Friday, November 28, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Mortgage options include positive, negative outcomes

sievers column sig

By
From page B7 | July 20, 2014 |

It seems that you cannot listen to the radio for more than a few minutes without hearing the pitch from some mortgage company about how they can give you an unbelievable deal on refinancing your house.

Since interest rates are rising slightly but still low and most people have refinanced, the dynamics of the mortgage market are changing.

Two pitches seem common now. The first is a bid to lower the monthly payments. The second is to “accelerate” the payoff so you pay less interest over the life of the loan. Some caution is appropriate in both cases.

The mechanics of loans are straightforward, but not necessarily simple. You have only four basic variables: principal, interest rate, length of payback period, and payment. By tinkering with any of these four, you can adjust the others.

But nothing is free.

Creating a benefit for one variable causes a change with another, perhaps less desirable. Remember the cardinal rule for lenders, which was expressed in simple form by Will Rogers: “I am more concerned about the return of my money than the return on my money.”

Some promises are for very low monthly payments. Other pitches complain that so much of the payment goes to interest rather than principal in the early part of the loan. All these promises are aimed at letting the borrower get more from the deal. In such situations, looking at the circumstances from the perspective of the other side is often useful.

Just keep in mind that if you were the lender, you would want a fair interest rate and repayment of your money. Changing the particular pattern of the payments would be fine, as long as you receive what is fair.

Be cautious about low payments. Just by using the math for loans, you will find that low payments can only come from longer payment periods, lower interest rates, or less payment going to the principal.

Choosing a longer payment period, e.g. 40 years versus 30 years, reduces the monthly payment but does not change the interest rate. The payment decreases because you pay back principal in smaller amounts each month, but the total interest paid increases since you pay for a much longer period.

Interest rates that are initially below the market rates are usually tied to a higher rate later. Nothing is free. The pattern can be rearranged, but the lender expects a fair return when all is done. As the borrower, you need to examine the entire period covering both the lower and the higher rates to determine how you will handle the difference in cash flow requirements.

Paying less to principal is another way to lower the monthly payment. Some of the dangerous loans from a few years ago are no longer available, fortunately. These loans had low payments that only covered the interest or sometimes even less, so the loan balance actually increased. Such loans would never be paid off.

Another pitch is to “accelerate” the loan. The appeal is that more money goes to principal and the total interest for the life of the loan is less. This is absolutely true, but the fact is that the payment must increase significantly to make the deal work, an item that the pitchman cleverly leaves out.

The new kinds of loans have intriguing traits that may be useful, and certainly may seem appealing. Remember that getting into a particular loan is easy. Be certain to plan how to get out when your situation requires it. Do not let the loan details surprise you.

As always, investigate before you sign. Seek professional advice if you have questions.

Mark Sievers, president of Epsilon Financial Group, is a certified financial planner with a master’s in business administration from the University of California, Berkeley. Contact him at mark@wealthmatters.com.

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

 
Solano Turkey Trot draws 2,600 to college

By Ryan McCarthy | From Page: A1 | Gallery

 
 
Il Fiorello schedules olive milling day

By Susan Hiland | From Page: A3

 
Early Black Friday shoppers take advantage of deals

By Susan Hiland | From Page: A3 | Gallery

Eagle Scout project adds floating docks at Rockville Park

By Susan Hiland | From Page: A4 | Gallery

 
.

US / World

‘Guardian angel,’ community join to give man home

By The Associated Press | From Page: A1

 
US celebrates Thanksgiving with parades, turkey

By The Associated Press | From Page: A3 | Gallery

Tons of marijuana seized in Central California

By The Associated Press | From Page: A4, 4 Comments

 
Gorilla death prompts San Francisco Zoo changes

By The Associated Press | From Page: A4, 1 Comment

Health agents still unpaid after plan’s rollout

By The Associated Press | From Page: A4

 
California Burger King employee finds $100,000

By The Associated Press | From Page: A4, 1 Comment

At 1 month, US Ebola monitors finding no cases

By The Associated Press | From Page: A5

 
Families asked to host visitors for pope’s US trip

By The Associated Press | From Page: A5

Researchers discover ‘pre-cancers’ in blood

By The Associated Press | From Page: A5

 
35 arrested in Oakland after protest march

By The Associated Press | From Page: A6

A glance at Ferguson: Then, now and the future

By The Associated Press | From Page: A6, 1 Comment

 
For some, location of Brown’s hands irrelevant

By The Associated Press | From Page: A6, 1 Comment

Ferguson gives thanks after a quiet night

By The Associated Press | From Page: A6

 
Colorado mastodon bones show ancient warmer Earth

By The Associated Press | From Page: A7, 1 Comment

Queen of crime writing PD James dies aged 94

By The Associated Press | From Page: A10

 
Ebola aid dogged by coordination lags in Guinea

By The Associated Press | From Page: A10

Taliban attack rocks upscale Kabul district

By The Associated Press | From Page: A10

 
Small quake rattles California wine country

By The Associated Press | From Page: A12

.

