Principle, Interest, Escrow...What are They! How do they Affect Your Mortgage Payment?

Rick Ripma  0:00  

What makes up a mortgage payment? How does a mortgage rate lock work? We'll talk about these two important questions and a whole lot more. On this week's Indy's Real Estate Gurus stay tuned.

Announcer  0:17  

Advisors Mortgage Group is proud to present Indys Real Estate Gurus hosted by Rick Ripma, the hard working mortgage guy, please contact Rick for all of your mortgage needs at HardWorkingMortgageGuy.com. That's HardWorkingMortgageGuy.com. Now, here's the hard working mortgage guy, Rick Ripma. Thank you for

Rick Ripma  0:45  

joining us. I'm Rick Ripma, your hard work and mortgage guy.

Ian Arnold  0:47  

And I'm Ian Arnold with Advisors Mortgage Group. And today, we're gonna go over quite a bit, as you talked about with mortgage payments, and then also locking rates, which is awesome. But first, let's get into a little thing, what I like to call Rick's perspective on what's going on in the market. Yeah, go ahead, up. So what we've seen, let's start here with the big numbers finally came out is on inflation. Let's start there. What do you think? How does this look?

Rick Ripma  1:18  

Well, inflation year over year, it came in at 8.5%, it was 9.1%. So that's come down, we've all seen kind of why that's coming down, energy prices are coming down. So some of the daily inflation pieces are are getting better, which is the which is the the oil, those those things have come down. Core inflation is actually came down 2.3. And that's at 5.9. So you know, that's still very, very high, you have to understand these numbers. We were we were at they want to be at two 2% inflation, year over year, we're at 8.5. So quite a bit more, quite a bit more. And what I'm saying when I say they I'm talking about the feds, the Feds want to be at two, that's what they came up with. They don't mind it going a little hotter. But they want to average to you for years, it was 2% then they decided, well, we don't care about 2% We care about averaging 2%. Well, they're averaging it, and then some because we're at a point five, and rents. Now this is these are the things that that you don't necessarily think about, but somebody who's renting the rents have gone up last month point 7% year over year 6.3%. That is gigantic. Now that's actual rents. You know, when people are renting, there's something called the owner equivalent rents or the OER. And that's, that's up point six. So that's also up year over year, it's up 5.8. Now that's, that's if you were going to rent your house, what would you rent it for?

Ian Arnold  2:58  

Yeah, but we we somewhat saw this coming. I mean, if people are paying more for houses, well guess what? Well, then if you can't afford a house, or you don't want to buy a house, well, then they can charge more for rent. I mean, it's just those two are always gonna be somewhat very similar. And they're also going to effect each other.

Rick Ripma  3:18  

Absolutely. And we saw it coming for that reason. And also the same reason housing has been hot, which is that 33 year olds, you know, the, the increase in the birth rate 33,35 years ago, is going to go into make and not enough houses out there. Not enough places to live is going to make the prices go up. It's just how it's going to be and so we knew it was going to, but along with that. So what did energy do energy, which is your, you know, oil that went down? 4.6% That's pretty good year. Year over year. It's still up. Okay, went down. 4.6% A lot of people are celebrating that it's still up. 32.9% pretty drastic.

Ian Arnold  4:00  

I mean, yeah, I mean, you gotta think I mean, was it a couple of years, or roughly a year or so ago, we were paying two and a half three for gas. It was

Rick Ripma  4:10  

right around to $2 I think I even paid a buck 99 or Buck 80 Something like that.

Ian Arnold  4:15  

It was just over five. Yeah, finally has come down. I think I just filled up for 399 So

Rick Ripma  4:20  

Well, you said the other day you said you know it's you know, you were kind of celebrate now that it's down all the way down to $4. Well, it's it's still who forgot that it was a to, you know, only a year ago or so. So crazy. Gasoline is up seven or down 7.7% which we've all seen that helps our pocketbooks no question. But food is up month over month 1.7% It's up 10.9% year over year and that gasoline even though it's down 7.7 It's actually up 44%. So, year over year, gas is up 44% Food is up 10.9% That energy's up. 32.9%. Rents are up 6.3%. And that's a celebration because we went from 9.1 to 8.5. Yeah. And I would

Ian Arnold  5:10  

really love to see the food breakdown. Because I mean, me, I know, meats have jumped around dramatically and stuff like that. Oh, yeah, I go, but I mean, it's those foods that you probably don't buy, that doesn't really increase too much. But it's, but it's just interesting. I think they're normal foods, like we talked about this is I think I increase close to $50. A Week Extra?

