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  • Writer's pictureRebecca Richardson - Mortgage Consultant

Mortgages Aren’t “One Size Fits All”

If anyone’s tried to compare their homebuying experience to yours and you’ve felt lost or confused, remember that all experiences are different! When it comes to your mortgage, there are plenty of decisions that only you can make.

Personal Finance is Personal

You know how people always say, “You don’t know what really goes on behind closed doors?” Well, it’s kind of the same with money.

Personal finance is all about, well, being personal. What might be the perfect money move for one person could be the complete opposite for someone else. And what one person needs financially might not even be on the radar for another.

When you’re in the process of buying a home, it’s only natural to compare notes and exchange info with friends and family. But here’s the thing: everyone’s financial situation is unique and tailored to their own circumstances. So, if your money matters look a little different from the rest, that’s totally okay.

Just be sure that you’re getting your financial advice from a reliable source. It’s easy to find someone knowledgeable and trustworthy who can guide you in making informed decisions.

Put More Down or Buy Down?

Could you be smarter with your money by putting less down? Let’s put it to the test.

Here’s the scenario: It’s a single-family home with a $500,000 purchase price. Your FICO score is 740. Most people would choose a 20% downpayment ($100,000) at 7.00%/7.159% APR ($2,661 principal and interest).

But what if you chose differently? Instead of putting the whole 20% towards the downpayment, you could put 17% down, bringing down the rate and pay the mortgage insurance as a one-time fee at closing. Then, it would look something like this:

17% down payment / $85,000

Buy down rate & buy out PMI / $15,000

6.375% / 6.654% APR

$2589 principal & interest

You could save over $70 a month, and a ton of interest over the years. Would you do it?

HELOC vs. Cash Out Refinance?

If you’re one of those lucky people who has a crazy low mortgage rate, why would you ever give it up with the way that rates have increased? An estimated 62% of mortgage holders have an interest rate below 4%. How and why would you use the equity you have in your home since home values have shot up too?

There are two ways to do this, and the right decision tends to depend on what you want to use the money for.

  1. You can use a HELOC (Home Equity Line of Credit), which is a second mortgage on your home that functions like a credit card. The amount you can borrow is based on how much you owe on your existing mortgage vs. the home’s current value.

  2. The other option is a cash out refinance. This is where you get a new mortgage – at current market rates – which pays off your existing mortgage. Plus, you get extra money back (this is the cash out portion of the refinancing) which is determined by how much you owe vs. how much your house is worth.

So, which option is best? Usually if someone is using the equity for another investment goal, like purchasing other real estate or improving their current home, a HELOC makes the most sense. But when would it make sense to trade a lower interest rate for a higher one? This usually makes sense when there’s high interest debt – like credit cards. This can improve monthly cash flow while also moving that debt to a lower fixed interest rate.

However, mortgages aren’t one size fits all, so if you have questions about what makes sense to you, reach out! I’m here to help with more smart money tips!

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