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CNN Live Saturday
"Dollar Signs": How To Get The Best Mortgage
Aired January 24, 2004 - 16:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDERICKA WHITFIELD, CNN ANCHOR: Well, now it's time for DOLLAR SIGNS, where we help you make the most of your money.
New home construction last year was the highest it has been in 25 years. The year ended with yet another surge forcing homebuilders to increase their pace again. With the home buying market so strong, many people are thinking about buying a new house, or perhaps refinancing the one they already have.
So, how do you get the best mortgage? Jamie Sutton and Elizabeth Razzi are going to educate us with a little "Mortgage 101". Jamie is the co-author of the "The Pocket Idiot's Guide to Mortgages". And she's in Buffalo, New York. Elizabeth is a contributor to "Kiplinger's Personal Finance" magazine. And she's in Washington.
Good to see both of you.
JAMIE SUTTON, AUTHOR, MORTGAGE GUIDE COAUTHOR: Hello.
ELIZABETH RAZZI, "KIPLINGER'S PERSONAL FINANCE": Hello.
WHITFIELD: So, now is a good time not only if you're trying to buy a new home, but perhaps you already have something and you need to refinance it.
So, Jamie, why is it that now is good?
SUTTON: There is no better time to refinance again because interest rates have dropped. We're down again in the vicinity of 5 5/8 to 5.5 percent. People can just save money.
WHITFIELD: And Elizabeth, is the thought that the mortgage interest rates are going to stay low for a pretty good amount of time until the late spring or summer?
RAZZI: They are not expected to shoot up any time soon. Nobody really expected them to dip down quite so low right now. I wouldn't try to hold out for anything lower. Go ahead and move now if you're going to refinance.
WHITFIELD: All right. Let's talk about perhaps the first step you need to take in trying to shop for the best rate. Is it as simple as just going to the banks? Or is it picking up a phone, or even checking some of the online services? Elizabeth?
RAZZI: The best thing to do is just shop, just like you shop for anything else. Go to all of the above. Start at home with the online services. Just get a feel for the going rate is. Talk to the bank you do business with all the time. See if they have something for you. If you are refinancing go to the lender that you have the loan with now and see if they can offer you something a little bit better.
WHITFIELD: Jamie, sometimes when you are shopping for the best, you know, rates for your credit card companies, you sort of reveal to the credit card companies what everybody else is offering. Does that work in this case?
SUTTON: Absolutely. I think that by knowing what you are shopping against, it helps the lender that you're working -- that you're talking to understand what you are looking for and offer you the best possible solution. After all, the lender is after your business and they want to do that mortgage for you.
WHITFIELD: All right. So once you finalized on perhaps who, what lender you're going to go for, now have you to make a decision, do I want 30 years? Do I want 15? Do I want adjustable or not? Elizabeth, how do you make the best approach?
RAZZI: The way you decide that is to look at your own future plans. Look at how long are you going to be in the house? Try to match up the time that you are going to need the money, this loan, to the time that you borrow it. So the longer you use the money, say 30 years, the more money you're going to spend for it, the higher interest rate. If you're going to be moving in five or 10 years, you can take a shorter term lock-in, say a five-year lock-in that switches to a one-year adjustable loan after that and save some money.
WHITFIELD: Jamie, your thoughts?
SUTTON: Actually, what my approach usually is, is not necessarily -- it follows Elizabeth's train, because it's not necessarily the amount of time you are going to necessarily keep the home, it's how long do you think you'll keep the mortgage. Often times you have situations in your lifetime that will change.
You may be a dual income household today, and then find that in the next couple of months you are going to end up with a baby and you're going to have one income. Your income stream may be changing. All of those questions that a lender asks you is for the purpose of trying to decide what the best solution might be at that time.
WHITFIELD: Jamie and Elizabeth, if you are refinancing, everyone is not the best candidate for refinancing. You even if you have been in your home for a little bit. What kind of percentage points are you looking for in order to make sure you really are going to be saving some money?
Elizabeth?
RAZZI: One point is a good drop to look for. But the thing is that some people aren't good candidates for refinancing at all. If you had this loan for a long time, most of us haven't had them for too long. But if you are approaching retirement, for example, and you're not going to want to hang on to this for a long time, you are not going to want to change your payments any time going into retirement. There's no benefit in refinancing, say, a 15-year loan that you have already had.
