LoveToKnow Mortgage:AllComments

Comments

Aaron, thank you for pointing out the typo.

-- Contributed by: Tamsen Butler

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Typo: A 20% downpayment of $200,000 is $40k, giving a $160,000 mortgage, not $180,000.

-- Contributed by: Aaron

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Tom, thanks for the comments. Yes, the vast majority of financial experts agree that paying off high interest debt is the way to go. You would be surprised, however, at some of the suggestions a minority of financial experts make to their clients.

-- Contributed by: Tamsen Butler

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Skip is right. The 10 year bond is only an indicator. Look at how things are working right now. The Fed just dropped the Fed Funds rate a point and mortgage rates actually went up! Mortgage rates are determined by was mortgage securitizers and investors in how much they are willing to buy at what rate.

Also, If you're paying 15% on a credit card with a $10k balance, if you pay off that balance, it will most assuredly save you more money over if you buy down a rate 1 or even 2%. No matter if the person has "a tendency toward running debt right back up" because that credit card debt will still be there and only just have more added on to it. CASH IS ALWAYS USED BETTER IF PAYING OFF A HIGHER INTEREST RATE CREDIT CARD THAN IF YOU USE IT TO BUY YOUR MORTGAGE DOWN. No experts debate that.

-- Contributed by: Tom

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Skip, thanks for the comments. Different financial experts have different opinions regarding where money is best used in a situation like the one you mentioned. There is merit to each argument, but it essentially boils down to what works best for each individual person. For example, putting the $3600 toward high interest debt makes sense mathmatically, but if the person in question has a tendency toward running debt right back up after it has been paid then this may not be the best overall decision. A person's entire financial standing (and behavior) should be taken into consideration and consequently there is no one-size-fits-all answer.

-- Contributed by: Tamsen Butler

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This article has some incorrect information and partial accuracies. Most of the determining factors for mortgage rates are not determined by the Fed Funds Rate. The 10-year bond is an indicator of rates, not a determining factor. Also, the explanation of paying points over-simplifies the concept. What if that $3600 could earn more interest in investment than the difference between buying down and not buying down? Or earn more than the mortgage rate as a whole? If the $3600 could pay off a high interest debt, wouldn't that make more sense than putting toward a low interest mortgage?

-- Contributed by: Skip
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