Rick Ripma  5:32  

Well, you know, and I wonder, on that note, a lot of the packaged goods, they don't raise the price. They don't put as much product in Oh, that's true. You know, I noticed some of the stuff I bought, all of a sudden, there's two less items in it.

Ian Arnold  5:48  

Well, and then ounces, they say decreases ounces.

Rick Ripma  5:52  

Yeah, but but the cost doesn't change. So I don't even know I'm sure that that's affected in here. But Oh, my. Now you know, you and I are both into cars. And new cars are up even more than this. But the used cars, used cars month over month, they're down point four, they're still up 6.6%. Year

Ian Arnold  6:10  

over year, yeah, we're not gonna see a big difference. And that until I know, they're working on us starting to make those chips. But until you see that, I actually read an article recently, it was funny is there's actually a market out there to buy a new car, don't really drive it, and then turn around and resell it, because people can't get them.

Rick Ripma  6:30  

Yeah. It's, it's crazy. Crazy. You know, when those chips the Feds just passed, or the Congress Senate whoever passed the law, I don't know if it went through if you think it's still going, okay. But the the idea of this, the you know, increasing putting money in towards chips, right? That's going to help, it's going to they're going to put an incentive, from what I understand. The manufacturers of the chips are going to actually cut production. They're going to take the money and cut production. That's what I that's what I heard. I don't know if it's true. But that's what I heard anyway, that's one of the you know, that's something that we have to have to look at. You know, along with that, I just want to a couple other things I want to talk about, you know, mortgage backed security bonds, which is where mortgage rates come out of for August they are they've been lower from the start from August 1 to to today, the bonds are lower, but they aren't they went down, then they came up there that much lower. So for the week, we're pretty much unchanged, minor changes a little bit up. But we're almost back to even with the start of the month. What does that do for mortgage rates when mortgage bonds go down, mortgage rates go up. And so since we're back, pretty much where we were mortgage rates are pretty much where they were at the start of the month, and mortgage rates are still pretty good. It's not there, they're still pretty good. The Consumer Price Index, you know, we, the Consumer Price Index came out, we talked about all those numbers, those inflationary numbers, those are really going to, you know, as they if they continue to come down, that's really going to help that part of why they're coming down as gasoline, of course, but what the feds are doing will have an effect by them raising the federal funds rate, it is going to lower inflation and inflation is with inflation coming down, it's going to help mortgage rates. So at some point where I believe we're going to see mortgage rates come down, I believe it's going to be late this year, early next year, and we're gonna see the rates come down. So if you're buying a house right now, it's a good time to buy a house, but we can refinance it. Yes. You know, in six months, I think people forget that. Yeah. So you you buy it. And if the rates come down enough, we just refinance it, the key there is don't go and pay a bunch of points.

Ian Arnold  8:45  

Yep. And then here's the other thing is, is because people like Well, I gotta pay closing costs twice? Well, depends on what the rate changes, sometimes we're able to help out with that, too. So keep that definitely,

Rick Ripma  8:56  

exactly. It's all about looking at it. And that can be really valuable. If you believe rates are going to come down, it can be very valuable to have them have take a little higher rate where we can give that lender credit where we can help out and pay some if not all of the cost, you're into it for nothing. And then six months, eight months later, we refinance it, yep, you're mature. I can show people we can show people their your way money ahead, right. Let's just let's get on with you know, what we really want to talk about today what makes up a mortgage payment, and how does a mortgage rate lock work and I think that's going to be a really important one but let's start with the mortgage payment.

