Is mortgage rate envy a sin? I have no idea, because I am a mortgage banker and not part of the clergy. But I do know that mortgage rate envy is usually based upon misinformation, and prevents mortgage borrowers from thinking clearly. They are so focused on rate that they do not see the whole picture. Focusing solely on the note rate can cause people to make imprudent financial decisions. The annual percentage rate (APR) is the number borrowers should be looking at. APR is defined as the total of all costs imposed on a borrower as a result of granting credit.
The type of loan (conventional or FHA/VA), size of loan, credit score of borrower, type of property, and amortization period of a mortgage all have a huge impact on the interest rate. I recently spoke to a client who was very excited about the offer he got in the mail for a fixed rate mortgage at 2.5%. What a deal! Except the offer had no bearing on his situation. The offer was for a $400,000 mortgage with a 70% LTV (loan to value) on a primary residence, with a SEVEN year term. His townhouse was an investment property with an existing mortgage balance of $130,0000. His goal was to reduce the payment. While a seven year mortgage would pay the property off faster, his payment would be much higher.
Whenever I hear someone talking about what a great rate a neighbor, relative, etc. got, I always ask three simple questions: How much were the fees, what type of loan, and the length of loan. I remember talking to one gentleman who was proud of the great rate he had found. When I asked him what the fees were, he proudly told me none because he did not have to bring any money to the closing. When I checked the county records it showed his loan balance had increased by more than $7,000.
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