Home Loan Advice From CBS News
But is the CBS advice sound? We examine their perspectives on getting a better rate on your home loan below.
Shopping Around for a Lender
CBS advises what many mortgage blogs also recommend. It’s smart to shop aggressively for a lender to get the best rates and terms. The finance companies you review should be reputable, their terms and conditions should be clearly stated, and you should pick the lender who offers the most competitive rates.
This is fairly basic mortgage 101 advice, and it’s one of the basic building blocks of a good home-buying experience.
Applying for an Adjustable-Rate Mortgage (ARM)
CBS defines an ARM as, ”exactly what it sounds like — it's a mortgage in which your rate will adjust over time. This could result in you getting a lower mortgage rate right now, but it may increase in time. In practical terms, your rate would be locked for three years and then adjusted every six months (a 3/6 ARM), although terms vary.”
What does CBS say about the option? “It's ideal for today's market with high rates but optimism that rates will fall in the months and years to come. And even if rates don't fall enough in the future, buyers could always refinance into a fixed-rate mortgage at that point.:”
What CBS Doesn’t Tell You About ARM Loans
The CBS report fails to mention that ARM loans are not as ideal if you do not have a specific exit strategy to follow once rate adjustments begin. If you can’t answer the question, “What will you do about the adjusted rates?” you likely are NOT ready for an ARM loan. This is the type of loan that requires some additional long-term planning.
CBS Advice for Buying Mortgage Discount Points
According to the CBS article, “By purchasing mortgage points, borrowers can secure a lower interest rate than they otherwise would have obtained without it. Mortgage points essentially act as a fee borrowers pay to the lenders — either rolled into the overall mortgage loan or paid at closing — to secure that locked-in, lower rate.”
CBS recommends ensuring the savings you get from discount points “outweigh the upfront costs of the points, or they may not be worth it. Similarly, if you think rates could soon drop lower than what the points can offer, you may be better served waiting for the market to adjust.”
Something the CBS report does not mention? Buying discount points is not such a great choice for those who don’t plan to keep the home long-term.
A reduced interest rate pays off more over the long haul. If you sell in three to five years, discount points may not be worth the effort, but homeowners must crunch the numbers to learn the true value of buying points.
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