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No-Cost Mortgages Still Cost

By Scott Sheldon

“There’s no such thing as a free lunch.”

Such words have never been more relevant to consumers being pitched no-cost mortgages, which offer borrowers the ability to pay no closing fees.

No-cost loans do provide the consumer another choice in world of mortgage financing. On the other hand, the fees associated with procuring these loans still need to be paid, and the cost comes in the form of a higher interest rate, costing the borrower more over the life of the loan.

Crunching the numbers

Here’s how a no-cost loan works: The mortgage lender offers you a higher interest rate in exchange for providing you a credit to cover your closing costs.

For example, assuming a loan amount of $300,000 and closing costs of $2,600, the lender might offer you three distinct choices:

1. 30-year fixed rate mortgage at 3.26 percent with 1 discount point (based on 1 percent of the loan amount) and you paying $2,600 in closing costs.
2. 30-year fixed mortgage at 3.5 percent with no points and you paying the $2,600 in closing costs.
3. 30-year fixed mortgage at 4 percent, no closing costs.

Comparing options 2 and 3, here’s how the math breaks down:

The 30-year fixed mortgage at 3.5 percent contains total interest paid over the life of the loan in the amount of $184,968, so the total cost of the mortgage (computed by adding the closing costs to the interest paid over the full term) is $187,568.

With the 30-year fixed rate no-cost option at 4 percent, the total interest over the full term of the loan comes to $215,609.

The total cost difference is $28,041, or about $85 per month.

So if the closing costs are $2,600, you would actually break even in about 30 months by paying the closing costs yourself and forgoing the no-cost option.

Length of loan

Ultimately it boils down to how long you plan to keep the loan. (Notice that’s how long you keep theloan, not how long you keep the house.)

If you plan on keeping the loan for:

• 3 years or less: A no-cost loan makes sense considering that you’re going to be paying off the loan anyway.
• 5 to 7 years: A no-cost loan begins to look less attractive than its fee mortgage counterparts.
• 10 years or longer: No-cost loans take a backseat to fee mortgages.

If you’re in the process of refinancing and qualifying for a mortgage is tight, then it might be beneficial to use a no-cost loan option. For example, if you have to pay down your principal balance to refinance your mortgage loan, a no-cost loan might make sense considering your cash assets would be going to the principal balance to reduce the amount financed.

Securing the lowest possible mortgage rate is on every consumer’s mind these days, but in order to achieve that, a no-cost option wouldn’t be suitable. To get the best possible interest rate and subsequently the lowest monthly mortgage payment, consider taking out a no-points mortgage loan or a loan containing discount points, so long as the interest rate is favorable.

Related:

• Which Mortgage Company Should Handle Your Loan?
• How the Election Could Influence Mortgage Rates
• How Much Income Do You Need to Buy a House?

Scott Sheldon is a senior loan officer and consumer advocate based in Santa Rosa, California. Scott has been seen in Yahoo! Homes, CNN Money, Marketwatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages.

Date Issued: November 2012 Taken from: http://www.zillow.com/blog/2012-11-06/no-cost-mortgages-still-cost/

Real Estate Investing Fears and How You Can Overcome Them

By MIKe lacavai

I recently did a little survey to real estate investors to see what is holding them back from getting started real estate investing. I was really just curious to find out, more than anything.

Although I’ve done one-on-one personal coaching for new real estate investors for a while now I’ve been thinking about creating my first paid product. So in advance of that, I wanted to make sure I was on track with what really stopped people from getting into this business.

I figured I’d get the usual answers from the survey:

• I can’t find the money (check)
• I can’t find the deals (yep)
• I don’t know how to analyze a good deal from a bad deal (sure)
• I don’t know how to manage the rehab (definitely)

But what I didn’t expect was certainly surprising to me. Throughout all the hundreds of answers, one underlying emotional theme came through loud and clear: FEAR

The Biggest Problem Getting Started Investing in Real Estate

One of the biggest problems I found from the survey is that although most people REALLY want to learn how to invest in real estate, most people are TERRIFIED of actually starting.

Take a look at just a sampling of the fears we found from people taking this survey:

• “I don’t have the knowledge of the house flipping process and I might screw it up”
• “Just plain fear of the unknown”
• “I work full time so I can’t do it with the time I have”
• “I have no idea how to find houses to flip”
• “Doubt and indecision as to what to do”
• “Lack of a good mentor”
• “If I do, what would my boss say if he found out”
• “I don’t have the confidence to do my first house flip deal”
• “Fear of what happens when the house flip doesn’t sell”
• “Don’t know how to analyze a deal to know whether its good or not”
• “I have no idea how to estimate renovations”
• “I have no clue how to manage a rehab”

Although, this is just a condensed list, what’s the overriding factor?