WHITFIELD: All right. Jamie and Elizabeth. Hold tight. We're going to be taking some calls and e-mails next on DOLLAR SIGNS.
Of course, you can still send your questions to DOLLAR SIGNS at CNN.com or call in. The number is 1-800-807-2620. We'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS.
Anyone who has ever bought a home knows nothing is finished until the paperwork is done. The staggering number of forms can be intimidating to first-time homebuyers, especially. Jamie Sutton, co- author of "The Pocket Idiot's Guide to Mortgages", and Elizabeth Razzi with "Kiplinger's Personal Finance". They are helping us sort it all out and get the best deals.
All right, thanks for sticking around ladies. We have Edward from Maryland on the telephone with a question.
Edward?
CALLER: Yes. I have a question. I went through the refinancing process and now I find that the new monthly payment is approaching the old monthly payment, in amount. I'm wondering, maybe I should have shopped around more. Is it possible to renegotiate a refinancing deal?
WHITFIELD: Elizabeth?
RAZZI: Have you closed the loan yet or is it still coming through?
CALLER: It was done a while back, actually.
RAZZI: OK. So you have this loan. You need to find out why your payment is increasing. It could be that your taxes are going up, or your homeowner's insurance is going up, and the escrow payment is rising. There's not a lot you can do about that, but maybe shop for a difference homeowner's policy.
But it is actually the principle and interest that's increasing. That shouldn't happen unless you have an adjustable rate mortgage.
WHITFIELD: Jamie, do you have anything thoughts on -- anything to add?
SUTTON: Actually, what type of a loan did you shop for originally, Edward?
CALLER: I think it was just a 30-year.
SUTTON: If in fact have you a 30-year fixed rate, when you say the payment is approaching what it was before, is when you closed on your paperwork, was the monthly principle and interest payment at that point lower and now you are just realizing after six months or something that your payment has gone up?
CALLER: Yes. I pay by these -- by these tickets that I mail. And there's a slight increase in the amount that I -- on the ticket that I have to pay.
SUTTON: It sounds as though you actually had some sort of an increase over some time with your escrow for taxes and interest, which would have happened regardless whether you refinanced or not.
At this point, if you're looking at the payment and it is still uncomfortable, perhaps you need to go back to that lender or perhaps shop another lending institution to see if there's not a way to get the payment back to where you need it to be.
WHITFIELD: All right. Thanks, Edward.
Now an e-mail from Philip out of Virginia. He asks, "Is it better to go to a bank where one has a long-term relationship or to an online bank for a mortgage?"
Jamie?
SUTTON: Actually, the online banking services are a tremendous resource when it comes to trying to determine where, in fact, interest rates are. At the same time, by all means begin to talk to as many institutions as you can along the way because -- and your bank is the perfect place to start. Understanding that your banking relationship may allow you perhaps a credit on your checking account, or a discount of a quarter of a point in the cost of doing business.
At the same time, don't stop there. Some banking institutions are not in the business -- in fact, most of them aren't in the business of mortgages. They are in the business of creating depositor relationships. So, allow yourself to find a couple of other resources.
In the book we discuss, talk to as many people as you can in looking for a mortgage. Because again, information is power in this case and it helps you to decide what is the best solution for you.
WHITFIELD: All right. Elizabeth, this one is for you. This is from Joe in Texas, he's on the line.
Joe, what's your question?
CALLER: Hi, Elizabeth.
RAZZI: Hi, Joe.
CALLER: Hi. I've got a very good credit rating. I will be buying a house for the first time. I'm 60 years old. I think what I want is a 30-year fixed rate. My problem is comparing apples to apples.
If I -- and here's my solution to it, because I'm having trouble comparing numbers. If I finance the closing costs along with the house, and then compare -- of course, make certain assumptions about taxes and insurance. And then compare the monthly payments won't that be the best way to shop to get the lowest amount? Because it seems like as the closing costs go down, the rates go up, and visa versa
RAZZI: Well, that is a truism. It is a good way to shop. It makes it a lot easier if you look at say, a zero closing costs or zero points mortgage and just compare that across lenders. That helps you to get an idea who is offering a little higher rate.
What you need to look at is look at your whole financial picture. How much money do you want to put down on the house? You'll save on the interest rate if you make a down payment, the larger down payment you make you'll cut the monthly payment. It is very much like buying a car, if you can trade in a car you can cut the monthly payment on the new one.
