Focusing on the terms of these loans is critical to our long-term financial health. There are many ways that interest rates are set or vary over time for various loans. Add the fact that interest rates change over time, and the complexities multiply.
The primary decision as to which type of mortgage you choose is usually based on how long you plan to stay in the house. Here are few different scenarios:
- If you plan to stay in a house for more than 10 years and mortgage rates are low, you should typically take a 30-year fixed mortgage. With a long-term, fixed-rate mortgage you know what your payments will be for as long as you own your home and most of our clients put a high priority on certainty when it comes to their home.
- If you plan to keep the home for under 10 years then you can typically get a loan at a lower rate because the issuing bank doesn’t have to commit for such a long period of time, like 30 years. The lower rates of these loans make them more affordable, so some home buyers use them to qualify for more expensive homes than they would if they were getting a 30-year fixed-rate mortgage. How much lower are the interest rates? At the time of this writing, a 30-year fixed-rate mortgage could be had at 3.75%. A loan with a fixed rate for 10 years would be 3.5% and loan with a fixed rate for seven years would be 3.125%. Assuming a $750,000 loan, the difference in payments from 3.75% to 3.125% works out to about $260 per month.
- Most Vista clients don’t mind having mortgages throughout most of their lives, but we do have clients who are interested in, and have the resources to pay off a mortgage very quickly. Our typical recommendation for those clients is to use a 15-year fixed-rate mortgage, with current interest rates of about 3.625%. Fifteen year fixed rate mortgages typically have the most beneficial interest rates.
- Note that most clients who are retired, or close to retirement, are better off maintaining their mortgages because it gives them flexibility with their liquid assets and cash flow.
- When taking out a new or refinanced mortgage, one of the larger expenses is usually title insurance. Depending on the location of the property, the cost of title insurance can vary widely from one title company to another. Rather than just going with the recommendation of the bank or escrow company, it can make sense to do some shopping around to reduce the cost and we're always happy to assist.
When our clients have been in their homes for a while, and have no plans to sell, we help by keeping track of their current mortgage rates. If interest rates drop, we will often suggest refinancing to get a new mortgage at a better rate. We’re always happy to assist with this decision which depends on your current mortgage rate, the new mortgage rate, the costs of putting the new mortgage in place, your goals, and other variables.
Besides assisting with mortgages, we are also asked from time-to-time about financing for solar panels. As with other large purchases, there are usually a few variables with these loans where we can provide advice.