Page 10 - September 2022 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

What is the Best Deal for Borrowing

In today’s current mortgage rate The interest rate that you are paying is First let me say that it is not uncommon

environment borrowers are confronted determined by what rate of return an to see up to a .25% difference in rates
with the reality that borrowing the same investor wants to get on their purchase between any two lenders. If you have a
dollars at a higher interest rate today will of these mortgage-backed securities lender quoting a rate that is more than
cost 30%-40% more than what it would which are backed by a pool of loans/ .25% better than others you need to get
have cost a year ago. This is based on a mortgages secured by residential a proposal in writing because you are

$250,000 loan at 5.5% with a payment of properties. As borrowers make their probably being charged more points or
$1,412 vs. 3% and a payment of $1,051. monthly payments those payments loan fees to get that rate.
It is no wonder that many buyers, flow through to the investors of the Points are prepaid interest that you pay
especially those looking to purchase mortgage-backed security. upfront to a lender as an inducement to
their first homes, are taking a pause and I know this might be a little bit down in lower your interest rate. They are paid at

delaying their home buying journey.
the weeds for many, but it is important closing of the loan and increase closing
For those who are committed to to know that these quasi-governmental costs. I do not recommend paying points
purchasing a home despite the higher agencies provide liquidity, or a constant and I will tell you why.
cost to borrow, the quest for the best source of funds available for mortgages.

interest rate, or the best “deal” is the They act as conduits between investors A point equals 1% of the amount you

primary goal. The issue many borrowers who look for consistent returns on their are borrowing, $2,500 on a $250,000

have is defining what is the best “deal” investment and borrowers who need loan amount. The rule of thumb benefi t

when it comes to navigating the maze of funds to purchase homes. The rate of to paying a point is a .25% reduction in
borrowing money for a home. repayment can be fixed for an extended your interest rate. Sometimes the cost

period of time from ten to 30 years. is more, sometimes less, but .25% is
The money you borrow to purchase generally the case.
a home comes from investors of Secondary market securities are priced
As noted earlier the payment for a
mortgage-backed securities issued by the same for every lender because the
$250,000 loan at 5.5% is $1,412. If you
quasi-governmental agencies. These money is coming from the same pot. But
paid one point, $2,500 at closing, your

entities are the Federal National what can be different between lenders is
rate would be lowered to 5.25% and the
Mortgage Association, aka Fannie Mae how much is added to the Fannie Mae/
payment would be $1,374, a savings of
and the Federal Home Loan Mortgage Freddie Mac/Ginnie Mae rate to cover
$38 per month. If you multiply that for
Association, aka Freddie Mac, who origination expenses and profi t. Th is is
360 months your total savings is $13,680
purchase primarily conventional where you can see slight diff erences in
over the full 30-year term. A great return
loans, and their sister, the Government rates between lenders.
on a $2,500 investment, correct? Well,
National Mortgage Association, aka
Back to wanting to get the best “deal” by not really.
Ginnie Mae, that purchases primarily
shopping around.
government insured loans like FHA First, it will take you 66 months or 5.5
and VA. years to break even and recoup your
$2,500 investment. There is a better than

50/50 chance that you will not have your
“Your Mortgage Consultant Since 1985” mortgage 5.5 years from now. Chances
are you may sell the home but more
Purchase or Refinance than likely you will refinance to a lower

rate. Being an eternal optimist, I am
confident that rates will at some point

in the next five years get to 4% or lower
to justify refi nancing.
115 E Dover St. Ste 3 - Easton, MD Second, what would happen if you
took the same $2,500 and, instead of
tolbert@baycapitalmortgage.com C. Tolbert Rowe, paying a point, you invested in stocks
www.baycapitalmortgage.com NMLS Vice President/Lending
182844 or mutual funds and earned an average
of 7%. Following the rule of 72 for
410-819-3005 / cell 410-310-3520 compounding of interest, you take the
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