But have you to look at how much money you are going to have in reserve. Retirement does not that far off. You don't want to soak all of your cash into the home and then not have cash in reserve for all the other things that can come up in the next 10, 20, 30 years. So take a look at that, see how much you are comfortable paying monthly. Also make sure you have a good cash reserve and investment reserve after buying the house.
WHITFIELD: All right. Thanks a lot, Joe.
Now, Ben in Round Rock, Texas, asked, Jamie, "Can you talk about the advantages or disadvantages of getting your mortgage through a mortgage broker as opposed to dealing directly with a lending institution?"
SUTTON: I'd be happy to. Theoretically a broker is a go-between. It's always been thought that a broker would have information not only on one institution but several. A mortgage broker's job is to determine the best possible solution across the board.
But when it comes to individual mortgage companies, it's sometimes worth the talk with that institution because they may have programs that they don't offer to a broker relationship. In other words, there may be the opportunity to do a loan that may suit the circumstances, specific to what you're looking for, that no one else could offer other than that lending institution.
WHITFIELD: Elizabeth, do you have a thought on that?
RAZZI: Yes, I do actually. It really depends on the quality of the individual mortgage broker. And that range is widely -- the only way I will do business with a mortgage broker is if I have a personal referral from someone and I know that this broker actually did them well. You know, searched hard for mortgages, didn't just direct their business to the one who gave them the biggest fee for delivering the mortgage. So, it's an opportunity to drop the ball, if you get a bad mortgage broker.
WHITFIELD: OK, Shelly in Massachusetts is on the line with a question.
Shelly?
CALLER: Yes, I'd like to know as a homeowner, can I just do bi- weekly payments on my mortgage, take advantage of benefits? Do I have to enroll in a program that my mortgage company has? Because there's an enrollment fee, there is a service fee involved with that? Can I just send them the payments bi-weekly and take advantage of that? Or do I have to enroll into one of their programs?
WHITFIELD: Jamie, why don't you take that first.
SUTTON: Most mortgage companies offer monthly payment services. That's the way the computer systems are set up. Because of the popularity of bi-weekly mortgages, there are now enhancements that have been put into place that are separate servicing arrangements, as you have discussed or mentioned, that will cost a little bit of extra money.
But understand that all you're really doing when do you a bi- weekly mortgage is make one extra payment a year, so if a budgetary sense there's a way for you to make that one extra payment, whether it be in a lump sum or over the course of that 12-month period you're accomplishing the same thing without the fees that go along with the special programs that you're talking about.
RAZZI: I agree completely. That's only -- the whole secret is that 13th payment. If you can make that early in the year you're going to save even more money.
WHITFIELD: Rick out of Louisiana writes: "What are the pros and cons to interest-only mortgages that let you pay interest for the first 10 years only, as I plan to move before the 10 years is up anyways.
Elizabeth?
RAZZI: The problem with interest-only mortgages is they don't get you anywhere. It's a lot like paying rent. You are just not paying down the principle on the house. You're not building up ownership in that house.
(CROSS TALK)
WHITFIELD: So, maybe this is for the person that doesn't intend to stay in a home very long?
RAZZI: You're still not building up a lot of equity. You gain the equity from rising prices but you aren't paying off things. It can be an OK short-term solution, but it's not a really good long-term financially sound program for most people.
WHITFIELD: Jamie, do you like interest-only loans?
SUTTON: Actually, I believe in diversification, as Elizabeth mentioned. At the same time, an interest-only loan can be a nice vehicle on a short term, or even if you're trying to take some equity and -- well, assets and reinvest them in perhaps a mutual fund or something.
Really you what need to look at, is what at the time return on my dollar? What am I gaining? What type of appreciation market is my property in? How long do I intend to keep myself in a situation? And then look to the future as far as, it is a temporary amount of time that you're going to probably keep the mortgage?
WHITFIELD: All right. Thanks. Well, go ahead.
RAZZI: There is one thing, I have a tendency to play it a little safer with the mortgage, the house that you live in. Play that a little safe. Take a little more risk with maybe your other investments. But a lot of people that is their one house.
SUTTON: Absolutely.
RAZZI: And it is really -- there is a psychological benefit to just increasing your ownership in that over time.
WHITFIELD: Thank, ladies, we're going to pick this up right after a break. We're going to take more of your calls and e-mails in a moment.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS. Home mortgage experts Jamie Sutton and Elizabeth Razzi are answering your questions about how to get the best home loan.