Ian Arnold  9:39  

Okay, so let's start this up. So let's just say it on an on an average customer, so not not any weird stuff or anything like that. What is fully in a mortgage payment when I looked at my little statement,

Rick Ripma  9:55  

your principal payment, okay, that is that's what you're paying that's going to pay down your mortgage. Your interest, the interest is kind of the cost of the loan. That's what you're paying every month to have that have that mortgage.

Ian Arnold  10:07  

And that is mostly known as p&i.

Rick Ripma  10:09  

Yes p&i principal and interest and then you have your escrows, which is property taxes and your homeowners insurance, you may have mortgage insurance in there. And then you could have if you have flood insurance, something like that that can be in there also. Now your escrows with the exception of flood, if you have enough down, usually that's 20% down or more, you can opt out of escrow and for taxes and insurance, the vast majority of people escrow, it's easier, it doesn't cost anything. And years and years ago, they changed the law, because servicers were messing with the escrows. Now, there's no benefit. And there's huge penalties for messing with the escrows you can't earn any interest on it. So there's no benefit in doing anything with it. I have not I have not seen in 15-18 years, any problems with escrows? Nobody, nobody as far as messing with it. Now taxes go up, insurance goes up so you can be short. Or if you bought a new home, taxes are definitely going to go up, you know, there can be things that happened that are going to change it. The thing is, is with a payment though your principal and interest payment, if you're on a fixed rate mortgage, your principal and interest payment doesn't change.

Ian Arnold  11:20  

And yes, and I think that surance can Yep. And I think especially first time homebuyers, and this hit me, and I'm not gonna I'm not gonna lie, is when I first bought my home. I'm like, Alright, my payment is this Oh, for easy for 30 years, got it. 30 years, but we plan on paying ours off early. But I was like, Oh, I can easily do that. Till next year comes around. And they're like, I get my statement booklet says, Oh, well, it went up like $20. I'm like, wait, what? And I did not understand that. So I called my mortgage guy at that time. And he went through it with me. And it was like, Oh, well, I guess that does make sense. But because my property value went up. So guess what? The taxes went up. I didn't have anything like my Luckily, my insurance stayed the same or like that. But let's say you got hail damage. And you claim something? Well, if they up your insurance, guess what? Your Escrow is going to go up? And I think that's something new new homebuyers don't understand? Or it catches them off guard later.

Rick Ripma  12:25  

Yeah, I will say a lot of them don't, because I get a lot of calls. Mainly because you don't remember, you know, it's a year later, a year and a half later, when it happens. You don't remember what we talked about when you bought the house, you know, you don't remember all that all the information. Plus I find people because they shop they they they get confused what what both people say, You know what multiple lenders told them, but the reality is, is it only goes up it goes up with any lender that you're with, if it's your taxes or homeowners insurance, that's what happens. And that it's just how it's gonna be.

Ian Arnold  12:57  

And right before the break. That is what we saw last year, with a huge increase. We've gotten countless calls. Why did my payment jumped so much? Well, good, your property your house improved so much. And once you explain that to him, you're like, hey, the average house increased 19%. You're like, Oh, I got 19% Extra in my house. Well, then it sits a little bit better in the belly. But

Rick Ripma  13:23  

yeah, and you know what, after the break, we should, we should go over the difference between appreciation. Which is which is what we see. Or I'm sorry, appraisal? Yes, which is what we do, and what the county does when they assess the property. So we can talk real briefly about that after the break.

Unknown Speaker  13:44  

Advisors mortgage brokers licensed by Indiana Department of Financial Institution equal housing opportunity. NMLS 33041 Rick Ripma NMLS 6649

Rick Ripma  13:53  

Hi, I'm Rick Ripma. With the hard work and mortgage guys and advisors Mortgage Group, where we believe delivering the best mortgage for you is why we exist and it's how we all succeed.

Unknown Speaker  14:01  

We believe honesty, kindness and hard work are how we honor each client

Ian Arnold  14:06  

and hardworking mortgage guys, we believe in custom tailored loans, not the one size fits all approach.

