Oct 03
I am pleased to have our guest blogger, New Home Buyer, write on the 2nd of 3 parts on How to Save Money Buying a House. Enjoy!
Last week I wrote about saving money on a new house by negotiating with your developer. In continuation of my three part series I will discuss today the importance of locking in early.
When we purchased our house we immediately began looking at mortgages. As our house will be valued at close to half a million dollars, we are taking on a considerable mortgage. Every percentage point increase in interest rate means big bucks down the drain for us.
We went to our banker and he gave us the standard rate that his bank offered. It was 6.6% for a five year fixed term. We shopped around and found a better deal at 5.48%. I have an investment account, two bank accounts, two business accounts, a VISA account, and a line of credit with my bank and why they don’t automatically give me the best rate is a topic for another day.
We wanted to keep the mortgage with our bank and our banker agreed to match the 5.48%. He agreed that he could guarantee the rate until we moved into the house. That ended up being a smart move for us. Since we locked in, interest rates have gone up. The cheapest one we can find now is 5.75%.
Let’s compare the impact of the rate difference on a $350,000 mortgage and a 30 year amortization:
|
Interest Rate
|
Monthly Payment
|
Overall Payment
|
|
6.6% (bank’s rate)
|
$2,235.31
|
$804,711.60
|
|
5.75% (today’s best rate)
|
$2,042.50
|
$735,300.00
|
|
5.48% (our rate)
|
$1,982.87
|
$713,833.20
|
By shopping around we saved a considerable amount of money and by locking in early we saved even more.
The greatest advantage of locking in early was that if a better rate comes up, our banker agreed that he would lower our rate to match it but if rates went up he would guarantee us the lower rate. We ended up saving thousands as a result.
If you’re considering buying a new house, start talking to your banker today. You can get pre-qualified so you know how much of a mortgage you can take on and you can lock in at the best rate to protect yourself in case rates rise between now and the time you buy your house.
Next week I will conclude my three part series on saving money when buying a home by discussing putting at least 25% down.
New Home Buyer
October 3rd, 2007 at 11:12 am
why they don’t automatically give me the best rate is a topic for another day.
You answered your own question when you said you still got the mortgage with your bank after they matched. Even though they tried to screw you on the rate and made you take the time to get a better rate elsewhere you still gave them your business.
I’ve done the same thing in the past because of the convenience, but this year I took a hard line – I went and got a mortgage that was 30 basis points less than what my bank offered and then I got the new mortgage with the new company without giving my bank a chance to match.
Mike
October 3rd, 2007 at 1:21 pm
Does anyone work for a bank? Can someone explain to me why banks would rather pay mortgage brokers to find clients and/or offer better than posted rates rather than give a long standing client a preferred rate?
October 3rd, 2007 at 2:30 pm
This just recently happened to a friend of mine who is currently buying a home. He went to his bank and in their initial discussion he talked to be and they were saying that their rate would be somewhere near 6.75% – 7%. I gave him some links to a few places offering far lower and showed him a similar chart of the savings so he asked the next time he went in, now they have 5.5%.
I think the bank tried to cover it up, but they explained they do the original quote to make sure people can afford it in case interest rates go up. I think they just try to bend people over the table who don’t ask.
October 14th, 2007 at 10:48 pm
[...] Craig Childs wrote an interesting post today onHere’s a quick excerptI am pleased to have our guest blogger, New Home Buyer, write on the 2nd of 3 parts on How to Save Money Buying a House. Enjoy! Last week I wrote about saving money on a new house by negotiating with your developer. … [...]
October 17th, 2007 at 8:48 pm
Cool post on How to Save Money Buying a House- Part 2!