August 2008 Vol. 3 No. 8
• Riding Out Rate Fluctuations • August's Home Value Improver • About Us

Riding Out Rate Fluctuations

As any mortgage broker or lender will tell you, it's crazy right now with regard to interest rates. It used to be rates changed every few months or so. Then they started changing more quickly and now they change from day to day.

Given the market turmoil, it's very hard to see a trend. Are interest rates trending up? Down? Sideways? No one knows, which is why I'm now advising clients to focus on a loan's bottom line, not the interest rate itself.

If you live in the Northeast, you know you can obtain a price lock on what you'll pay for heating oil by purchasing a contract in late summer or early fall. This contract specifies what price you'll pay per gallon - and it protects you if the price of heating oil goes up. However, it can also backfire if the price goes below your locked price.

Rate locks can end up costing you money.

The same holds true for interest rate locks. Because of the volatile market, clients are now requesting 30-, 60-, or 90-day rate locks. A rate lock is a written commitment between you and the lender where the lender promises you a loan at a specified rate. (Don't confuse a rate lock with a rate quote.) The rate is only valid if the loan closes before the rate lock contract ends.

In addition, you'll have to pay an extra fee, or points, for the rate lock. The longer the lock period, the higher the number of points, which vary from lender to lender.

Because of the market, rate locks sound like a good deal, and some banks now market the rate lock under the guise of protecting your interests, but like heating oil price locks, a rate lock can end up hurting you in the long run.

Let's say you have an estimate for a $100K loan with a monthly payment of $600 and a rate of 6%. At closing, however, the rate is 6.25%. The rate difference comes out to an additional $25 on the monthly payment - an amount that could be considerably lower than the one to two points you have to pay for the rate lock.

Instead of focusing on a loan's interest rate, learn to understand the difference between small percentage differences and how they affect your bottom line. Ask your lender for their rate lock fees and then run your numbers using various scenarios:

  • What is the difference in monthly payments between 6%, 6.25%, and 6.5% and the rate lock fee?
  • Will you save money or lose money?
  • When do you expect the loan to close?

If the loan is expected to close in 30 days or less, it might make sense to forego the rate lock and simply absorb the nominal increase to your monthly mortgage payment should the rate increase by an eighth, quarter or even a half of a percent.

August's Home Value Improver

6 Cheap, Easy Ways to Save on Heating Oil

Enjoying the final days of summer does not necessarily lend itself to thoughts of thick wool sweaters and storm windows - perhaps this fall, it should.

With oil prices through the roof, the price of heating your home could make a serious dent in your budget, so start thinking now about how to get the most out of every gallon of heating oil. You'll save yourself some money and make your home more marketable. Heck, you can even say it's "green."

  1. Keep your furnace in good working order.
    Heating oil companies and gas providers often go out this time of year to clean and inspect equipment. Technicians will make any necessary tweaks to the system to be sure it's working as efficiently as possible.

  2. Insulate your hot water pipes.
    When you wait for the water to warm up, it's going down the drain and being wasted. Hot water stays hot longer when the pipes are insulated. Your local home improvement stores sell polyethylene foam tubes with a split in them so that they are easy to install around the pipes.

  3. Install a programmable thermostat.
    You can program your thermostat to dial down at night, up in the morning, down when everyone's at work, and then up again when the house is full. Turning your thermostat down by 10 degrees at night can save you up to 10% on your heating bill.

  4. Close the heaters in rooms that are not used.
    If you're already footing the college bill for one of your children, don't waste money heating his bedroom while he's away at school.

  5. Replace your weather stripping.
    Check the weather stripping you have around your door jam and windows. It wears out and needs to be replaced every few years.

  6. Keep lots of blankets around.
    Fleece is very inexpensive, and with lots of fleece blankets strategically placed in your living or family room, no one will have to look far when they feel a chill while watching TV at night or working on the computer.

Like many of you, I have been watching lots of late night Olympics. And like you, I have been inspired and amazed at the determination, skill and spirit of the athletes.

Each Olympian defines success in his or her unique way. When I work with clients, I see the same thing. Everyone who is seeking to buy or refinance a home has their own definitions of what a successful outcome means to them.

It keeps my job interesting to work with clients and match them with programs designed to help them achieve success on their terms. As always, please feel free to call or email anytime for more information on any mortgage topic!

Best regards,
Debbie Siegel
Westchester Mortgage

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