Living

Today in History: Nov. 28, 2014

By The Associated Press | From Page: A2

 
Community Calendar: Nov. 28, 2014

By Susan Hiland | From Page: A2

Movies just another course on Thanksgiving

By Susan Hiland | From Page: A3 | Gallery

 
Poor health is no excuse for not behaving like a caring person

By Kathy Mitchell and Marcy Sugar | From Page: A9

Horoscope for Nov. 28, 2014

By Holiday Mathis | From Page: A9

 
.

Entertainment

Week in preview: Nov. 28 to Dec. 4, 2014

By Amy Maginnis-Honey | From Page: B1

 
Prison theater transforms Colombian inmates

By The Associated Press | From Page: B2

Singer John Mayer among ‘Late Late Show’ subs

By The Associated Press | From Page: B2

 
Review: ‘Horrible Bosses 2′ doesn’t work

By Jake Coyle | From Page: B2

Review: ‘Madagascar’ spin-off hatches family fun

By The Associated Press | From Page: B2 | Gallery

 
Reading Harry Potter gives clues to brain activity

By The Associated Press | From Page: B3

Talking songs with She & Him

By Kim Durbin | From Page: B3

 
Entertainment calendar Nov. 28, 2014

By Amy Maginnis-Honey | From Page: B4

 
Cosby testimony describes accuser’s spiked story

By The Associated Press | From Page: B6

.

Sports

College notebook: Many happy returns for Arizona’s Bondurant

By Paul Farmer | From Page: B7 | Gallery

 
Sherman’s big night leads Seattle past 49ers again

By The Associated Press | From Page: B7, 1 Comment | Gallery

Rookie quarterback Carr is Raiders’ silver lining

By The Associated Press | From Page: B7

 
US cities urged to keep price tags down for 2024

By The Associated Press | From Page: B7

Eagles roll over Cowboys 33-10 for NFC East lead

By The Associated Press | From Page: B8 | Gallery

 
5 investigated in FIFA WCup bid corruption probe

By The Associated Press | From Page: B8

Johnson shines in Detroit’s 34-17 win over Chicago

By The Associated Press | From Page: B8

 
Signups for Friday, Nov. 28, 2014

By Paul Farmer | From Page: B10

No. 9 UCLA must overcome Stanford for Pac-12 title

By The Associated Press | From Page: B10

 
.

Business

Kia’s ‘Soulful’ first electric car

By Ann M. Job | From Page: C1

 
Automakers aim to drive away car computer hackers

By The Associated Press | From Page: C2

OPEC keeps oil output on hold despite low prices

By The Associated Press | From Page: B11

 
Google’s latest: A spoon that steadies tremors

By The Associated Press | From Page: B11

3 Reasons holiday shoppers will spend cautiously

By The Associated Press | From Page: B11

 
.

Obituaries

Deanna L. Haines

By Susan Hiland | From Page: A4

 
Esther Ringler

By Nancy Green | From Page: A4

.

Comics

Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

 
Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

 
Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

Blondie

By Daily Republic Syndicated Content | From Page: A8

 
Baby Blues

By Daily Republic Syndicated Content | From Page: A8

Baldo

By Daily Republic Syndicated Content | From Page: A8

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

Garfield

By Daily Republic Syndicated Content | From Page: A8

 
Dilbert

By Daily Republic Syndicated Content | From Page: A8

B.C.

By Daily Republic Syndicated Content | From Page: A8

 
Peanuts

By Daily Republic Syndicated Content | From Page: A8

Zits

By Daily Republic Syndicated Content | From Page: A8

 
Pickles

By Daily Republic Syndicated Content | From Page: A8

Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

 
Sally Forth

By Daily Republic Syndicated Content | From Page: A8

Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

 
Sudoku

By Daily Republic Syndicated Content | From Page: A9

Crossword

By Daily Republic Syndicated Content | From Page: A9

 
Cryptoquote

By Daily Republic Syndicated Content | From Page: A9

Bridge

By Daily Republic Syndicated Content | From Page: A9