CT Mortgage Blog

Anyone who has ever read this blog, or knows us, understands we do not rant. Below is simply informative information the average consumer just blindly walks through life ignoring...then complains at why they are in the situations they are in. It is interesting reading at the least.

Ignorance - The condition of being uneducated, unaware, or uninformed.

Bliss - Extreme happiness; ecstasy

    Since I entered this industry almost 7 years ago I have been somewhat bewildered at the average consumers blind acceptance that points are bad to pay on a mortgage. Even now, with rates at their lowest in history, I see the blind leading the blind with a predetermined disposition that points are bad.

    Where did you learn this? Did you listen to your coworker at the water cooler giving you advice? Did you listen to your family member who maybe runs a day care. Did you listen to your neighbor the plummer (no...not Joe).

    You look to them for advice and want what they obtained even though each situation is unique. Tell me, when was the last time you heard someone brag about getting a 9% interest rate? Funny right? Everyone always has some story, and quite frankly, it probably is just that, a story.

    So tell me, do you call your neighbor for medical advice when you have an excruciating pain in your side? Do you call your neighbor when you are arrested on a DUI and ask for them to represent you in court? Do I really need to to go on?

    The biggest sinner of this misconception is your local bank and national provider. 

    Your local bank feeds off the average consumers ignorance at their own benefit. Your national lenders, as well as local banks, offer "No Point", even "No closing cost", loans at higher interest rates while providing a false sense of security to a borrower that they are making the right choice.

    The right choice? For whom? Surely not the average consumer. How is your paying more money to the bank long term, because they deceived you, in your benefit? Don't believe me? Look at the following example -

Option A - You obtain a $250,000.00, 30 Year Fixed mortgage, @ 5.25%, paying no points. You get 360 payments of $1380.51 which equals $246,982.96 in total interest over 30 years.

Option B - You obtain a $250,000.00, 30 Year Fixed mortgage, @ 4.25% paying 2 pts ($5,000.00 and yes, we have current locks at 4.25% paying 2 pts...no junk fees). You get 360 payments of $1229.85 which equals $192,745.98 in total interest over 30 years.

    So if my math is correct...you will pay an extra $54,236.98 in interest on that "no point" loan, compared to $5,000 (2 points) on a $250,000 loan  (normally built into the loan I might add). So who exactly looked out for who's best interest?

    Now to be fair, I will acknowledge the reality that not everyone will stay in their home for 30 years. But how long you think you may be in your home is something your jack-of-all-services-customer-service-rep at your local bank should discuss and normally doesn't.

    At $150.00 less per month in a mortgage payment between the two options, your break even point on the 2 pts is 33 months ($5,000 divided by $150.00 less a month = 33.33 months) or just under 3 years. Do you plan on staying at least 3 years? Even if the difference is slightly less...do you plan on staying 4 years. Because honestly...most people stay way longer than anticipated.  After your break even point you are saving every month.

    Now more than ever points are the way to go. Think about it, if you do plan on staying in your home for 30 years, when are you ever going to wake up and say "hmmm, I think refinancing out of that 4.50% 30 year fixed mortgage, into a 6.50% (The rate just 4 months ago btw) 30 year fixed mortgage, to get $20,000.00 cash is a great idea!". I mean really...if your home goes up in value...you should get an equity line...not raise your current rate over 2% or more. Do any of you remember it being normal for rates to be in the 8's...or 9's? So who thinks, other than selling, you are ever going to get out of a 4.50%, or lower, mortgage you could obtain today?

    Oh, and by the way, did the local banks jack-of-all-services-customer-service-rep, who is not required to attend continued education, or be license with the state, show you how to -

• Keep the home as an investment if you do decided to move in 5 -10 years.
• Get a renter to cover the cost of the mortgage (maybe you will contribute a couple hundred per month)
• Keep it till your kids are ready for college
• Get an equity line on it to pay for the college when the time comes
• When the kids graduate college, then sell them the house for what is left on the first and the equity line
• They move in, college is now paid for, and they have a home (with a small mortgage) and a ton of equity...so they start their lives out with a solid foundation.

    Should I keep going on your local bank...your national lender you so blindly trust?

