Tahoe Lending: October 2017

…….Which loan is right for you?

3/1 ARM 5/1 ARM 7/1 ARM 30 Yr Fixed

Loan amount $200,000 $200,000 $200,000 $200,000

Interest Rate 6.00% 6.25% 6.625 7.00%

Amortized over 30 years 30 years 30 years 30 years

P & I Payment $1,199 $1,231 $1,281 $1,331

Savings per month $132 $99 $50 $0

Although this table will show you which loan will provide you the lowest payment, such a loan may not be the right loan for your financial situation.

Total Cost Analysis for 60 Months:

Total Payments $71,946 $73,886 $76,837 $79,836

Principal Paid $13,891 $13,326 $12,511 $11,737

Interest Paid $58,055 $60,561 $64,326 $68,099

Balance Left $186,109 $186,674 $187,489 $188,263

Closing Cost $2,800 $2,800 $2,800 $2,800

Total Cost $60,855 $63,361 $67,126 $70,899

Net Savings $10,045 $7,539 $3,773 $0

Simply comparing the payment that a loan offers cannot make a true loan comparison. There are various other fees and issues which effect the overall cost of a loan. The table above analyzes the difference in total overall cost of your home loan. Evaluating the total cost is the key to selecting the lowest cost mortgage for your individual needs.

Term Reduction:

Reduction per month $132 $99 $50 $0

Equity Increase in 5 yrs $9,210 $6,952 $3,545 $0

Equity Increase in 10 yrs $21,632 $16,446 $8,478 $0

Equity Increase in 15 yrs $38,388 $29,413 $15,342 $0

Debt Free in 23.2 yrs 24.5 yrs 26.8 yrs 30 yrs

Total Interest Saved $60,355 $52,076 $33,042 $0

You can become debt free faster by applying monthly savings each and every month towards the principal of your mortgage loan. Additionally, these consistent prepayments may also save you thousands and thousands of dollars in interest savings over the life of your loan.

Asset Accumulation:

Payment per month $132 $99 $50 $0

Accumulation over 3 yrs $5,351 $4,013 $2,027 $0

Accumulation over 4 yrs $7,438 $5,579 $2,817 $0

Accumulation over 5 yrs $9,699 $7,274 $3,674 $0

Assets > Mortgage 21.8 yrs 23.3 yrs 26.2 yrs 30 yrs

Total Accumulation $196,727 $147,546 $74,518 $0

You can increase your cash assets by placing your monthly savings dollars each month into an annuity or investment account that may eventually accumulate total assets exceeding your mortgage.

Please feel free to reach out. We at Supreme Lending Tahoe Team are happy to discuss all your options and determine which financing is right for you!

David Colarchik

Branch Manager NMLS #300510

775.832.6522

David.Colarchik@SupremeLending.com

264 Village Boulevard, Suite 2B

Incline Village, NV 89451

TahoeLending.com

Text ‘Dave’ to 313131 to

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Disclaimer:

The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Supreme Lending, and do not necessarily represent the views and opinions of Supreme Lending. In no way do I commit Supreme Lending to any position on any matter or issue without the express prior written consent of Supreme Lending’s Human Resources Department.

Branch Manager: David Colarchik

Main: 775-833-7100 | Direct: 775-832-6522 | Fax: 775-833-7108

264 Village Blvd Suite 2B, Incline Village, NV 89451

David.Colarchik@supremelending.com

Anyone who's ever shopped for a mortgage has faced the question - - and borrowers who expect to stay in their homes for some time generally have been advised to pay points in order to get a lower mortgage rate. But new research turns the conventional wisdom on its head, showing that for most people paying points is a bad idea.For the most part, points benefit the lender, not the borrower.

Each point is an up-front payment equal to one percent of the loan. Paying one, two or three points gets you a lower interest rate and smaller monthly payment. With points, we have more choices. If you have the mortgage long enough, that saving will more than make up for the cost of the points. Once the break-even point is passed, you're ahead.

It's simple arithmetic.

For example, Wachovia advertised a 30-year, fixed- rate loan for 5.5 percent and 1.75 points. After paying $5,250 in points on a $300,000 loan, monthly payments would be $1,703. The bank also had a 5.875 percent loan with just 0.125 points. Points on the same loan would be just $375 -- but monthly payments would be $1,775.

It would take 68 months for the $72 difference in payments to offset the extra $4,875 in points you'd pay to get the lower rate. After that, the decision to pay points would save you $72 a month for as long as you had the mortgage. You'd save a whopping $21,024 if you had the mortgage a full 30 years.

Seems simple enough.

But it turns out that most people get it wrong.

The problem, according to the study, is that most homeowners don't keep their mortgages as long as they expect to when they get them, so they don't reach the break-even point.

Abdullah Yavas, business professor at Penn State's Smeal College of Business, and Yan Chang of Freddie Mac, the mortgage-funding company, looked at 3,785 mortgages granted from 1996 through 2003.

They found that the average homeowner paid off his or her mortgage about three years before reaching the break-even point. Only 1.4 percent of borrowers kept their loans long enough to make paying points worthwhile. The study also found that borrowers who declined to pay points almost always made the right decision. Only 1.5 percent of them would have saved money by paying points. Disturbingly, borrowers who paid points tended to wait too long to refinance their loans after rates dropped, missing chances to reduce their mortgage payments. Apparently, this was because of a mistaken belief they should keep their loans long enough to "pay off" the points. In fact, the points should not enter into this decision. All that matters is whether the new mortgage would be held long enough for the reduction in monthly payments to offset the refinancing charges.

Points do have their place. After all, it is possible to save by paying them, if you keep the mortgage long enough.

But how do you judge that? I suspect most people focus on how long they expect to keep their home -- until they start a family and need more room, or until the kids move out or mom and pop retire.

But many of these events are not as predictable as we think. And then there's another big unknown: Will mortgage rates rise or fall after you get your loan?

Even if you stay in your home as long as you'd expected, falling interest rates may make it worthwhile to refinance. If that happens before the break-even date, much of what you'd paid for points may have been wasted. It becomes profit for the lender.

One final factor to consider: What else could you do with that money if you did "not pay points?

Taking the example above, imagine the extra $4,875 that could be spent on points instead was put in a bank account paying 5 percent. And imagine that if the higher points were paid, the $72 in monthly mortgage-payment savings could be banked at 5 percent.

This postpones the break-even date by a year -- to 80 months instead of 68. Since the $4,875 would be growing, it would take longer for the $72 in monthly savings to catch up.