And Glen, e-mails a question asking -- is getting a cashback deal on your mortgage a good deal? Or do you end up paying for it in the end?
Jamie?
SUTTON: Cashback is -- I'm assuming what he's talking about is an equity take-out mortgage.
It depends truthfully on what you're doing with the crash. Often times when you are looking at an equity retake-out refinance what you're try doing is restructure your overall debt relationship in your monthly budget.
And so if you're able to take those funds and -- even if your payments slightly increased, but you have taken the funds and reduced your overall payout, paid off a couple of credit cards and an auto loan and reduced the monthly obligations by a couple of hundred dollars. Yes, then most definitely was a good opportunity for you. Assuming that in the long run that you intend to keep that property for a while.
WHITFIELD: All right, Elizabeth, Kevin from Florida is on the telephone with a question. CALLER: Good afternoon, ladies. I qualify for what is called a cost of funds index mortgage based on British funds with zero points, and we just sold our town home in Florida. We're buying a single- family home. I want to know what you ladies thought with your expert analysis on this particular loan.
WHITFIELD: Elizabeth?
RAZZI: Well, a COFI (ph) index ARM is pretty much a basic adjustable rate mortgage. It doesn't matter so much which index you follow, they all basically go the same way.
When rates are rising it will rise. Some grow faster than others, some move more quickly. Not really a big deal. You'll have an annual adjustment any way you go.
So, a one-year adjustable rate mortgage is the cheapest thing going. That's a great thing to minimize your payment. The risk, of course, is that you're payments are almost certain to go up in the future years. There are caps there, on your annual payments, caps on your monthly payment. And that is there to protect you in case interest rates rise. But with rates being as low as they are now, you should budget more money for the mortgage in future years.
WHITFIELD: Jamie, finally, we have a caller coming in from California. I think this is a first for this program now. Valerie has a question.
Valerie?
CALLER: Good afternoon. I wanted to find out I've been shopping around for loans and every time the potential lender runs a credit check, it seems to affect my credit score. I started off with a pretty high score and because I was shopping around the last person I contacted said that the score had fallen quite a bit. Now, how do avoid this problem, if possible?
SUTTON: Each time you have your credit checked, Valerie, your overall credit score can start to drop. And so it's imperative as you are shopping for a mortgage you are cautious as far as who you allow to pull credit.
In the circumstances that you're in right now, have you been told whether or not -- where your credit score is actually at right now as far as dropped? Do you know what your credit score is, in other words?
CALLER: Thought the credit score was 690 and then the last time they ran it, it was 654 and one of the loans that I would have qualified for required a 680 so -- and that was between I think three lenders and they were pretty good lenders.
SUTTON: I think that -- and that's not unusual at all to see a credit score drop 30 points. At the same time, that 650 credit score is not considered a horrible credit score, by any means.
Some of the credit programs that are out there, do have plateau, 720, 680. They are numbers that are just thrown out as far as levels in which they will provide you a specific program. But at the same time that 655 credit score isn't bad.
What you have to do though is go back to one of the lending institutions you spoke to and have them do what is called a "credit advantage" on it. Have them go back and tell you if there's anyway that you can do anything to the credit history as it stands right now to increase your score again. In other words, pay down a debt. But by all means don't have anybody else pull your credit.
WHITFIELD: Ron from Shelby, North Carolina e-mailed an interesting question saying: "I refinanced a mortgage two years ago at 6.78 percent. Rates have been reducing for two weeks. Would it make sense to refinance at 5.5, for a fixed jumbo, if I plan to sell my house in the next eight months?
Elizabeth?
RAZZI: No, you're not going to save that much money in eight months. And then you are also going to be paying out fees to refinance the mortgage. I would just hang on to that money and use it for the new house and to reduce your payments by applying it toward points on that new mortgage when you buy the new house. Not so close to the end of your mortgage.
WHITFIELD: All right, Jamie, we have less than 30 seconds to offer a reply.
SUTTON: To the same question? I'm sorry?
WHITFIELD: Yes.
SUTTON: I would actually agree with Elizabeth. At this point if you look at the savings you would reap in that six months, there is absolutely no reason to do a refinance.
WHITFIELD: All right. Jamie Sutton and Elizabeth Razzi thanks very much, ladies for joining us. Appreciate it in helping us to save a little money.
SUTTON: Thank you.
RAZZI: Happy to be here.
WHITFIELD: That's all we have time for right now.