• Unless you are absolutely perfect, good luck getting them to offer you a mortgage, let alone give back the up front application fee they used to handcuff you into not exploring alternative options.
• They gambled with your money, your investment portfolio's that are now 50% of what they were, by creating loose guidlelines in order to give money away to people who had no right (a home is a privilege to be earned...not given) to obtain it...just so they could increase their profits....Yet you continue to support them by giving them your business.
• The majority took BILLIONS in relief money, your tax dollars, and did little or nothing with it to help the average consumer, just so the govt had to inject hundreds of billions more...Yet you continue to support them by giving them your business.
• They tell the average consumer, who struggles every day to adhere to their financial responsibilities, you can not modify your loan because you pay on time. They tell you you would have to stop paying and destroy your credit before they will help you. All the while, people who are just walking away from their obligations get relief with rates in the 3's and 4's...for FREE. Yet you continue to support them by giving them your business.
• Your local bank is always out for your best interests....right? I mean after all, they do provide all those convenient ATM's...at a $2.00 - $3.00 fee per transaction...not including the one from your own bank. Does anyone ever do the math on that? You take $20.00 out of an ATM and pay say... the monster institution BoA...$3.00 for the ATM charge. You just instantly paid them 15% to use an automated machine. 15%!!! Yet someone does not want to pay 2% (pts) for a $250,000.00 loan. Who's best interests are they looking out for again? Yet, again, you continue to support them by giving them your business.

    If I had my way everyone would be pulling their money out of the major institutions and going back to Credit Unions in their own town. At least at a local credit union you have a familiar face that does not treat you like a number in their system increasing their profitability, plus you have a stake in that institution. 

    Well, I started this out to touch base on the misconception that points are bad, but truthfully, there should be a great discontent for major lending institutions that have crippled this country. STOP giving them your business when you have other options at your disposal...a local, family owned LENDER, that gives back to the people actually living in your community.

    Knowledge is power. Become empowered by seeking alternative options and asking questions about one of the biggest financial decisions in your lifetime. Make the decision to stop and think, to research and get a detailed explanation, with options, of what you are getting yourself into.

    At Scholastic Mortgage we provide a higher level of service, with lower costs and rates, with honesty and integrity. Whether you use this company or not, your local bank or national lender is not the place you should be rewarding for the injustice they have done. 

For your own sake, it is time to stop being Ignorant and find yourself some Bliss

We encourage you to be proactive rather than reactive. For many, the harsh reality that none of us are exempt from the current economic crisis has become more and more apparent. If you have the means to consolidate your debt and take advantage of the fallen rates, please do so before that option is no longer available.

The start of the New Year began as we expected. The economy worsened and interest rates rose amidst news of -

• Weak December sales
• Durable goods fell for the 5th straight month in December
• Rising jobless claims (rose by 3000 last week to 588,000)
• New Home Sales plunged nearly 15% in December (14.7%) to the lowest annual rate on record (331,000 units). 

Unemployment numbers will continue to rise as more and more companies begin their layoffs following the holiday season. This week brought news of a wave of layoffs spread across a variety of industries.

• Eastman Kodak to cut 4,500 jobs as sales of photography products fall
• Sprint-Nextel is eliminating about 8,000 jobs in the first quarter (Spring-Nextel also suspending its 401K match for the year, extending a salary freeze and suspending a tuition reimbursement program)
• Caterpillar will cut 20,000 employees, contract and agency workers. The company reported its fourth-quarter profit plunged 32-percent.
• Home Depot says it's cutting 7,000 jobs and closing its smaller Expo chain as the recession continues to batter the housing market.
• General Motors says it will cut 2,000 jobs at plants in Michigan and Ohio because of slow sales.
• Texas Instruments revealed in its latest earnings call that slowing demand linked to the economic crisis will force the company to cut roughly 12 per cent of its staff, 3,400 jobs in total.

Will rates continue to rise? Probably. Will rates fall? Probably. There are so many indicators driving the market it is difficult to adequately predict what will happen next, or more importantly, when. Swings in both directions are fast and furious...as well as short lived.

But all hope is not lost. You do have options.

The first and most important step - the consumer must make the choice to change. There are many ways the average person can cut back and be efficient in their spending. At first it is not easy, but after a short period of time it becomes second nature...a habit. Make simple cut backs (some tips) -

• Don't charge...pay cash.
• Eat out less! Many people who do a budget find a great deal of their money is spent eating out (breakfast, lunch, dinner, coffee)
• Shop better (shopping at stores like TJ Max, Marshalls, etc. will save big on name brand clothing)
• Snack (fruit and nuts) during the day to offset eating larger, costly meals.
• Eat smaller/healthier portions in order to cut back on your food costs and become healthier. MANY people eat in excess...it is the american way. Portion your meals.
• Turn off the lights when leaving a room. Practice doing it every time you leave a room...no matter how long you will be out.
• Reduce heating costs. Turn your heat down to 68%. Watch TV with a blanket or cuddled with a loved one (kids are great for this)

Step 2 - Once you make the choice to change, the second step is to be prepared. Gather your documents and sit with a mortgage professional that will treat your refinance as an overall budget analysis and repositioning of your income. But the consumer must first make the choice to change.