Unknown Speaker  14:11  

We believe in always presenting you with all your options. So you get the loan you want the way you want it.

Unknown Speaker  14:17  

We believe in continually monitoring the rules, rates and market trends. So you don't have to

Unknown Speaker  14:22  

we believe in working hard to meet your closing date so that your entire plan isn't upended. We believe

Unknown Speaker  14:27  

in offering the same quick online process that the Bucs store mortgage companies brag about whether you're refinancing or buying your first home.

Rick Ripma  14:35  

We believe there is the best mortgage for you and we believe we are the team to deliver it find us online at hardworking mortgage guys.com.

Announcer  14:48  

Brought to you by advisors Mortgage Group, where we believe the more you know about financing a home the less stressful buying and refinancing will be

Rick Ripma  15:01  

Welcome back to India's real estate gurus. I'm Rick Ripma, your hard work and mortgage guy. And I'm Ian Arnold. And if you would like to contact the Ian or I, you can do that by going online to HardWorkingMortgageGuy.com , that's HardWorkingMortgageGuy.com. From there, you can just send us a message, you can get all of our contact information, phone numbers, email address, and you can get a hold of us, you know, please feel free to do that. We'd love to talk with you. And with that, I think we're on to the question

Ian Arnold  15:31  

of the week.

Unknown Speaker  15:33  

Now it's time

Unknown Speaker  15:34  

for questions with the gurus.

Ian Arnold  15:40  

The question of the week is brought to you by renovation loan, if helping you buy a home, that may need some work, so if it needs a new kitchen, or needs new floors, or even a new roof, we can help you with that, and get everything together at once. So you don't have to come out of pocket after you buy a home.

Rick Ripma  16:02  

Right? It can be a really big blessing for people it is it is we it's our fix it mortgage, which is a part of our company, that's what they do. They're very good at it. But do understand that when you're gonna You gotta get bids and all that. So takes a little bit more work. But if you're gonna do the work anyway, you got to get all those things anyway. So it's not like everything's done by professionals. Right? That's what really matters, right? And that makes a makes a huge difference.

Ian Arnold  16:28  

All right, so the question last week, is I give milk, and I have a horn, but I am not a cow. What am I a milk truck? Like I said last week, if if you're the older generation, you understand that younger generations, what's a milk truck?

Rick Ripma  16:46  

I remember milk trucks. But the other part I think is kind of interesting is now my generation. There. They'll find them and redo them and make them real cool. There was one out at the Meachum auction a few years ago that they did out in Vegas. What do they call that show? counting cars did it okay. And it counts customs. Man, it was a cool, cool truck. I didn't buy it. So it's not one that cool. Hey,

Ian Arnold  17:13  

now my generation I will tell you this, we at least have we have groceries and move. food prep, all delivered to us. We don't do milk, but we do everything else. Even meats are Shabbat there's

Rick Ripma  17:25  

no consistency in the delivery vehicle. There is not

Ian Arnold  17:29  

all right. So this week is why did the fly never land on a computer? Okay, Rick. So I knew we were just we'll talk about this a little bit. We'll finish up on mortgage payments and everything. And we were talking about the appraisals. Yeah,

Rick Ripma  17:47  

I just thought it would be, I think it'd be helpful to talk about the difference between an appraisal, which is what we do to get value. And when the when the tax authority, the county, they're going to assess the property. And that is a different, it's not the same thing. So you might see an assessment, which many times is considerably lower than the actual value or appraisal. It's so funny because nobody wants the assessment to be high. And everybody wants the appraisal to be high. So it's kind of a you know, but if for some reason in this market is not happening, but in a market, where it's the opposite of what we're seeing. I actually had people will take the appraisal to the county assessor's office and say, Hey, here's you appraise my house, your assessment house at 400. The appraiser says it's only worth 350. They would lower it at that point, but I have not had anybody say, Hey, you assess my property at 400. My appraisal says it's we're six I want it at six.

Ian Arnold  18:45  

That's, that's like walking into a store and be like, oh, oh, the price says 200. You walk up to the restroom, and it rings up for 100. Guess what? Here's 100 Have a nice day.

