My first Post. Would appreciate any feedback. What is my Interest Rate?

Posted November 4, 2022 in
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Buying a home is not the easiest task to accomplish.  Afterall where do you even begin.  And then when you get into the process how do you know if you are getting a fair interest rate.  What is a fair or acceptable interest rate anyways?  Aren't all the rates the same?  "I don't understand finances, just give me what you think is best."  just push this button and it will just work out."  All the advertising out there says its easy.  It's not easy when you try to do it on your own.  But it's also not difficult with the right guidance.

For the past 27 years we have helped thousands of home buyers just like you get their questions answered.  Our #1 objective is to help you get your best mortgage interest rate and to make sure your mortgage is structure to help you meet your goals and objectives.   Too many people pay more than they should for their mortgage because the lender didn't take the time to understand their unique situation. At JTS & Co. we help you get the best loan for your needs, so you're set up for long-term financial success.

                                               SHOULDN'T THE INTEREST RATE BE MY MAIN FOCUS

Interest rate seems to be the primary focus when considering a mortgage or any long-term financing option.  While it is important it is not always the most important.  Nevertheless, this is where the mortgage industry through advertising and marketing has led the borrower to focus. If you call up any lender and ask them what their mortgage interest rate is they will gladly quote you the lowest rate available. But the lowest rate may not be your best option.  I know that sounds wrong but, in this article, I will endeavor to explain and hopefully give you a better understanding of what goes into your mortgage interest rate.

                                        WHAT DETERMINES WHAT INTEREST RATE I WILL GET

The first thing to know is that in today's world there are many factors that go into your specific interest rate.  The type of mortgage loan you are getting (conventional, FHA, VA or USDA or Non QM), the term of the loan, how much you are borrowing relative to the purchase price or appraised value (otherwise known as LTV or loan to value), your credit score, your loan size, your loan purpose (purchase, refinance, or cash out refinance, construction), your occupancy status, how long you want to lock in your interest rate; all of these questions have to be addressed when determining your interest rate.  In addition, the timing of the mortgage markets otherwise known as bond markets play a part in your interest rate.

Therefore, if you call up any lender and ask them what the interest rate is and if they give you a quote without asking you any questions this should be an area of concern.   There is no way to know what your specific interest rate is without talking specifics.  It is so important to sit down with a trusted adviser when you begin the homeownership journey.  Whether you are purchasing a home for the first time or if it is your third or fourth time, or if you are refinancing your existing mortgage talking with someone you trust and that will take the time to explain your specific information is something you deserve.

This article was started with the statement "the lowest rate may not be your best option."  The lowest rate comes with a cost in the form of discount points.   Discount points is a charge to buy down your interest rate below what is called the par rate.  The par rate is the rate your lender can offer you without any additional charges.  Discount points is a percentage charge of your loan amount to buy down the rate below par.  Typically discount points are 1% of the loan amount although they can come in 1/8% increments. For example, if you were borrowing $200,000 a 1% discount point would be $2000 in additional closing cost.  The lowest rate may cost 2, 3 or even 4% in discount points.   But want the lower interest rate save me in the long term?  That depends.  When considering discount points, you have to take into account how long do you anticipate remaining in this mortgage?  In the mortgage industry we know that the average mortgage only remains on the books 5-7 years.  Borrowers either sell the home or refinance it into another mortgage.  For many buying a home is for a short duration due to job expectations, growing family size etc.  Therefore, if 1% cost $2,000 to buy down your interest rate by 0.5% and you saved approximately $65 per month your break-even would be 31 months.   Thus, if you plan to remain in the home for 3-5 years then the additional cost to buy down the rate may not be justified.  If you are planning to remain in the home for a longer period of time, then it may be worth it.  Again, working with a trusted adviser that understands your goals can help you structure your loan and get you your best mortgage rate.

Another reason that the lowest mortgage rate may not be your best solution is in terms of cash to close.  When you close on a mortgage transaction in particular a home purchase you have out of pocket expenses in addition to your down payment, called closing cost and pre-paid's.  These closing cost include items such as appraisal fees, underwriting, attorney fees etc. and they can add up quickly.  Pre-paid's are charges to pre-pay your homeowner's insurance for the first year and to establish your escrow account for future payment of insurance and property taxes.  You can usually estimate 2-5% of the loan amount.  While the seller in many cases is willing to pay these to sell their home that is not always the case.  So, in addition to your down payment, if you have one, you may have to come out of pocket to pay the closing cost and pre-paid items.  This is where your mortgage interest rate can become a tool to help you become a homeowner.  If you are short on funds to close many lenders offer a lender credit to help offset some if not all of these charges.  The higher the interest rate the more lender credit that can be provided.  Just as in the case of discount points as you move up in interest rate the yiled associated with that interest rate increases.  Your lender may be able to offer you a 1% or 2% credit.  Again, assuming a $200,000 loan 1% would give you $2000 to help pay your closing cost and pre-paid items.  2% would give you $4,000.   The higher interest rate would cost you more than the $2000 you recieved in a lender credit so again you have to consider your goals, objectives and present circumstances to determine what is best for you.  Assuming that the average mortgage gets refinanced or sold in 5-7 years the higher rate may not be as big a factor.  If you use the same $65 difference over 48 months (4 years) the additional $65 higher payment would cost, you $3,120 and after 30 months it's costing you in terms of monthly interest cost.  If you were able to get 2% or $4,000 credit you have approximately 60 months to work with.   In either case if interest rates were to improve you could consider a refinance option to bring the rate and the long-term interest cost down.

