It's the largest loan most people ever take out in their lifetime, yet some house hunters don't stop to do the math on mortgages before making themselves at home. "Their mind is not so much on a mortgage, which they're going to hold for 30 years or maybe less, but they're really thinking about that home and what we can do with it," John Cooper, a certified financial planner with Greenwood Capital, told Moneywise. "And this mortgage is just a necessary evil to get you into that home." Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake.
Here's what it is and 3 simple steps to fix it ASAP Millionaires under 43 hold only 25% of their wealth in stocks. Here's where their money is actually going Mortgage rates recently rose to levels not seen since last August due, in part, to higher inflation, according to the Mortgage Bankers Association (MBA). The Federal Reserve Bank of St.
Louis, meanwhile, reported an average 15-year fixed rate mortgage of 5.96% on August 13, with the 30-year fixed rate average hitting 6.67% — both slightly down from earlier in the month. Still, in a sea of plus-6% mortgage rates, deals like those offered by Chase or Rocket Mortgage in the mid-to-high 5% range seem like a steal. And they could be, but financial experts tell Moneywise that there's one catch that seems beneficial but could ultimately cost you thousands in the long run: discount points.
"First time buyers, especially, are feeling the pinch of affordability and want a more palatable monthly payment," Benjamin Clark, president of the National Association of Exclusive Buyer Agents, told Moneywise. "Snagging a low interest rate feels like a massive win. It addresses their immediate concern about monthly costs but it often blinds them to the costs associated with paying points on a mortgage." Lenders often offer discount points with a mortgage loan — a process known as "buying down," which acts as an upfront payment to lower monthly payments and the overall interest rate.
Each point represents a percentage of the loan. So, if you take out a $400,000 mortgage loan and opt for a two-point discount offer, you'd pay 2% — or $8,000 — upfront and get a lower interest rate. While points are common and often offered at or lower than one, Chase and Rocket are among those currently offering two points on some lower-than-average mortgage rates as of this writing.
Mike Fratantoni, the MBA's senior vice-president and chief economist, cautioned Moneywise that, "If a borrower is only in a loan for a shorter period, the effective cost is going to be higher than the APR." Clark added that taking the points means those thousands of dollars in upfront costs are gone for good. "If life happens — a job transfer, a growing family or an opportunity to refinance to a lower rate — none of that money is returned." Read More: Vanguard reveals what's coming for U.S. stocks — and it could be bad news for this group of investors Then, when refinancing down the road, "rates won't just need to match the bought-down rate, they will need to go at least that much lower" for it to make sense. With many experts, including the MBA, forecasting interest rates between 6% and 7% for the foreseeable future, Clark believes "lenders are making a highly calculated bet that shifts the cost onto the buyer, locks them into their loans for longer and gives the bank extra profit on day one.
Extract — continue reading at the source.