Fear.

If this is you, you’re not alone.

Change, Pain, Pleasure and Real Estate Investing

Everyone in the survey did express an interest in learning the nuts and bolts of flipping houses. But when you delve into the open answer section of the survey, what really stops them is not the “how to’s” but its the fear of making a mistake, fear of the unknown, fear of loss and fear of failure.

Why?

Its actually deeply psychological…and proven by many PhD’s far smarter than me, that people will do more to avoid pain than they ever will to gain pleasure.

One of the most important concepts on human behavior is that at the most basic level, there are two opposing forces that motivate people to do everything they do in their lives:

“The desire to avoid pain or the desire to gain pleasure”

Unfortunately, these “yo-yo” opposing patterns make people go back and forth between taking action to create some kind of change and losing their motivation to do anything at all.

Unfortunately, the majority of people do nothing at all.

But if you continuously take action (an object “in motion tends to stay in motion” as my old physics professor used to say), you change and when you start changing small things by taking action, then larger changes are easier to act on.

The Power of Leverage

Anthony Robbins talks a lot about an idea called “leverage”, which is really kind of simple. Leverage says that in order to get someone to take action and make a change, you must help that person to “associate massive PAIN to not changing NOW, and massive PLEASURE to changing immediately”.

The motivation then comes from using both forces, pain AND pleasure to get them to take action.

The “pain” part serves as the short-term motivation, while the “pleasure” side kick-starts the long-term motivation.

The Fear Mindset and Real Estate Investing

Let me propose something to you:
What if you could trick your mind into thinking that there was no way you could fail? And you associated massive PAIN with not investing in real estate and massive PLEASURE to getting started.

Would you get started?

Envision the following scenarios:

Scenario #1

• You’ve worked hard launching your real estate investment career and you find what you feel is the perfect real estate investment opportunity. All of the signs and all the numbers point to yes.
• You have good financing, you know how much renovations will cost you, the 70% rule is mailed down and your broker has given a fact-based ARV that you are 95% sure of the price you will get when you finally sell the property.
• With knees shaking and stomach churning…you buy the house, fix it up and flip it in less than six months…making a tidy $15,000 profit.

How much pleasure, joy and ecstasy would you feel?

Pour the expensive champagne (the one with a REAL cork)…you’d be feeling pretty good…

Scenario #2

• You’ve worked hard launching your real estate investment career and you find what you feel is the perfect real estate investment opportunity. All of the signs and all the numbers point to yes.
• You have good financing, you know how much renovations will cost you, the 70% rule is mailed down and your broker has given a fact-based ARV that you are 95% sure of the price you will get when you finally sell the property.
• At the last minute, the day before the closing to buy it, your fears overwhelm you and you pass…only to see that in six months a real estate investor (not all that different from you) sells it at a price for what you are positive is at least a $15,000 profit.

How much pain, anguish and REGRET would you feel?

Pass the Jack Daniels with a side of hemlock….

Either You Control Fear or Fear Controls You

In both scenarios, there was fear, but the difference is that in scenario #1, the fear was controlled, channeled and defeated. In scenario #2 fear was succumbed to and fear, I’m sorry to say, kicked your butt.

Don’t get me wrong – by merely “controlling fear” and “associating massive PAIN with not investing in real estate and massive PLEASURE to getting started real estate investing” this is not going to guarantee you success entirely.

You still have to do all the numbers and double check everything after all. And you need to use a specific SYSTEM of steps that minimizes that odds of a really awful deal – so you can place yourself in a position to reap the profits while dodging the pain of losing your shirt.

But if all is right, you need to act. Don’t second guess . . . take action and start investing in real estate. This is the mindset you need to invest in real estate and the first most critical step to real estate investing success.

What’s holding you back?

If you made it this far, please leave me a comment below! I’d love to hear about what you think of “The 70% Rule” or questions about anything at all relating to real estate!

Mike LaCava is a full time real estate investor, house flipping coach and the President of Hold Em Realty located in Wareham, MA. Mike specializes in flipping houses with no money and runs the website House Flipping School to teach new real estate investors how to flip houses. He is also the author of the eBook "How to Flip a House in 5 Simple Steps", which you can get on his website for free.

Date Issued: November 2012 Taken from: http://www.biggerpockets.com/renewsblog/2012/11/10/real-estate-investing-fears-and-how-you-can-overcome-them/

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