Nailing Down Housing Costs

By Bridgette Fanucchi Published Sep 19, 2007 03:09 pm Updated Feb 3, 2015 11:23 am

The federal agency charged with maintaining stability and public confidence in the nation’s financial system can help you feel stable and confident about your home loan — at the lowest possible cost.

‘FDIC Consumer News Special Edition: 51 Ways to Save Hundreds on Loans and Credit Cards’ suggests consumers consider mortgages, credit cards and other loans as not just financial services, but tangible products requiring before-you-buy scrutiny and careful use after you sign on the dotted line.

The FDIC’s timely treatise offers advice on financial services from auto loans and credit cards to fraud and small business loans, and there’s a heavy dose of advice on mortgages.

The information comes in the midst of a mortgage market meltdown that makes home loans tougher to land and more expensive own.

Here’s how to cut costs in a number of areas.

Look for a mortgage like you shop for a car. Haggle. It’s tougher to haggle today, but you can negotiate the rates and terms of a loan, especially if you comparison shop. ‘Looking For The Best Mortgage’ spells it out, The Mortgage Professor can school you on the math of comparing.
Go with a fixed rate even if the adjustable rate mortgage (ARM) carries a lower initial interest rate. A fixed-rate loan gives you a monthly interest-and-principal mortgage payment that won’t change. That’s piece of mind when other costs, including taxes, insurance and maintenance can change.

Many borrowers are discovering today what Mortgage-X.com reveals on its charts of indexes used to set interest rates — that indexes can double, even triple quickly.

‘Most of the time people don’t read documents and don’t get the idea that these indexes could really go up. How could you anticipate they would double so quickly?’ said Warren Winsness, president of the Santa Clara County Association of Realtors in San Jose, CA.

Janet Kincaid, FDIC’s senior consumer affairs officer, agrees.

‘If you are thinking about an ARM, make sure you know how much and how often the interest rate and payment could go up before you sign on, and be comfortable that you can meet those higher monthly payments. Don’t let a low teaser rate lure you in; you may be surprised later,’ she said.

Likewise avoid ‘no-doc,’ or ‘NINJA’ (no income, no job or assets) mortgages that require little or no documentation of your income or assets. The extra risk the bank takes is passed onto you in the form of higher costs.

‘If you have income that’s easy to document, such as regular statements from your employer or a monthly Social Security payment, it’s probably not worth paying extra over the long term of the loan just to save a few days during the application period,’ said Mira Marshall, an FDIC senior policy analyst.

Consider a loan with a shorter term, 15 instead of 30 years, 30 years instead of 40 years, provided you can afford the higher payment. Over the term of the loan you’ll pay less interest.

Also consider paying off your existing mortgage sooner with extra payments earmarked for the principal each month.

‘This is an easy way to pay off the loan and save thousands of dollars in interest charges without incurring the cost of refinancing,’ said Marshall.

Consult with a financial or tax advisor to learn the pros and cons of each approach.

Get subsidized. Look for federal government (U.S. Department of Housing and Urban Development); state government (National Council of State Housing Agencies); and local public and private (The National Association of Local Housing Finance Agencies) incentives for first-time home buyers, low- or moderate-income households and community workers (like teachers and police officers). If you are eligible, you can save on interest rates, closing costs, down payments and other terms and get some extra tax benefits, say with a Mortgage Credit Certificate.
Don’t drain your equity. Equity loans — pulled from the difference between your loan balance and the property’s value — are, by nature, equity draining loans. They can be cheaper than credit cards, signature loans and other credit but should only be used for emergencies and capital improvements — those purchases that provide a return, including home improvements, business start ups, education, etc.
Know when refinancing a mortgage makes sense. Refinancing could be a good idea if you can get a rate that is at least one percentage point lower than your existing mortgage rate and you plan to keep the mortgage for several years. Refinancing from an ARM to a fixed-rate with a higher interest rate could also be wise if the rate on your current ARM will soon adjust up to a level higher than the rate on the refinanced fixed-rate mortgage. Again. Do the math. Know what you can afford.
Avoid fraud and come-ons. If it appears too good to be true it probably is or it soon will be. Steer clear of low teaser rates that could last only a few months and then balloon to an unaffordable level. Avoid replying to emailed and direct mail mortgage offers. Use them as comparison tools to do your own shopping. If you aren’t certain about any offer, get help. Ask for referrals to help from family, friends, co-workers, professionals you’ve worked with and others you trust.