Is the 30-year fixed-rate mortgage boring? You seem to like them.
I love 'em. My preference is a 30-year fixed-rate mortgage and a biweekly payment plan. My own mortgage right now is a 30-year loan, fixed for 10 years and then it switches to a one-year adjustable-rate mortgage. And I pay an extra one-third of the principal due every month. With a hybrid like this (a loan that is fixed for five, seven or 10 years and then switches to an ARM), you really need to understand when it is due, or when the rate will reset and what it will reset to. You need to stay on top of your credit score so you have the ability to refinance if you need to.
What about diversification? If you prepay your mortgage, you're getting about 6 percent or 7 percent return before taxes. Would you be better off putting some of your money into stocks and bonds for better growth?
The great thing about this country is that you can choose where you will invest. In my nine years with Morgan Stanley (you'd expect me to promote stocks) my clients all had their greatest gains in real estate. The reason people were able to retire in their early-to-mid 50s or early 60s is because they paid their homes off. Those who paid their homes off early were able to retire 10 to 15 years sooner than those who didn't.
How do you shop for a mortgage?
First I go to a site like Bankrate.com.
Ah, yes, and?
I always start with my bank first. You should sit with the mortgage adviser and ask, "Do you have a preferred customer rate?" And if you get quoted a preferred customer rate, you go out and make sure it's the lowest rate. I had two mortgage brokers compete against each other. Two of the top brokers in New York.
How did you find them?
They're always running advertisements. One was a referral from a Realtor at Sotheby's. I talked to their preferred lender. The other was a mortgage broker. I called the No. 1 mortgage broker in Manhattan. The bank couldn't compete with the broker's rate. I shopped my mortgage very hard. I got a jumbo fixed at 5 percent for 10 years. Then it converts to one-year ARM. I was able to get 5 percent instead of 6 percent for the 30-year-fixed. That's a big difference because I had a jumbo, a big mortgage.
Do you have any advice on refinancing?
You have to factor in all the closing costs for a refinance. There is no such thing as a no-cost loan. The loan documents, the HUD-1 settlement statement details it all. You have to ask "What costs will there be?" There are some lenders now who offer flat pricing. No points. But there may be a $500 or $1,000 fee. Just ask your lender or broker, in writing, to provide a list of all the costs associated with the loan, including title and appraisal. Especially if you put your request in writing, an e-mail or a letter, you have a paper trail. There are more good mortgage loan people out there than bad. It's a very regulated industry.