Rick Ripma  18:55  

I want to pay 300. for that. I thought it was worth more. Yeah, that doesn't happen, does it? No. But that is the difference. And so people just have to understand that's the difference between between an appraisal and an assessment and that they are not the same and the numbers aren't the same. But let's move on.

Ian Arnold  19:11  

So let's we will talk about locking. So I know that when you're firstly gonna get in a home, everybody talks about locking rights. So what does it mean by to lock? Alright, let's start there.

Rick Ripma  19:26  

Okay. And this is I think it's one of those things that most people don't really understand. When you lock a rate, you tell, let's say I have a customer now. We've gone through everything, they bought a house, they're going to close it in 30 days, they have the option of either floating the rate or locking the rate. Floating the rate means that if the rates go down, you can get a lower rate if they happen to if the market goes down. But if the market goes up, you get a higher rate. You're you're you're playing that you're you're gambling a little bit. All right, you If you believe rates are gonna go down, and you have some time, and you believe it's going to go down, that might be the right call, I find most people are more conservative than that. And most people just want to know what it's going to be and they lock it in. And when you lock the rate, that means we go to wherever that money is coming from Freddie Mac, Fannie Mae, FHA, USDA, VA, whoever that money is coming from. And we say, we want that we were like, We want to lock this rate at this. Okay, behind the scenes, it's called par, or whatever that number is. So we, we lock that rate. And that means that the market will not change your rate, if rates go up, your rate will stay the same. if rates go down, your rates gonna stay the same, it doesn't change.

Ian Arnold  20:45  

On average, how long can you lock a rate?

Rick Ripma  20:48  

I wouldn't say there's an average, we can you can lock a rate very easily. Well, you can lock a rate for as long as 180 days, it just costs a long term lock cost more money, then you have to look and see if that's worth it. Normally, we're locking for 3045 or 60 days, but 90 days, 120 days, 106 80 days. I've just I think we can even lock longer. Now I've just never had anybody do that. The only reason you do that is if you're buying a new construction, and a lot like right now if somebody said, Hey, I want to lock for 180 days, I would I would advise against it, because I believe rates are coming down. But it's not up to me. Yep. Okay, I can give advice, and I can tell him what I think. But ultimately, it's up to the customer, we will do what they want us to do. We can explain it explain the market. But it's there, they have to understand their situation and they make that decision,

Ian Arnold  21:45  

that's a nice thing is we will educate you through the whole thing and give you the best information for you to go. Alright, what I think I should or should not. And that's what we we try to do is with the more information we can give you, the better informed you are.

Rick Ripma  22:02  

Yeah, and you know, the I think the the issue when you're locking for most people, is that if rates go down, you're disappointed you didn't get the better rate.

Ian Arnold  22:12  

Yeah, but let's be honest, even the the odds of it making a huge, huge difference I can, it's not really going to, unless something drastic in order to drop a percent. I mean, it's not going to be a huge monthly change. I mean, worst case is what I've told I've had some customers like, oh, it changed. Well, here. Let me mathematically and I showed him look, if you just add $20 Extra your payment, guess what you just made? Oh, really? Yeah, I go, what I would actually recommend is you do 100 to 200. Extra, right. But I'm just showing you that that little bit, it doesn't really amount to much.

Rick Ripma  22:53  

What she's saying is is something that I think we all forget about and that is people think that an eighth of a chain aid or quarter in the rate can make is like, oh my gosh, I can't afford it anymore. It isn't No, in fact, it for most loans, not all loans. But if you have a if you have 150, you have a $200,000 loan, and the rate goes down a quarter, it's probably not worth refinancing. No. Right? It's probably not now you have a $600,000 loan, a quarter could be worth refinancing. So that that makes it a little bit more difference. But what the other part of that is, people are disappointed when the rate goes down. They're devastated if they floating rate goes

Ian Arnold  23:36  

up? Well, it's always that way.