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Aired January 24, 2004 - 16:31 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDERICKA WHITFIELD, CNN ANCHOR: Well, now it's time for DOLLAR SIGNS, where we help you make the most of your money.
New home construction last year was the highest it has been in 25 years. The year ended with yet another surge forcing homebuilders to increase their pace again. With the home buying market so strong, many people are thinking about buying a new house, or perhaps refinancing the one they already have.
So, how do you get the best mortgage? Jamie Sutton and Elizabeth Razzi are going to educate us with a little "Mortgage 101". Jamie is the co-author of the "The Pocket Idiot's Guide to Mortgages". And she's in Buffalo, New York. Elizabeth is a contributor to "Kiplinger's Personal Finance" magazine. And she's in Washington.
Good to see both of you.
JAMIE SUTTON, AUTHOR, MORTGAGE GUIDE COAUTHOR: Hello.
ELIZABETH RAZZI, "KIPLINGER'S PERSONAL FINANCE": Hello.
WHITFIELD: So, now is a good time not only if you're trying to buy a new home, but perhaps you already have something and you need to refinance it.
So, Jamie, why is it that now is good?
SUTTON: There is no better time to refinance again because interest rates have dropped. We're down again in the vicinity of 5 5/8 to 5.5 percent. People can just save money.
WHITFIELD: And Elizabeth, is the thought that the mortgage interest rates are going to stay low for a pretty good amount of time until the late spring or summer?
RAZZI: They are not expected to shoot up any time soon. Nobody really expected them to dip down quite so low right now. I wouldn't try to hold out for anything lower. Go ahead and move now if you're going to refinance.
WHITFIELD: All right. Let's talk about perhaps the first step you need to take in trying to shop for the best rate. Is it as simple as just going to the banks? Or is it picking up a phone, or even checking some of the online services? Elizabeth?
RAZZI: The best thing to do is just shop, just like you shop for anything else. Go to all of the above. Start at home with the online services. Just get a feel for the going rate is. Talk to the bank you do business with all the time. See if they have something for you. If you are refinancing go to the lender that you have the loan with now and see if they can offer you something a little bit better.
WHITFIELD: Jamie, sometimes when you are shopping for the best, you know, rates for your credit card companies, you sort of reveal to the credit card companies what everybody else is offering. Does that work in this case?
SUTTON: Absolutely. I think that by knowing what you are shopping against, it helps the lender that you're working -- that you're talking to understand what you are looking for and offer you the best possible solution. After all, the lender is after your business and they want to do that mortgage for you.
WHITFIELD: All right. So once you finalized on perhaps who, what lender you're going to go for, now have you to make a decision, do I want 30 years? Do I want 15? Do I want adjustable or not? Elizabeth, how do you make the best approach?
RAZZI: The way you decide that is to look at your own future plans. Look at how long are you going to be in the house? Try to match up the time that you are going to need the money, this loan, to the time that you borrow it. So the longer you use the money, say 30 years, the more money you're going to spend for it, the higher interest rate. If you're going to be moving in five or 10 years, you can take a shorter term lock-in, say a five-year lock-in that switches to a one-year adjustable loan after that and save some money.
WHITFIELD: Jamie, your thoughts?
SUTTON: Actually, what my approach usually is, is not necessarily -- it follows Elizabeth's train, because it's not necessarily the amount of time you are going to necessarily keep the home, it's how long do you think you'll keep the mortgage. Often times you have situations in your lifetime that will change.
You may be a dual income household today, and then find that in the next couple of months you are going to end up with a baby and you're going to have one income. Your income stream may be changing. All of those questions that a lender asks you is for the purpose of trying to decide what the best solution might be at that time.
WHITFIELD: Jamie and Elizabeth, if you are refinancing, everyone is not the best candidate for refinancing. You even if you have been in your home for a little bit. What kind of percentage points are you looking for in order to make sure you really are going to be saving some money?
Elizabeth?
RAZZI: One point is a good drop to look for. But the thing is that some people aren't good candidates for refinancing at all. If you had this loan for a long time, most of us haven't had them for too long. But if you are approaching retirement, for example, and you're not going to want to hang on to this for a long time, you are not going to want to change your payments any time going into retirement. There's no benefit in refinancing, say, a 15-year loan that you have already had.
WHITFIELD: All right. Jamie and Elizabeth. Hold tight. We're going to be taking some calls and e-mails next on DOLLAR SIGNS.
