Greek philosopher Heraclitus once said “the only constant is change.” As much as we would like things to remain the same – our babies to stay little, our waistlines to stay small, our mortgage rates to remain low – they never do, or will. This week’s Primary Mortgage Market Survey is out and rates are both higher and lower than last week. It just goes to show how quickly these crazy low rates can change. If you’re not refinancing into a lower rate, you may miss out on your opportunity. There is never going to be a better time, because tomorrow never comes.
I know that the suspense of the past six days has been killing you. Alas, wait no longer, as Watch-It Wednesday is back today to help answer some more of your questions.
Today, we have Ryan South answering three questions submitted to us by our clients.
We will talk about getting 30-year mortgages vs. 15-year mortgages, how much income you should put aside for your mortgage and what to do if you are late or miss a mortgage payment.
Come check out the most informative 3:07 of your day!
If you cannot view the embedded video below, click here.
Eric: Hey! Eric Mally here with the Zing! Blog again for our fourth installment of “Ask A Banker!” Today, we’re going to talk about should you get a 15 year or a 30 year, how much income you should put aside for your mortgage payment and what happens if you are late for a mortgage payment. Come take a look and see what we got for you this week!
Eric: We got Ryan South with us today. Ryan, thanks a lot for coming out and helping out. I got three questions for you today. You ready for them?
Ryan: I’m ready.
Eric: First one I got: You know, we hear that interest rates are at all time lows right now. I’m trying to decide if I should get a 15-year mortgage or a 30-year mortgage. Which one should I get?
Ryan: That’s a great question and I think what you really need to look at first and foremost is understanding the basic. Number one is that with a 15-year mortgage you can count on two things. You can count on a higher monthly payment, but you can count on paying off the loan faster. Alternatively, a 30-year is going to give you an affordable, lower payment. At the same time, you will be paying more interest over the life of the mortgage, and you will pay down the loan slower. So, I think what it really comes down to is what is going to be more affordable for you. That affordability, that sustainability of a mortgage payment every single month is really going to determine which mortgage product works best for you.
Eric: Ok, very cool. Now, how much of my income should be used for my mortgage payment?
Ryan: You know, that’s been a question that has been hitting the industry hard for the past couple years, especially because of all of the troubles with the homeowners. I think a good rule of thumb to keep it simple is to look at your gross income. 25% of that income, I feel, is good for a mortgage payment. For example, if you make $60,000 a year, that breaks down to about $5,000 a month gross income. 25% of that is roughly $1,100 to $1,200 a month maximum mortgage payment. You also have to take into consideration that along with the mortgage payment, you also have your property tax, home insurance, those home expenses in general are going to create your total mortgage payment. Keeping that between 25%, possibly 30% at the absolute most, is going to really keep it comfortable, keep it affordable for you.
Eric: Now, you made mention of the hard economic times, people having trouble with income, let’s say I do miss a payment or if I’m late on a payment, how would that effect my mortgage or how would that effect me getting a mortgage?
Ryan: I’ll tell you: missing mortgage payments is going to be the most detrimental thing that can happen to you as a homeowner. The reason why is that it is taken very seriously. That comes back to the whole situation of which mortgage payment is going to be the most affordable, which is the most sustainable. Now, once you miss a mortgage payment, that gets reflected on your credit report and it stays there. At the point in time, if you miss two mortgage payments, there may be no chance that you can actually refinance and get assistance. Now, the best thing to do, if you do miss a mortgage payment, would be to immediately contact your lender. Explain your situation, be upfront about it, and ask for assistance. That way, everybody is on the same page, we can hopefully formulate a plan to help you and get your mortgage back on track to where it needs to be.
Eric: You hear that people? Don’t miss your payments! Ryan, thanks a lot. I appreciate all of your help.
Ryan: You’re welcome!
Eric Mally writes for Quicken Loans and loves that it’s one of the most amazing places to work. Check out the Quicken Loans YouTube page and learn more about what it’s like to work at QL