Don’t Want To Pay? Mortgage Rates Will Break Your Legs

Last week, Freddie Mac reported that the 30-year fixed-rate mortgage rate was 5.38 percent, down from the prior week’s 5.59 percent tally. In June alone, the rates have fluctuated an average of one quarter of a percent each week. The news is grim for anyone trying their luck at purchasing when rates hit their absolute lowest. But, many buyers are bringing more money to the table in an effort to recapture the lower rates of weeks past. As the saying goes, money talks.

Buyers are now openly asking their loan representatives what they would have to pay to bring the rates back down to a level they were too slow to capture. While it may not be an option for every potential home buyer, those with upfront cash do have the opportunity to pay their way into a lower mortgage rate.

The process is not unique to this recession. Buyers, historically, have been interested in doing so when rates are already low. The reason for this is because the price for buying points to lower rates is based on the price of the mortgage, and the costs must be paid at closing. It typically takes about four years of payments for borrowers to make up the cost of one point. Therefore, when interest rates are higher, borrowers tend to avoid additional upfront costs and aim to take their chances of gaining a lower rate by refinancing years later.

Paying upfront requires a borrower to buy one point for the price of one percent of your mortgage. Generally, that one point can lower your rate by one quarter of a percent. It may not seem like a huge amount, but the change could save you hundreds of dollars a month. So, if you plan to live in your home and keep the loan longer than the four years it will take to make up the cost of one point, then it could be the right move.

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About TomPowell

Senior Managing Partner of Resolute Capital Partners. As chief strategist I combine my education and proven expertise in raising private capital, innovative deal structure, risk mitigation, portfolio management, and distressed debt recovery to lead the Resolute Capital team in building a cross-pollination program of Foreign Direct Investment between Asia and the United States. In 1999, I founded and led the growth of ELP Capital, Inc, a mortgage banking investment company. In addition I served as the Senior Managing Director for ELP Capital’s affiliated investment company - ELP Capital Advisors, a Registered Investment Advisor for the ELP Capital Family of Funds, Institutional Investors, and wealthy individuals. I began my career with Wells Fargo Bank when I was recruited in 1988 for a management position in business banking for the Silicon Valley market. I was instrumental in the architecture, development, and initial application of Wells Fargo's Officer Sales Training programs, led two separate branch offices to top 5 overall rankings, and in 1990 was named as one of the youngest Vice Presidents in the Company’s 140-year history. I am a widely sought after speaker, international guest lecturer, and am an Instructor in the Office of Executive Education at Harvard University. In addition, I publish a weekly economic newsletter and podcast The Powell Perspective. I am involved in numerous community and industry groups. Specialties:An innovative investment manager with particular expertise in credit risk analysis, distressed debt recovery, and deal structure. I understand the practical application of money management in response to risk on both Wall Street and Main Street.
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