I didn’t grow up around apple pies. It wasn’t too long after I arrived in the US that I realized apple pie is an integral part of American culture. To the untrained eye it can appear that all you need to make apple pie is some apples and flour right? Well, not exactly. Just take a look at this recipe. It calls for sugar, salt, butter, nutmeg and a whole bunch of other stuff. Apple is only one part of the recipe. It’s an important part but still only one part.
The apple in the apple pie is like the interest rate on a home loan. It is an important part of the equation but certainly not the only part. Perhaps because interest rate is the most visible part people automatically think they need to make their decision based on interest rate. I talk to borrowers who hang up after I tell them the rate. Wow.
My lending philosophy is holistic. I like to talk about goals. I ask about occupancy intentions. I like to know if the borrower is anticipating any employment and income changes in the next few years. I ask young folks if they intend to have children. I like to ask questions to learn more about the person, no one lives in a gravitational singularity. I see my work as a cornerstone affecting the entire financial structure of someone’s life. This is especially true considering most people spend between 30-50% of their income on paying their mortgage.
All these questions usually translate into a specific mortgage program with features suitable for each individual borrower. For example, in some cases lender paid mortgage insurance may make more sense than an 80/15 loan and in others a soft pre-payment penalty may make sense. Recently I placed a young buyer on an interest only loan with a 2-1 buy down. Why? Because in this particular situation that was the best program to help them reach their goals. It even made sense to pay the full 1% origination point and get a slightly better rate.
I don’t like to stay in a box, quote rates every day and dole out the same loan program for everyone. I don’t see myself as an order taker. I design custom loan solutions for every borrower. Do interest rates play a role in this? Yes it does. However it plays the role of the apple in the apple pie – important but not exclusive.