Alan Greenspan has left office,
so with the new man in charge (Ben Bernanke), we can only
guess what the future might bring us in terms of Fed policy.
If only I had a crystal ball that would tell me what the fed
and markets will do regarding interest rates, I might be able
to retire with Bill Gates money. However, since I don’t I
can only take the advice and knowledge of the experts who
are paid the big bucks to study this data and make recommendations
to you my client.
When we borrow money, my goal as a loan professional is to
ensure you receive the lowest cost for your borrowed funds,
so the knowledge I read and learn about daily assists me in
helping you make decisions about your mortgage along with
me making decisions about my mortgage. During the process
of home ownership, I will continuously weave in and out of
various loan products through refinancing to ensure that I
have the lowest cost for my borrowed funds.
We know the Fed just raised short term interest rates 1/4
point on January 31 and we know in all likely hood the Fed
is going to raise rates again another 1/4 point in the months
ahead. If you have a home equity line of credit, you are feeling
the pain of this in a major way because every time the Fed
raises rates, you see it reflected on your statement for your
Home Equity Line in the form of a higher payment because the
“Prime Rate” has gone up which is what your Home Equity Line
is based on.
I’m closing on a house at the end of March. I prefer 100%
interest only financing on my home because I believe in managing
my equity separate for wealth creation purposes, however the
Fed is making me think twice about how long do I stay at 100%
or drop my equity position down to 90% LTV. For now, I have
decided to stay the course because of tax benefits from interest
deductions and the offset of my tax free investments.
I was setup to close on the loan with a Interest Only Home
Equity Line and switched to a Fixed Second now with a principal
and interest payment. Currently my payment was going to be
$42 more per month with the Fixed Second, but now that the
Fed raised rates I had enough foresight to change to the fixed
and lock my loan before that happened. Had I not locked my
loan, I would have a higher payment on the Home Equity Line
than I now have on the Fixed Second with a P&I payment.
As you can see, this simple little step will give me 1/2%
lower interest rate on my Second saving me well over $1,000
in the next couple of years in payments not to mention a portion
going to principal which I will separate out in 5 years. Should
the markets change and Prime goes down, then I will refinance
my 2nd (at no cost to you or me) to ensure I always have the
lowest cost of my borrowed funds.
A true mortgage professional is going to help you manage
your mortgage so that you have always have the lowest cost
for your mortgage. The differnece will determine how much
wealth you create by paying less for your borrowed funds.
Douglas Boncosky is a Licensed Mortgage Planner with Smart
Mortgage Access in Schaumburg, IL. Doug has written a number
of articles about mortgage related financing including his
popular book titled "First Time Home Buyers Guide to
a Stress Free Home Buying Process" Doug also writes a
series of business improvement articles to help his marketing
partners grow their business. Doug can be reached at http://www.dougboncosky.com