Of course, you can still send your questions to DOLLAR SIGNS at CNN.com or call in. The number is 1-800-807-2620. We'll be right back.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR SIGNS.
Anyone who has ever bought a home knows nothing is finished until the paperwork is done. The staggering number of forms can be intimidating to first-time homebuyers, especially. Jamie Sutton, co- author of "The Pocket Idiot's Guide to Mortgages", and Elizabeth Razzi with "Kiplinger's Personal Finance". They are helping us sort it all out and get the best deals.
All right, thanks for sticking around ladies. We have Edward from Maryland on the telephone with a question.
Edward?
CALLER: Yes. I have a question. I went through the refinancing process and now I find that the new monthly payment is approaching the old monthly payment, in amount. I'm wondering, maybe I should have shopped around more. Is it possible to renegotiate a refinancing deal?
WHITFIELD: Elizabeth?
RAZZI: Have you closed the loan yet or is it still coming through?
CALLER: It was done a while back, actually.
RAZZI: OK. So you have this loan. You need to find out why your payment is increasing. It could be that your taxes are going up, or your homeowner's insurance is going up, and the escrow payment is rising. There's not a lot you can do about that, but maybe shop for a difference homeowner's policy.
But it is actually the principle and interest that's increasing. That shouldn't happen unless you have an adjustable rate mortgage.
WHITFIELD: Jamie, do you have anything thoughts on -- anything to add?
SUTTON: Actually, what type of a loan did you shop for originally, Edward?
CALLER: I think it was just a 30-year.
SUTTON: If in fact have you a 30-year fixed rate, when you say the payment is approaching what it was before, is when you closed on your paperwork, was the monthly principle and interest payment at that point lower and now you are just realizing after six months or something that your payment has gone up?
CALLER: Yes. I pay by these -- by these tickets that I mail. And there's a slight increase in the amount that I -- on the ticket that I have to pay.
SUTTON: It sounds as though you actually had some sort of an increase over some time with your escrow for taxes and interest, which would have happened regardless whether you refinanced or not.
At this point, if you're looking at the payment and it is still uncomfortable, perhaps you need to go back to that lender or perhaps shop another lending institution to see if there's not a way to get the payment back to where you need it to be.
WHITFIELD: All right. Thanks, Edward.
Now an e-mail from Philip out of Virginia. He asks, "Is it better to go to a bank where one has a long-term relationship or to an online bank for a mortgage?"
Jamie?
SUTTON: Actually, the online banking services are a tremendous resource when it comes to trying to determine where, in fact, interest rates are. At the same time, by all means begin to talk to as many institutions as you can along the way because -- and your bank is the perfect place to start. Understanding that your banking relationship may allow you perhaps a credit on your checking account, or a discount of a quarter of a point in the cost of doing business.
At the same time, don't stop there. Some banking institutions are not in the business -- in fact, most of them aren't in the business of mortgages. They are in the business of creating depositor relationships. So, allow yourself to find a couple of other resources.
In the book we discuss, talk to as many people as you can in looking for a mortgage. Because again, information is power in this case and it helps you to decide what is the best solution for you.
WHITFIELD: All right. Elizabeth, this one is for you. This is from Joe in Texas, he's on the line.
Joe, what's your question?
CALLER: Hi, Elizabeth.
RAZZI: Hi, Joe.
CALLER: Hi. I've got a very good credit rating. I will be buying a house for the first time. I'm 60 years old. I think what I want is a 30-year fixed rate. My problem is comparing apples to apples.
If I -- and here's my solution to it, because I'm having trouble comparing numbers. If I finance the closing costs along with the house, and then compare -- of course, make certain assumptions about taxes and insurance. And then compare the monthly payments won't that be the best way to shop to get the lowest amount? Because it seems like as the closing costs go down, the rates go up, and visa versa
RAZZI: Well, that is a truism. It is a good way to shop. It makes it a lot easier if you look at say, a zero closing costs or zero points mortgage and just compare that across lenders. That helps you to get an idea who is offering a little higher rate.
What you need to look at is look at your whole financial picture. How much money do you want to put down on the house? You'll save on the interest rate if you make a down payment, the larger down payment you make you'll cut the monthly payment. It is very much like buying a car, if you can trade in a car you can cut the monthly payment on the new one.
