage and make interest only payments for 5 years you will still be paying interest on 100K 5 years later where the individual with the fully ammortized loan is paying interest on a lesser balance.
Myth: I have mortgage benefits at my employer which saves me money
Fact: There is no real benefit, it's just a marketing trick
Mortgage brokers approach employers all over the city and tell human resource directors they will offer a "mortgage benefits package" at zero cost to them. They'll even hand out little cards for the employees to keep sometimes. It makes the company look more attractive for having that benefit, and is a great lead source for the mortgage broker. They might rearrange fees, offer a free appraisal, or any number of things to make it look like a benefit, but at the end of the day it is mortgage backed securities that influence price, and you are dealing with the same mortgage broker found in the yellow pages. Finding a real professional will always provide better results. The employer mortgage benefits package is a very clever marketing trick that I hope you do not fall into.
|
