OK, so you’ve heard it on the radio spot.
It means, we’re making sure the listening market understands the difference between interest rate and effective interest rate. Let’s look at a basic payment breakdown on a 30 Year FHA vs 30 Year Conventional, 3.5% down payment on a $200,000 loan amount. In this scenario, a borrower who has a FHA loan at 3.375% would benefit by refinancing to a higher interest rate on a different program.
|Taxes and Insurance||$275.00||$275.00|
|When paid down to 78%||$1,278.67||$1,155.18|
|Total Payback, Life of loan||$341,295||$316,864|
This is the truth of the statement, “You Don’t Pay Back a Mortgage Interest Rate, You Pay Back a Mortgage Payment.”. FHA carries an upfront premium of 1.75% of the loan amount, effectively making your loan amount higher by 1.75%. To that, FHA also adds a monthly Mortgage Insurance Premium which never goes away. By comparison, the conventional loan cancels when the loan is paid down to 78% of the purchase price where FHA monthly mortgage insurance never cancels in this type of transaction.
In this post meltdown mortgage universe, 99% of the mortgages out there are good loans. Fixed programs, stunningly low rates. However, knowing more than just interest rates really maximizes your benefit.
*payment cancels when balance is paid down to 78% of purchase price.
**payment never cancels