But have you to look at how much money you are going to have in reserve. Retirement does not that far off. You don't want to soak all of your cash into the home and then not have cash in reserve for all the other things that can come up in the next 10, 20, 30 years. So take a look at that, see how much you are comfortable paying monthly. Also make sure you have a good cash reserve and investment reserve after buying the house.
WHITFIELD: All right. Thanks a lot, Joe.
Now, Ben in Round Rock, Texas, asked, Jamie, "Can you talk about the advantages or disadvantages of getting your mortgage through a mortgage broker as opposed to dealing directly with a lending institution?"
SUTTON: I'd be happy to. Theoretically a broker is a go-between. It's always been thought that a broker would have information not only on one institution but several. A mortgage broker's job is to determine the best possible solution across the board.
But when it comes to individual mortgage companies, it's sometimes worth the talk with that institution because they may have programs that they don't offer to a broker relationship. In other words, there may be the opportunity to do a loan that may suit the circumstances, specific to what you're looking for, that no one else could offer other than that lending institution.
WHITFIELD: Elizabeth, do you have a thought on that?
RAZZI: Yes, I do actually. It really depends on the quality of the individual mortgage broker. And that range is widely -- the only way I will do business with a mortgage broker is if I have a personal referral from someone and I know that this broker actually did them well. You know, searched hard for mortgages, didn't just direct their business to the one who gave them the biggest fee for delivering the mortgage. So, it's an opportunity to drop the ball, if you get a bad mortgage broker.
WHITFIELD: OK, Shelly in Massachusetts is on the line with a question.
Shelly?
CALLER: Yes, I'd like to know as a homeowner, can I just do bi- weekly payments on my mortgage, take advantage of benefits? Do I have to enroll in a program that my mortgage company has? Because there's an enrollment fee, there is a service fee involved with that? Can I just send them the payments bi-weekly and take advantage of that? Or do I have to enroll into one of their programs?
WHITFIELD: Jamie, why don't you take that first.
SUTTON: Most mortgage companies offer monthly payment services. That's the way the computer systems are set up. Because of the popularity of bi-weekly mortgages, there are now enhancements that have been put into place that are separate servicing arrangements, as you have discussed or mentioned, that will cost a little bit of extra money.
But understand that all you're really doing when do you a bi- weekly mortgage is make one extra payment a year, so if a budgetary sense there's a way for you to make that one extra payment, whether it be in a lump sum or over the course of that 12-month period you're accomplishing the same thing without the fees that go along with the special programs that you're talking about.
RAZZI: I agree completely. That's only -- the whole secret is that 13th payment. If you can make that early in the year you're going to save even more money.
WHITFIELD: Rick out of Louisiana writes: "What are the pros and cons to interest-only mortgages that let you pay interest for the first 10 years only, as I plan to move before the 10 years is up anyways.
Elizabeth?
RAZZI: The problem with interest-only mortgages is they don't get you anywhere. It's a lot like paying rent. You are just not paying down the principle on the house. You're not building up ownership in that house.
(CROSS TALK)
WHITFIELD: So, maybe this is for the person that doesn't intend to stay in a home very long?
RAZZI: You're still not building up a lot of equity. You gain the equity from rising prices but you aren't paying off things. It can be an OK short-term solution, but it's not a really good long-term financially sound program for most people.
WHITFIELD: Jamie, do you like interest-only loans?
SUTTON: Actually, I believe in diversification, as Elizabeth mentioned. At the same time, an interest-only loan can be a nice vehicle on a short term, or even if you're trying to take some equity and -- well, assets and reinvest them in perhaps a mutual fund or something.
Really you what need to look at, is what at the time return on my dollar? What am I gaining? What type of appreciation market is my property in? How long do I intend to keep myself in a situation? And then look to the future as far as, it is a temporary amount of time that you're going to probably keep the mortgage?
WHITFIELD: All right. Thanks. Well, go ahead.
RAZZI: There is one thing, I have a tendency to play it a little safer with the mortgage, the house that you live in. Play that a little safe. Take a little more risk with maybe your other investments. But a lot of people that is their one house.
SUTTON: Absolutely.
RAZZI: And it is really -- there is a psychological benefit to just increasing your ownership in that over time.
WHITFIELD: Thank, ladies, we're going to pick this up right after a break. We're going to take more of your calls and e-mails in a moment.
(COMMERCIAL BREAK)
WHITFIELD: Welcome back to DOLLAR $IGNS. Home mortgage experts Jamie Sutton and Elizabeth Razzi are answering your questions about how to get the best home loan.