Rick Ripma  23:39  

So the risk factor to me is, I err on the side of locking the rate. That's what I tend to err on. Because I've seen the reaction of people. And I see what happens, and especially on somebody who if it goes up, they don't qualify anymore, they need to lock the right. But it is up to them, they have to make that decision. And as you said, we will give them the advice and the knowledge so that they can make that decision.

Ian Arnold  24:04  

Okay, so you briefly touched on it when we were talking about locking and par and all that. So mortgage points. So, one, let's get into what is it? And then should a customer look at doing it or should they stay away?

Rick Ripma  24:24  

Well, points. If rates are going up. And you believe they're going to go up, they're going to continue to go up. They're going to stay up for a while points can make a lot of sense. And you're going to be in the house a while. It's it's all mathematics with points. But let's talk about exactly what a point is. One point is 1% of the loan amount. So $100,000 loan, a point is is $1,000. Now one of the misnomers for a lot of people is a point doesn't buy your rate down 1% They are two different things. A point You could could lower your rate and eighth could lower your rate a quarter. Right now I was just working with somebody yesterday. And it actually lowered the rate, it wasn't even a full point it lowered, it was three quarters of a point. And it lowered the rate over I was point six to five, it lowered the rate that much. Now that's a great deal. If you don't believe rates are going down, but even after six months, if they refinance, I think it was a nine months, they still save money by not paying the point. So you really have to look at what is my payback on that. And then what is my belief on what is the market going to do on whether a point make sense. And it's and when we talk about a point, but it could be sometimes you'll get it, you'll get it and you can get an eighth lower rate for point 125, which likely will make a lot of sense. And again, that's because par was a was an eighth higher rate. And because of the way the market is 4.1 to five, you can get that right. I'm not saying it happens on everybody, it doesn't happen even that often. But it does happen. We look at that. And we and we make sure where I was at before they took all that away, we couldn't even look at it. We didn't know. And so they acted like they had this great deal. But they kept everybody in the dark. I don't like being the dark. That's what I like, we see everything. And we can explain it to our customer where where they really truly understand. And they can make the best decision for them.

Ian Arnold  26:29  

And then that and that's what we tried to do for everybody. Make it nice, easy. And like Like we've said many times educate you. Because like an informed person is a smart person.

Rick Ripma  26:41  

I agree 100%.

Ian Arnold  26:43  

So here's the other really nice thing that's happening here next week, and then in a couple of weeks. Well in a couple of weeks, we're going to do our How do you purchase a car in today's market, which is phenomenal. We'll go through new cars and used cars. And this is coming from two guys from the car industry. So you want to talk about the inside we know it so that we'll be don't going on through Labor Day on Labor Day weekend.

Rick Ripma  27:11  

Let me clarify that. We used to be in the car. Oh, yes. Yes. In the car business. You have you were you were in a reasonably I wasn't. And I noticed that some things changed. But the basics. I haven't really changed all that much. There's a lot of similarities. Now next week, we have Jeremy Paige. Jeremy. He's a he's worked with Jeremy a tremendous amount. He's a real estate agent. He's the assistant manager the Zionsville. Indiana carpenters real tours office right there in downtown Zionsville. The man knows real estate He knows our real estate in Indiana. He graduated from Cedar cedar something the University in Ohio. Just a wealth from Ohio. Ohio State though, okay. And listen, I don't mind I don't see I don't I don't have those sports things. I don't care. Great guy knows this stuff really is going to, you know, be able to talk about the market from a real estate agents perspective. If you're if you're wanting to know more about our market, what's going on. That's a great show to listen to. That's next week. But we are out of time. We do appreciate you listening to us. And I'm Rick Ripma Your hard work and mortgage guy.

Ian Arnold  28:23  

And I'm Ian Arnold. And reminder catch us on our podcast and these real estate gurus.

Rick Ripma  28:28  

Yep, and HardWorkingMortgageGuys.com You can contact us from there. Have a great weekend.

Announcer  28:34  

Branch NMLS number 33041 Rick Ripma is NMLS number 664589. Ian Arnold's NMLS number is 1995469 equal housing opportunity, some restrictions apply.