The key to a success refinance is not falling back into the same patterns as before. Far too often the average consumer will refinance and charge their accounts back up. This defeats the purpose of the refinance and ends up putting the consumer in a worse situation than when they started. The consumer must be disciplined in order to maintain their improved financial situation.

How do you accomplish this? Simple. The consumer must separate their needs from their wants. It is the easiest way to sum it up. Every time you think about a purchase, stop and ask yourself "Do I need this or do I want this?". Listen to the first answer you give yourself and if it is a "want"...walk away and give it some serious thought.

    I am well aware I do not conform to the status quo of saying what people want to hear...but no one can ever question my integrity, or where I stand. For your own good, and the good of those you know, there is some serious reality checks in this thread that are well worth the 3 minutes it takes to read it.    

    What laughable questions. I mean really...you can not help but laugh at some of the people out their making statements like "I am waiting till the rates go lower", or, "yeah...if the 30 year hits 4% with no points I'll make a move...if not I'll stick with my 6%". Oh ye wise one of the financial world...smart thinking. Give an "A" to that one, only it is for being "Absurd"

    Time for your reality check people. The rates are in the low to high 4's depending on the day and how you catch them in this volatile market. That WILL NOT last.

    Here is what you should be concerned with -

• Will I have a job next week in order to be able to qualify for a refinance or purchase a home? Think you are safe...so did 2.7 million other people in 2008.
• Will the government run out of money to keep purchasing mortgage back securities? What...you did'nt know that is the only reason the rates are where they are? Do you think they will just keep printing money...or pick it off a tree in back. It will run out. 
• Will home values start to rise and I will miss a golden opportunity? Watch how quickly it happens...when it happens.
• Can I invest some of my money and have a safer, greater return by buying a real estate in this depressed housing market? Out of every Real Estate market crash have emerged multi millionaires.
• Can I buy a home now, for each of my children when they get older, at a fraction of the cost, and have a renter pay for the mortgage?

    Even if all that does not strike a cord, and you are thinking purely from an investment stand point, think about this. When you purchase stock, do you only buy IPO when it is at initial offering? Do you only buy a stock when you think it is bottomed? NO...you buy something you think is a good investment that will appreciate over time. True investing is for the long term, not short term (most reading probably took a stab at day trading...how well did that work out for you?).

    Here is a couple eye openers for you -

• Rates are this low because the government bailed out the industry and is buying the mortgage backed securities...nothing more...nothing less. The only thing that has changed in this country or economy is it has gotten worse. As soon as the government gets their fill...you WILL see a dramatic spike in interest rates. Will you be left sitting on the fence?
• You have no guarantee you will have a job next week. Look around. 2.7 million people on unemployment. That is staggering...and there are talks of millions more in 2009 if this country does not get it's act together.
• Unions are talking about going on strike and many companies are already hiring nonunion employees to handle the work load. Are you going to be the next one walking a picket line watching everything you have worked for go up in smoke?
• Today, the average rent is almost in line with what the average mortgage payment is costing for a new home buyer. That is a sign the real estate market is nearing it's bottom. Make no mistake, the first sign that someone gets on the media, the source you value so much, and states the market has bottomed out...you WILL see home values spike with the rush of buyers trying to not miss the boat. By then you would have lost the 10's of thousands you are trying to save by waiting.
• GREED is what caused the lending institutions to crumble the financial sector. You are acting no different by sitting and trying to squeeze every tiny bit you can out of refinancing or purchasing.

    Wake up people. This country was not built on hand outs. It was built by hard working americans who made smart investments for their future. For your own sake, honestly, stop being greedy and seize the opportunity while it exists.

    As always, there are no upfront fees at Scholastic Mortgage. Use us as a resource, call and ask questions, meet with one of our professionals and bend their ear on your thoughts. Invest your time wisely by being proactive in seeking out beneficial information.

    I wish you all the best...may this economy reach a speedy recovery and we all go back to the fundamental basics that made this the greatest country on earth.