Why Rate Isn’t Everything

If you’re in the market to purchase a home and concerned that rising interest rates could price you out of the home you’re looking at, then this article is for you. First, you need to understand what

the difference in your monthly payment could be if the rate were to increase slightly before you are able to close on your loan. Second, know that there is more to a mortgage than just rate. You

need to consider the big picture.

The day-to-day rate movement is not what’s important.

In fact, it’s irrelevant to you qualifying for a loan. Once you’ve started your home search the overall change in daily rates will remain generally unchanged. A slight rate increase will only result in a

negligible increase in your monthly payment. Here’s a good way to think about it. For every $10K you finance you’ll pay around $55 (should this change to $58) per month. That means a

$300,000 mortgage will equate to a monthly payment of around $1,650 ($1,740). That amount either fits into your budget or not.

Let’s compare two interest rates:

These materials are strictly for educational purposes only and are not intended for use by or distribution to consumers as advertising.  It is not an advertisement; as such term is defined in section 1026.24 of Regulation Z, which implements the Truth-in-Lending Act.  HomeBridge Financial Services, Inc. 194 Wood Avenue South, 9^th Floor, Iselin, NJ  08830.  Corporate NMLS #6521.

If you can’t afford a $24 increase due to a small rate increase, then you are trying to purchase a home that is too expensive. It’s that simple. It may be time to reconsider your price point and search

out lower priced options. You never want to get into a situation where your mortgage payment would stretch you too thin in your finances. A good rule of thumb is to plan for a monthly payment

that could be up to $200 more than what you’ve been quoted. If you can swing that amount, then you are safely within your price point.

Loan amount and term will cost you the most.

In addition to rate, you need to look at the long-term picture of purchasing a home. Time and price are what will cost you the most. The longer your loan term and the higher your mortgage

balance the more you’ll pay in interest over time. A shorter term means a lower interest rate and less interest you’ll pay over the life the loan. Again, I always like to put this into context by showing

you the numbers.

Here’s a quick comparison of what your “cost” would be for a $300K mortgage based on two different terms:

These materials are strictly for educational purposes only and are not intended for use by or distribution to consumers as advertising.  It is not an advertisement; as such term is defined in section 1026.24 of Regulation Z, which implements the Truth-in-Lending Act.  HomeBridge Financial Services, Inc. 194 Wood Avenue South, 9^th Floor, Iselin, NJ  08830.  Corporate NMLS #6521.

This puts it into perspective, doesn’t it? A longer term may mean a lower monthly payment, but this longer term will mean a significantly higher cost overall. Though a 15-year mortgage may be too

daunting for some borrowers, it’s always good to see the numbers. Oftentimes, borrowers realize that the shorter term can work for them.

Equity is the great differentiator:

Even though a 15-year term may cost you less and build your equity faster, the monthly payment may not be feasible in your budget. But there’s

another option you can choose. Take out a 30-year mortgage, then add and additional principal payment every month. That way you’re not beholden

to the larger monthly payment and can still reap the benefits of paying down your principal faster. The key to this strategy is the discipline to add that

additional principal to your monthly payment. The longer you stay in your home, the more equity you’ll have. Not only do you gain equity with every

mortgage payment, but you also gain equity from the increase in the market value of your home due to inflation and housing demand.

Mortgage Checklist

✓ Be sure you can afford a possible $200 increase in your monthly payment

✓ Remember, the longer your term, the more the home will “cost”

✓ Consider a 30-year term plus additional principal payments