Many homebuyers believe that finding the lowest interest rate is the key to getting the best mortgage. While rate is important, focusing solely on rate can be the wrong strategy and result in costly mistakes! Here’s a real-life example showing why smart mortgage planning often beats rate shopping.
THE SCENARIO
A young couple contacted me about purchasing their first home. They were financially responsible and wanted the lowest possible payment. Like many buyers, they were shopping rates and proudly shared that their credit union had offered an extremely low rate—provided they paid points.
THE HIDDEN ISSUE
During our consultation, I learned something that changed everything: the husband’s employer expected to relocate him to another state within two to three years. Because this was likely a short-term home, I explained that the real question wasn’t whether we could match the credit union’s rate—we could! The real question was whether paying points made financial sense for someone who wouldn’t keep the mortgage very long.
THE MORTGAGE PLANNING SOLUTION
Instead of focusing solely on rate, I compared the total cost of several mortgage options over the three years they expected to own the home.
One option featured a higher rate with no points and a substantial lender credit toward closing costs.
The results were eye-opening. The lowest rate mortgage would take nearly six years to recover all their costs. Since the couple expected to move within three years, they would never reach the break-even point.
By choosing the highest rate with lender credits, they would spend significantly less money during the time they would own the home!
THE RESULT
The couple quickly realized that shopping for the lowest rate was leading them toward the wrong mortgage. More importantly, they discovered the value of working with a mortgage professional, who looks beyond rates and payments, to evaluate the complete financial picture. Instead of purchasing a mortgage, they received a mortgage strategy tailored to their goals.
THE BOTTOM LINE
A mortgage isn’t a commodity, and the lowest rate isn’t always the best deal. Unfortunately, many mortgage lenders simply quote rates and leave the analysis up to you. A Certified Mortgage Planning Specialist® takes a different approach by helping you understand the short- and long-term financial impact of your mortgage decisions before you commit.
Thinking about buying a home or refinancing? Let’s talk before you start rate shopping! A little planning upfront can save you thousands and help you avoid costly mistakes.
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Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.
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