Show Your Clients How to Save Thousands of Dollars with the 25-Year Fixed Rate Mortgage
by Karen Deis
Comparisons by Mortgage Coach Software (www.MortgageCoach.com)
It is 9:00 a.m. The phone rings. The caller asks, "What is your interest rate for a 30-year fixed rate mortgage?" This phone call is repeated hundreds of thousands of times a day-with loan officers throughout the country. While many of you have developed great answers to that question, here is an answer that is designed to set you apart from other competitors and get the caller away from the "rate" and into the "payment and cost savings" frame of mind:
"Well, I know that you have probably been calling around for rates, but has any other loan officer told you about the 25-year fixed rate mortgage and how you can save thousands of dollars in interest, pay off your loan five years faster and save approximately $30,000?" (You have switched their focus from interest rates to saving money and you have implied that you know they have been shopping around.)
Before I go into the benefits and selling techniques of a 25-year fixed rate-you first need to know that there is no interest rate difference between 25 and 30 year fixed rate mortgages. . You will also run into account reps or secondary marketing people who will tell you that you cannot make a 25-year loan. YES YOU CAN! It's merely pooled with 30-year fixed rate mortgages. For mortgages that require mortgage insurance, Barry Habib says that the MI premium is less expensive for your clients, as well. We recommend that you check with your current MI company and make the comparisons yourself as each state and MI company is slightly different. CLICK HERE to check out MGIC's rate charts so that you can view the difference. It makes a huge impact on single premium MI.
Some loan officers have told me that they discuss the difference between a 30-year fixed rate and a 20-year loan. But I think that's a mistake! Here is a comparison of the P & I payment based upon a loan amount of $125,000 at a rate of 5.75%
30 Year: $729.47
25 Year:
$786.38
20 Year:
$877.60
The difference in monthly payment between the 25 and 30 year:
$57.00
The difference in monthly payment between the 20 and 30 year: $148.00
Take baby steps with your clients. It is easier to show the benefits of a $57.00 payment increase with the simple statement that $57.00 is about the cost of one dinner for a family of four at Olive Garden! $148.00 increase in monthly payment is a lot harder to justify.
There are many software programs that will allow you to print comparisons that you can give, fax or email to your clients, but the easiest one I have found to work with is www.MortgageCoach.com.
Here is a five-year comparison (also showing short-term benefits) of the 25-year fixed rate mortgage (over a 30-year) where your clients save almost $4,000 in a short period of time.
30-Year Fixed Rate, Loan Amount: $125,000, Rate: 5.75% |
||||
Year |
Annual P & I |
Remaining Principal |
Annual Interest |
Balance |
1 |
729.47 |
1,608.09 |
7,145.55 |
123,391.91 |
2 |
729.47 |
1,703.02 |
7,050.62 |
121,688.89 |
3 |
729.47 |
1,803.56 |
6,950.08 |
119,855.33 |
4 |
729.47 |
1,910.04 |
6,843.60 |
117,975.29 |
5 |
729.47 |
2,022.82 |
6,730.82 |
115,952.47 |
35-Year Fixed Rate, Loan Amount: $125,000, Rate: 5.75% |
||||
Year |
Annual P & I |
Remaining Principal |
Annual Interest |
Balance |
1 |
786.38 |
2,309.30 |
7,127.26 |
122,690.70 |
2 |
786.38 |
2,445.62 |
6,990.94 |
120,245.08 |
3 |
786.38 |
2,590.01 |
6,846.55 |
117,655.07 |
4 |
786.38 |
2,742.91 |
6,693.65 |
114,912.16 |
5 |
786.38 |
2,904.86 |
6,531.70 |
112,007.30 |
The savings to your client for a mere $57.00 more per month just over a 5-year time period is $3,945 (of which $531.00 is interest savings and $3,414 is principal reduction).
CLICK HERE for a printable version of a completely amortized loan comparing 20, 25 and 30-year loans based upon the same loan amount and interest rate. Look at the bottom line. There is more than $30,000 difference over the life of the loan.
My experience has been that, even though I had presented the 25 and 30-year fixed rate options to clients, seven out of ten times they chose the 30-year fixed rate. However, by showing the client that I KNOW there is a little-known alternative, I proved my claim that I could save them thousands of dollars. I just improved my status from being "just another loan officer" - to that of being their trusted advisor.
There is no magic here. You are presenting a little-known option to your clients. Become known as the loan officer who saves clients tens of thousands of dollars over the life of the loan.
You can use this alternative in your home buyer seminars.
Or use it in your free reports.
An ad that says, "We Can Show You How To Save Over $30,000" is a lot more effective than, "We Offer All Kinds Of Loans For Every Type of Client" advertising.
If you have ever wondered how to take the first step from being just another loan officer-to a trusted advisor, this is it!
Copyright, 2003, LoanOfficerMagazine.com