Four Goals to Determine Best Mortgage for YOU!

When purchasing or refinancing a home, your main goals should be to

1 – Get the lowest monthly payment to meet your financial objectives,
2 – Maximize your federal income tax benefit,
3 – Conserve as much capital as possible to meet your financial objectives, and
4 – Meet your risk tolerance.

The mortgage you select to use is a valuable financial instrument that should not be taken lightly. While considering the mortgage that is right for you, use the above to consider which will meet your short and long term strategies. Most people consider a mortgage a loan to buy a home. I can’t stress enough that this is a misconception!

It is said that purchasing a home may be the largest investment a person ever makes in their life. The financial instrument you choose – your mortgage – is a long term debt instrument that needs to fit into your financial plan.


1 – The lowest payment – There are many different mortgage programs that exist today. Not only are there terms ranging from 5 – 40 years. There are also different loan types to consider. There are stable fixed rate mortgages which the payment stays the same over the term of the loan. There are also mortgage programs that allow for interest only payments or loans that allow variable interest features.

Most people get hung up on what the lowest interest rate is without consideration of two very important details – the Annual Percentage Rate and the financial instrument product. My belief is the general public associates the lowest interest rate with the lowest monthly payment. Now, more than ever, your lowest monthly payment actually depends on your credit score, your down payment, your risk tolerance and your short and long term needs.

As an example a 5% fixed rate FHA mortgage actually has a higher payment than a 5.375% USDA Rural Development mortgage. Even when the down payment is 3.5% more for the FHA loan!

Another example would be a 10 year fixed interest rate is much lower than a 30 year fixed interest rate, however the monthly payment is close to double.

2 – Maximize your federal income tax benefit – This may be one of the most overlooked goals when considering the financing options available to you. One of the only tax deductions you may have at the end of the year are the property taxes you pay on a home and the interest associated with the financing for the home. Currently, mortgage insurance is tax deductible through 2011. Once that exception expires, it most likely will not be expanded, as the USA needs as much income as possible these days.

Make sure that you are maximizing this benefit of home ownership.

3 – Conserve as much capital as possible to meet your financial objectives – Most homebuyers and people looking to refinance a mortgage generally look to have the lowest monthly payment. A way to decrease the monthly payment is to invest more money in a home so that they are borrowing less. A simple analysis would suggest if your money is better spent being invested in the home or invested in paying off another debt. You should also consider is your money better spent pre-buying interest instead of an increased down payment.

Choosing to pre-buy interest would actually give you a lower payment by decreasing your interest payments each month for the life of the loan instead of decreasing the loan balance…and it actually conserves your capital that may be used to pay down other, higher yielding debt instruments or the conserved cash could be used to invest in a higher yielding asset.

4 – Meet your risk tolerance – The program that would give you the absolute lowest payment would be a variable rate mortgage that changes as frequently as possible. However, most people do not have the appetite for this much risk when it is tied to their biggest investment. Determining what your risk tolerance is generally will help lead you to the right program for you.

Risk tolerance does go farther than choosing a fixed or variable rate mortgage. If I asked you why you want a fixed rate mortgage, I would expect to hear because it’s “safe”. I agree, having the same, stable payment does lend itself to safety.

With safety being considered, do you think having a larger down payment invested in your home is a “safer” option because the payment will be a little lower? If you answered yes, I would disagree. Having capital in your home makes it a non-performing investment that is far more at risk because you do not have any control over your capital.

As a mortgage planner, my job is to help clients objectively determine their needs by considering these goals. If you would like to take advantage of a complimentary 30 minute needs analysis, please call me to schedule an appointment.


Vin Biscoglio
MLO#6954
860 305-1609

Mortgage commentary from Mortgage News Daily website

Great commentary I saw today regarding interest rates and why they are where they are.

Thanks to Mortgage News Daily

Fed done. Nothing new, no unexpected events. The advancement of President Obama's Stimulus Plan and the possibility that a "Bad Bank" will be created to buy up toxic mortgage assets is encouraging for equity markets, but the feelings wont Be mutual for the TSY market. Increased issuances of gov. debt will drive up longer maturity yields and the TSY curve will steepen in the sell off. The Fed's continued involvement in the MBS market will provide stability and assist in the tightening of MBS/TSY spreads as Gov.notes and bond yields rise. Just remember that ALL markets are a day trader's delight right now and buying the dips and selling the rips is a popular trading strategy. In the mortgage origination world I would equate this to doing a ton of units with tight profit margins...in the long run you work harder but make a decent living.
I am feeling more encouraged about the prospects for tighter primary/secondary spreads. If you are a new reader I am referring to the difference between what rate borrowers are offered compared to how the MBS stack is behaving. On Tuesday and Wednesday we observed increased lock desk activity which led us to believe that an originator hedge was on the horizon (they lock their loans just like you do). Part of the reason for yesterday's early afternoon reprice alerts was this mortgage banker pipeline protection activity. Anyway what excites us this morning is the fact that the enlarged originator offering was concentrated in lower coupons like 4.0s and 4.5s. So while this could be attributed to less lock activity over the past 10 days...it could also mean that mortgage banks are starting to submit to the secondary markets requests for lower coupon production. Either way it is a positive for us and barring any TAPE BOMBS the road to reduced rates is slowly being paved. To respond to one readers comments....the light at the end of the tunnel doesn't seem to be a train heading our way! In regards to timing all we can do is keep our ears to the ground and listen to the whispers from lending ops centers.
Going back to the day trading environment. Yesterday the Fed re-iterated that "credit conditions for households and firms remain extremely tight" and we know that Bernanke's goal is to "facilitate the extension of credit to households and small businesses" ....the Fed will do this "facilitating" by keeping interest rates low. They will do so by purchasing moderating the Fed Funds rate, purchasing TSY debt, and providing a stable down in coupon bid in the MBS market. Anytime the MBS stack looks relatively weak it is an opportunity to buy on the "cheapness". Once those positions become relatively expensive...profit taking will occur and the Fed will step in to support us...and a cycle ensues.
The extent to which our rates get worse or better is a function of two factors. The first is how much the Fed buys (hopefully still in 4.0s and 4.5s) and the second is prepayment expectations. The latter is dependent on our lenders ability to pass along gains and borrower's feeling like they are finally getting the rates for which they have been patiently waiting. This price function has two dependant unknowns so making an assumption of when to expect lower mortgage rates will involve a great deal of variables. We do however appreciate the regular updates from our readers on the progression of the operational "beefing up" process.

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