And Glen, e-mails a question asking -- is getting a cashback deal on your mortgage a good deal? Or do you end up paying for it in the end?
Jamie?
SUTTON: Cashback is -- I'm assuming what he's talking about is an equity take-out mortgage.
It depends truthfully on what you're doing with the crash. Often times when you are looking at an equity retake-out refinance what you're try doing is restructure your overall debt relationship in your monthly budget.
And so if you're able to take those funds and -- even if your payments slightly increased, but you have taken the funds and reduced your overall payout, paid off a couple of credit cards and an auto loan and reduced the monthly obligations by a couple of hundred dollars. Yes, then most definitely was a good opportunity for you. Assuming that in the long run that you intend to keep that property for a while.
WHITFIELD: All right, Elizabeth, Kevin from Florida is on the telephone with a question. CALLER: Good afternoon, ladies. I qualify for what is called a cost of funds index mortgage based on British funds with zero points, and we just sold our town home in Florida. We're buying a single- family home. I want to know what you ladies thought with your expert analysis on this particular loan.
WHITFIELD: Elizabeth?
RAZZI: Well, a COFI (ph) index ARM is pretty much a basic adjustable rate mortgage. It doesn't matter so much which index you follow, they all basically go the same way.
When rates are rising it will rise. Some grow faster than others, some move more quickly. Not really a big deal. You'll have an annual adjustment any way you go.
So, a one-year adjustable rate mortgage is the cheapest thing going. That's a great thing to minimize your payment. The risk, of course, is that you're payments are almost certain to go up in the future years. There are caps there, on your annual payments, caps on your monthly payment. And that is there to protect you in case interest rates rise. But with rates being as low as they are now, you should budget more money for the mortgage in future years.
WHITFIELD: Jamie, finally, we have a caller coming in from California. I think this is a first for this program now. Valerie has a question.
Valerie?
CALLER: Good afternoon. I wanted to find out I've been shopping around for loans and every time the potential lender runs a credit check, it seems to affect my credit score. I started off with a pretty high score and because I was shopping around the last person I contacted said that the score had fallen quite a bit. Now, how do avoid this problem, if possible?
SUTTON: Each time you have your credit checked, Valerie, your overall credit score can start to drop. And so it's imperative as you are shopping for a mortgage you are cautious as far as who you allow to pull credit.
In the circumstances that you're in right now, have you been told whether or not -- where your credit score is actually at right now as far as dropped? Do you know what your credit score is, in other words?
CALLER: Thought the credit score was 690 and then the last time they ran it, it was 654 and one of the loans that I would have qualified for required a 680 so -- and that was between I think three lenders and they were pretty good lenders.
SUTTON: I think that -- and that's not unusual at all to see a credit score drop 30 points. At the same time, that 650 credit score is not considered a horrible credit score, by any means.
Some of the credit programs that are out there, do have plateau, 720, 680. They are numbers that are just thrown out as far as levels in which they will provide you a specific program. But at the same time that 655 credit score isn't bad.
What you have to do though is go back to one of the lending institutions you spoke to and have them do what is called a "credit advantage" on it. Have them go back and tell you if there's anyway that you can do anything to the credit history as it stands right now to increase your score again. In other words, pay down a debt. But by all means don't have anybody else pull your credit.
WHITFIELD: Ron from Shelby, North Carolina e-mailed an interesting question saying: "I refinanced a mortgage two years ago at 6.78 percent. Rates have been reducing for two weeks. Would it make sense to refinance at 5.5, for a fixed jumbo, if I plan to sell my house in the next eight months?
Elizabeth?
RAZZI: No, you're not going to save that much money in eight months. And then you are also going to be paying out fees to refinance the mortgage. I would just hang on to that money and use it for the new house and to reduce your payments by applying it toward points on that new mortgage when you buy the new house. Not so close to the end of your mortgage.
WHITFIELD: All right, Jamie, we have less than 30 seconds to offer a reply.
SUTTON: To the same question? I'm sorry?
WHITFIELD: Yes.
SUTTON: I would actually agree with Elizabeth. At this point if you look at the savings you would reap in that six months, there is absolutely no reason to do a refinance.
WHITFIELD: All right. Jamie Sutton and Elizabeth Razzi thanks very much, ladies for joining us. Appreciate it in helping us to save a little money.
SUTTON: Thank you.
RAZZI: Happy to be here.
WHITFIELD: That's all we have time for right now.
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