What’s more important? The interest rate on a loan or the actual amount of interest you’ll pay?
That question tends to confuse people because most assume that they are the same thing! I don’t ask the question to confuse anyone or to make them feel uncomfortable. My purpose is simply to help them realize that while the rate of interest is a significant part of the process, the terms of the loan play a part as well.
Having been in the lending profession for almost 4 decades, I’ve seen interest rates on mortgages go from 17 ½% to 2.75%. When rates were high, people would seek out adjustable-rate mortgages. When rates were low, they would seek out fixed-rate mortgages. Makes sense. After all, we all want to pay as little as possible when it comes to borrowing money.
What’s More Important: The Interest Rate or The Loan Terms?
But, if your sole focus is on the interest rate, you may be missing out on some substantial savings. Even at a fixed rate of 2.75% on a 30-year fixed-rate mortgage, do you know how much interest you’d pay on a $200,000 mortgage at the end of the term? $93,933. That’s just under 47% of your funds going towards interest. And that doesn’t take into account any fees paid up front or the multiple times you had to refinance to get that lower interest rate.
I’d like to tell you about a mortgage that very few lenders offer because, quite frankly, there isn’t enough profit in it for them. In fact, most loan officers don’t even know this program even exists.
To truly understand how good this program is, you need to have a basic idea of how the traditional mortgage works. A traditional mortgage applies your payments towards interest first & then towards the principal. That’s why on a 30-year loan, it isn’t until about the 22nd year that more of your payment goes towards principal than interest.
Introducing The All-in-One Loan
On this program, which is called the All-in-One (AIO), the exact opposite is true. Funds are applied to the principal first, then the interest. This results in less interest paid and a much faster payoff of your mortgage.
I wish I could say that this type of mortgage was available to everyone, but the reality is that the qualification requirements for this type of mortgage are higher than other loans. This program requires credit scores of at least 700, it requires good debt-to-income ratios, and verifiable liquid assets equal to, at least, 10% of the proposed loan amount. Thus, a $300,000 loan would require proof of at least $30,000 in liquid assets.
How much can you save on a program like this? See this example of a recent homeowner. If you have some questions or you’d like to if you could qualify for this program, or, if you’d like to know how much you may be able to benefit from this type of program, click on the link below for additional information.
