- Your income, both current as well as projected
- Your credit rating and how it will affect your mortgage rate
- Your assets and the leverage that they will afford you
- Your ideal type of property you wish to buy
There is a loan product solution for almost every situation and MenardJohnson has relationships with a number of lenders to provide you with the most options.
Sample Loan Products
Fixed-Rate Mortgage - The most common mortgage plans are 30, 20 and 15 year plans. Your payments and interest rate remain fixed and unchanging over the entire term of the loan.
A $200,000 loan amount at 6.5% over 30 yrs. = $1264
A $200,000 loan amount at 6.25% over 15 yrs. = $1715
The difference in the mortgage payment is $451/month. You build equity faster and lower your interest expense over the life of the loan.
Adjustable Rate Mortgage - These are more commonly referred to as "ARMs." These are more complex than a fixed-rate mortgage because payments and interest rates have the potential to change.
- 3/1 ARM - fixed rate for 3yrs and then will adjust once annually.
- 5/1 ARM - fixed rate for 5yrs and then will adjust once annually.
- 7/1 ARM - fixed rate for 7yrs and then will adjust once annually.
- 10/1 ARM - fixed rate for 10yrs and then will adjust once annually.
ARMs will have a margin (typically between 2.25-2.75%) that remains constant through the life of the loan. This margin is added to an index which is constantly moving up or down.
Common Adjustable Rate Indices:
- LIBOR Index - London Interbank Offered Rates
- MTA Index - Monthly Treasury Average
- COFI Index - 11th District Cost of Funds Index
- CODI Index - Certificate of Deposits Index
Example: ARM with a 2.25% margin and using the LIBOR index which is 5.516% would result in a fully indexed rate of 7.766%.
Interest-Only Mortgage - The interest-only mortgage has become a very popular product in the last few years. The obvious benefits being a lower payment while no principal reduction occurs.
For example: $200,000 x 6.500% = $1083/month. That's a savings of $181/month versus the fully amortized payment.
Ownership vs. RentingOwnership Advantages:
- Leverage your return on investment when you own vs. simply exchanging monthly rent for shelter
- Build your equity and net worth faster vs. doing that very thing for a landlord
- Take advantage of various tax advantages vs. just paying your taxes!
- Overall pride in owning your own property and home vs. living your life under another's roof
Return on Investment (ROI)ROI = Interest or Appreciation / Investment
For example: a bank CD of $7,500 is invested and returns $225 at the end of 1 year.
ROI = $225/$7,500 or 3%
Example: A person purchases a $200,000 condo. The down payment is 5% ($10,000) and closing costs total $3,500. Total investment is $13,500. The condo gains 4% in appreciation the first year of ownership. What is the ROI? ROI = $8,000/$13,500. The ROI = 59%!
Home Ownership - It's rigged in your favor!
- Leverage (Buy a $200,000 condo and only put 5% down)
- Paying the mortgage is forced savings
- Federal government provides tax advantages for home ownership
- Lenders continue to broaden product offerings
- Real estate historically appreciates over time
- Home owners have at least 10 times the net worth of renters