Pay More for a Mortgage? | Bend, Oregon Real Estate
When purchasing a home, a question that occasionally comes up is whether or not it is worth it to pay more for a mortgage in Bend, Oregon. Let us explore the options. In many cases buyers do quite well to obtain the cheapest possible mortgage. However, in some situations buyers may find that paying a little bit more is well compensated by how their needs and circumstances are addressed with extra service. Let us examine several of these situations. If any of these seem to fit for you, consider talking to your broker at Duke Warner. With decades of experience in the local market, we are well versed in helping our clients ascertain if the extra money spent may be worth it in particular situations.
Private Mortgage Insurance
A key issue that comes up for some borrowers is Private Mortgage Insurance (PMI). In general this is required on loans which do not meet the minimum 20% down payment in order to insure the lender against possible default. Many buyers manage to find creative ways of coming up with the 20 % down, but this is not always possible. If that is the case, some lenders do offer other options. One of these is the possibility of self-insuring via the offering of a higher interest rate. While this will result in a more expensive mortgage, it can be a way into a home for some buyers.
Another situation is if you need significant flexibility with the overall timeline of the transaction, like the capacity to either advance or delay it. For example, it is not uncommon for a buyer to be selling an existing home during the same period. So the closing on the new home may actually be contingent on the sale of the home that is currently owned. In this circumstance, a lender who is willing to accommodate the vagaries of the process may be well worth the slightly higher interest rate or fees.
In many market conditions, buyers wish to lock in the interest rate to protect against the possibility that the rate does not go up between loan approval and closing. But in some market situations the rate could also fall, which could save a buyer a nice chunk of money. Fortunately some lenders do offer what is known as a float-down option. This enables the desired lowering of the interest rate if they do indeed drop. Most often there is a fee charged for this service. However, in some market conditions the fee can be well worth it to buyers because there would be an overall net financial gain.
Secondary Mortgage Market
One reality of the mortgage market that is often forgotten is most lenders do not actually keep possession of the loan. Instead mortgages are very often sold quickly into what is known as the secondary mortgage market. This process frees up more capital for the lender, enabling them to turn around and create more loans. However, if continuing to do business with the original lender for any reason appeals to you, there is a viable option. There are lenders referred to as portfolio mortgage lenders that both originate and continue to hold some of their loans. In order to compensate for the lost opportunity of turning their capital around quickly, you can expect to pay a higher mortgage rate. Often these loans are part of a package service, for example providing service to customers who have deposit accounts.
If these scenarios sound familiar to your situation as you prepare to purchase your home, contact one of our knowledgeable brokers to help guide your process with great professionalism and care.