Your best mortgage interest rate can be a tool to help you accomplish your goals.  I am firm believer in working with someone you can trust and who will listen to your goals and concerns.  There are a lot of ways to structure your mortgage.  Having options and understanding those options will set you up for long term success.  When it comes to your mortgage don't just accept the "lowest rate" it just may not be in your best mortgage interest rate.

One last thought when it comes to your best interest rate as you shop around.  Its almost impossible to compare apples to apples.  What I mean by that is that unless you get a quote from different lenders at the same time, the same day, with the same construct you are going to get different answers.  The reason for that is that the mortgage market is a continuous state of flux.  The bond market which is what drives mortgage rates can change two, three, four or more times in a given day.  So, if oyu get a quote from one lender at 10 and then you call another that afternoon or the next day you are not goign to be comparing apples to apples.  Again, and I can not stress this enough, when it comes to a mortgage having someone you can trust advising you is some important.  The long term implications are too great
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Jeff Farnham
This is my first article on my TAYA journey.  Would appreciate any constructive criticism
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Connor DeLaney
Great share  Jeff Farnham ! Tagging in a few helpful community faces to provide some insight here.
Briana Meisel   Mandy York   Kristie Crenshaw   Alana George   Nathan Dube  Would love some feedback from this crew on what can help Jeff make his content even stronger. Let a rip!
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Connor DeLaney
Jeff Farnham A trio of points I'll make myself before others dive in:

1. Make sure you establish what I like to call the "Authority + Empathy" balance in the introduction.

Empathy = Where is your reader at and what pain, confusion, or hesitation are they experiencing that makes this article important?

Authority = Why should they listen to you? What stake do you have in the game and what makes you a trustworthy author?

When both of these are true, the audience will be saying, "Wow, this business knows where I'm at right now and what I'm feeling AND I trust this person's expertise to help me figure this out." Establishing ourselves as the guide our hero can trust, to put it in StoryBrand terms.

2. While this posting platform may not be perfect to showcase this, a big piece of the SEO behind successful business articles like this one will be is a header hierarchy. This might look like having what we call H2 or H3 headers that provide an outline for readers and search engines to see how the article flows. If you read an example like this article IMPACT published earlier this week, there are larger text headers that provide previews of each section and break up the article: 

3. Make sure you end the article with a strong and clear Call to Action. That might look like a contact us page or one of the tools you have on your homepage like the Rate Checker or Home Purchase Qualifier.

Looking forward to seeing what the team adds to this!
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Nathan Dube
Hi Jeff! Overall, I thought this was a good article, I learned a lot. With that being said I would make a few adjustments. First, you will want to make sure each section has an H2 (header 2) with the key word in each H2. This will help your SEO significantly. 

Next, I would recommend cutting these large paragraphs into smaller ones for ease of reading. I would recommended adding an image or two relevant to the content.

Also, when creating a header, place the text in the dead center of the banner, this will make sure your readers can see all of the text of the title on social media. 

Next l would run this through a grammar and spelling ap like Grammarly. Use that or a similar app to simplify some of your wording. 

Finally, I would add an H2 at the end something to the affect of "which interest rate is right for you", in which you post a bulleted list of questions in bold text, with each question accompanied by the answer. 

This is an opportunity to get your readers questions answered in advance of a meeting. All that being said, great first post with a lot of potential!
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Erin Fults
Great to see you here jumping in with writing articles, Jeff Farnham ! Love it. 

All the feedback so far is excellent. 

Formatting an article so it's scannable will increase the chances it gets read. The header tags mentioned in the other comments are critical for that and SEO. 

Bullet points are another formatting option to help with scannability. This works particularly well with info like you have in the second paragraph. Instead of listing the interest rate factors in a long sentence with commas, bullets will make it easier to read. 

Great work! Excited to see you jump into your TAYA journey. 
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Jeff Farnham
Thank you all for the comments.  I will work these into the revision.  I greatly appreciate all the feedback.
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Jeff Farnham
Thank you all for your comments and suggestions.  I have tried to implement them as I understood them.  I have attached a link to the revised version.  Any additional feedback or critiques would be greatly appreciated. What is my Interest Rate.edited.docx

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