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Borrowers Lose Tens of Thousands of Dollars in Unnecessary Mortgage Expenses

November 22nd, 2011

What do you do when you want to finance or refinance a home or a rental property? In most cases, the only way the borrowers know how to shop for a loan is to go online and/or call around to see who will quote them the lowest interest rate.

 

This approach is only partly effective because: 1) interest rates change every day, 2) lenders which have lower rates today, may be much less competitive by the time the rate is locked-in (especially if their loan "pipelines" get full), and 3) a particular lender may not be able to deliver the loan altogether due to strict qualifying requirements.

However, a much bigger (and more expensive) issue than the interest rate is whether the particular type of loan is right for your individual situation. So here is the $100,000 question: how do you know which loan is the best for your needs and whether it will not cost you more than absolutely necessary?

That's when things get interesting. While most borrowers focus on asking the question: "what is the interest rate?" they should ask: "what is the interest cost?" There is a distinct difference between these two questions.

The interest rate merely indicates the percentage charged for using someone else's money (interest). However, the interest cost, indicates the total amount the mortgage is going to cost over the life of the loan.

The numbers can be staggering...

For instance, let's say George and Betty are purchasing a home for $575,000 with 10% down payment. They are getting a 30-year fixed rate mortgage in the amount of $517,500. They ask: "what will be our interest rate?" the lender says (for example): "4.25%."

That does not mean much to them in terms of real money, so they ask: "OK, what will be our monthly mortgage payment?" The lender says: "$2,545.79 per month, principal and interest." They may ask about the loan closing costs, but that is usually all they know to ask for.

However, what Betty and George should really ask is: "how much will be my total interest cost?" That is a meaningful question because the answer is: $398,984.02. Wow! That's a lot of money, almost the same as the loan amount.

Since mortgages involve large sums of money, selecting the right loan product does make a significant difference in the overall cost of the financing. For example, a 30-year fixed mortgage would cost George and Betty $239,076.31 more in interest expense than a 15-year loan.

On the other hand, if their 30-year loan is serviced on a Bi-weekly Payment Plan (1/2 of the monthly payment paid every two weeks), that could save them $83,271.00 over the life of the loan.

So how do you go about finding out which mortgage loan is best for you? Assuming that you are not a mortgage banker, the best solution would be to go to an independent, fee-based Mortgage Planner, who could analyze your individual situation and make an unbiased recommendation which mortgage loan product(s) is optimal for you.

But there is a problem... there are no fee-based Mortgage Planners. While most mortgage lending professionals (bankers or brokers) call themselves "loan officers," "loan advisors "or even "loan consultants," in reality they are commissioned salespeople trying to sell a product, which in this case is a mortgage loan.

Recently, Statewide Home Loan Corporation had announced availability of fee-based mortgage planning service called "Loan Veracity ™." This service is offered to borrowers seeking professional and unbiased advice on mortgage financing, including selecting the right type of loan, reducing mortgage interest expenses, and developing effective strategy to pay off the mortgage years ahead of its schedule. The service also offers a review and explanation of loan documents and disclosures.

Currently, the fee-based Loan Veracity™ mortgage planning is available only to Clients of Statewide Home Loan Corporation. New Clients and Client referrals are accepted subject to availability. The initial Loan Veracity™ mortgage planning consultation is FREE, without cost or obligation.

Robert W. Dudek is a Chief Lending Officer at Statewide Home Loan Corporation, San Diego, CA, USA. Statewide Home Loan Corp. is a mortgage brokerage company specializing in mortgage planning services and providing real estate financing to purchase and refinance of residential and commercial properties located in California and Hawaii. For more information please visit http://www.shlc.com or call 1-800-507-9990.

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