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Putting Things in Perspective
Factors to Consider When It Comes to Your Mortgage

With uncertainty surrounding the months ahead in the mortgage arena, here is some information to help you put things into perspective.

First Things First
Mortgage rates did rebound a bit from the highs set in March, but one thing was left clear for all watching mortgage and interest rates overall. Volatility and spikes in rates can occur anytime, be it in the U.S. economic arena or the world.

That being said, everyone wants to get the best rate for their mortgage. When the last interest rate wave came across the land in 2003, happy homeowners couldn't wait to brag that they received an interest rate below 5.50% for a 30 Year Fixed, which was then the lowest rate we had ever seen. We are still well below that level.

Would $1 a Day Keep You from Your Dream Home?
Even though 30 year fixed rates starting with the number "4" with no points may be out of reach, a great rate can still be obtained. The other thing to take into consideration is that with a mortgage amount of $200,000, the difference between a rate of 5.00% and 5.375% for a 30 year fixed rate is $46 a month.

While no one wants to pay more for their mortgage than they have to, most people would agree that $46 a month is typically not enough to prevent them from buying the home of their dreams. After all, $46 a month is less than the cost of one tank of gasoline for many people. Combined with the after tax benefits of deducting the interest on a mortgage payment, for many families we are talking approximately $1 a day.

Lower Payment vs. Lower Rate of Interest
With interest rates at phenomenally low levels, an argument can certainly be made for people considering a mortgage for a shorter term. The 15 year fixed rate mortgage is one loan often considered.

Through the first twelve weeks of this year, 15 year fixed rates according to Freddie Mac have averaged a better rate of just over .50% as compared to a 30 year fixed. The greatest benefit of choosing a shorter term is knowing that the mortgage will have a zero balance in 15 years, saving the borrower over $110,000 in interest payments over 30 years.

However, the lower rate and shorter term do come at a monthly cost for borrowers. The difference in monthly payment for a 30 year fixed at 5.00% and a 15 year fixed at 4.50% is $477 a month higher for the 15 year fixed. And in these tough economic times, "cash is king." That is, "cash on hand" is king.

Many people would be better served having a smaller mortgage payment under a 30 year fixed, and then saving or investing the extra money. Note, saving and investing rather than spending the extra money is the key point here. In particular, people who find themselves without a job or who have a pressing financial need would benefit from being able to access these saved funds.