MORTGAGE INFORMATION

The most important thing you can do before looking for a home is to get pre-approved with a mortgage broker. Remembering that the interest rate may not be the only factor in determining your choice of lender there are a number of factors involved in obtaining a mortgage. Some of those are:

Income
Credit
Assets
Type of property

There is a loan product solution for most every situation and MenardJohnson has relationships with a number of lenders to provide you with the most options.

Sample Loan Products

Fixed Rate Mortgage – Most common terms are 30 yrs, 20 yrs, and 15 yrs. Payments and interest rate remain fixed over the entire term of the loan.

Example:$200,000 loan amount at 6.5% over 30 yrs. - $1264
$200,000 loan amount at 6.25% over 15 yrs. - $1715

Difference in mortgage payment is $451/month. You build equity faster and lower your interest expense over the life of the loan.

Adjustable Rate Mortgage – Referred to as ARMs. More complex than a fixed rate mortgage because payments and interest rates change.

3/1 ARM – fixed rate for 3yrs and then will adjust once annually.
5/1 ARM – fixed rate for 5yrs and then will adjust once annually.
7/1 ARM – fixed rate for 7yrs and then will adjust once annually.
10/1 ARM – fixed rate for 10yrs and then will adjust once annually.

ARMs will have a margin (typically between 2.25-2.75%) that remains constant through the life of the loan. This margin is added to an index which is constantly moving up or down.

Common Adjustable Rate Indices:

LIBOR Index – London Interbank Offered Rates
MTA Index – Monthly Treasury Average
COFI Index – 11th District Cost of Funds Index
CODI Index – Certificate of Deposits Index

Example: ARM with a 2.25% margin and using the LIBOR index which is 5.516% would result in a fully indexed rate of 7.766%.

Interest Only Mortgage – Has become a very popular product in the last few years. Obvious benefit is a lower payment. No principal reduction occurs.

Example: $200,000 x 6.500% = $1083/month. That’s a savings of $181/month versus the fully amortized payment.

Ownership vs. Renting

Ownership Advantages:

Leverage you return on investment
Build equity and net worth faster
Tax advantages
Pride in ownership

Return on Investment (ROI)

ROI = Interest or Appreciation / Investment
Example: A bank CD of $7,500 is invested and returns $225 at the end of 1 year.
ROI = $225/$7,500 or 3%
Example: A person purchases a $200,000 condo. The down payment is 5% ($10,000) and closing costs total $3,500. Total investment is $13,500. The condo gains 4% in appreciation the first year of ownership. What is the ROI?
ROI = $8,000/$13,500. ROI = 59%!!!

Home Ownership – It is rigged in your favor!

Leverage (Buy $200,000 condo and only put 5% down)
Paying the mortgage is forced savings
Federal government provides tax advantages for home ownership
Lenders continue to broaden product offerings
Real estate historically appreciates over time
Home owners have at least 10 times the net worth of renters

For more information, call us at: 773.472.6016. Email Us Or Fill online form.