Don't assume loan officer has your best interest in mind
*Denotes the two lowest-cost combinations. The components of total cost are shown in last week's article.
Using the calculator
The best way to use the integrated calculator depends on the borrower's major concern. Borrowers who can deal with the highest monthly payment and the largest upfront fees shown in the table should select the rate/fee combination with the lowest total cost over the period they expect to have the mortgage.
As that period lengthens, the advantage shifts toward lower rates and larger fees, because the benefit of the lower rate extends over a longer period. I have flagged that tendency by placing asterisks next to the two lowest-cost combinations for each period.
If the borrower's major concern is cash, he excludes the top part of the table and looks for the lowest cost from the rate/fee combinations that remain. If the borrower's major concern is the initial payment, he excludes the bottom part of the table, selecting from the combinations that remain.
Some borrowers may want to impose both a cash and a payment limit. For example, the borrower represented in the table might want to cap cash outlays at $9,000 and monthly payment at $1,100. In that case, there are only five rate/fee combinations from which to choose. But that is four more options than he is likely to have without the calculator.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
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