Building Wealth Magazine

Pre-payment Penalties
Lenders attach pre-payment penalties to loans to ensure that the loan will be profitable for them. As a general rule thumb, we do not suggest that you accept a pre-payment penalty as a part of your loan structure. One of the most important aspects of financial planning is to have options with your money. Restrictive clauses such as a pre-payment penalty can prohibit you from maneuvering when it is necessary and when other opportunities arise
If you want to accept a pre-payment penalty clause in your loan, it is much more advisable to go with a “soft pre-pay.” This only penalizes you in the event of a refinance, but not if you decide to sell the home. Interest rates have dropped significantly many times over the last 15 years. Many home owners have not been able to take advantage of lowered rates by refinancing, because their hands have been tied by a daunting pre-payment penalty. Pre-payment penalties will generally provide you with a slightly lower interest rate in exchange for the pre-payment penalty clause. Mortgage professionals will sometimes push the benefits of a pre-payment penalty so they can beef up their commission. Be very leery of this type of sales pitch!

Credit Scoring
Your credit score is a factor that will be considered by the lender when they look at your loan application. They want to know your credit history is, and whether you have the ability to pay back the loan you are asking for. In short, good credit translates into lower rates for the home buyer and represents less risk to the lender.

Credit scores can range between a low score of 300 and a high of 900. Most commonly, deal with scores ranging from 400 to 800. The higher the client’s score is, the less likely they are to default on their loan. We will run a credit report and determine what Read the rest of this entry »

Points vs. No Points
Points are often a misunderstood concept for first time home buyers. Points are nothing other than interest paid up front (at the time of closing), to obtain a lower interest rate on a loan. One point is equivalent to 1% of the amount of money borrowed. If you are going to borrow $300,000 on your loan, one point would equal $3,000 up front. This generally generates 1/4 to 3/8 of a percent lower interest rate, depending upon the loan program.

When does it make sense to pay points? Paying points is a prudent financial move, if you are planning to be in the loan for a long period of time. Again, one of the most important questions to address when you borrow money is, “How long do you need to borrow this Read the rest of this entry »

Shopping for the best interest rate possible has always been the consumer’s primary objective when borrowing money. As well it should be! The challenge with this strategy is that there is much misleading information released on the subject by various media. Internet web sites and email marketing, along with other media such as radio, television and billboard advertising, has brought the importance of interest rates to the forefront of consumers’ minds.

The problem for the consumer with this type of marketing is that it is designed to make the lender’s phone ring. Often, the advertiser offers an interest rate at a ridiculously low price, with the intent of using a bait-and-switch technique once the client is reeled in. This is often done through short pricing. Short pricing is a term Read the rest of this entry »

ZeFrank has one of the most entertaining blogs on the internet. Whenever I need a quick laugh I log on. Here is the first post I saw a year ago. He was speaking at the TED conference in 2004. To find him on his daily blog http://www.zefrank.com/theshow/ usually the funniest 3 minutes of my day.