Fees are an inevitability. How do you expect anybody to make money without them? I have no problem paying a fee for services rendered. However, some of the fees we pay are often hidden, illogical, or excessive. I’m currently locked into a 5/1 jumbo ARM at a juicy 2.35% with 0 points and around $3,100 in fees, which is at least 0.15% lower than anywhere else I’ve found.

In this article, I’ll show you how you can pay the lowest mortgage fees possible while also getting a great interest rate as well. You will understand what mortgage fees entail, the point system, and the incentive based pricing system.

As an economics major, I love the Pew Research Center. They come up with the most interesting financial information by race. Instead of treating everybody as equals, they go the government route by categorizing everybody into different buckets to see if something can be gleaned.

Here’s a good example of an interesting chart about mortgage rates by race. Instead of labeling the chart with a neutral title such as, “Mortgage Rates By Race,” like I did with this article, the Pew Research Center decided to focus on the negatives and entitled it, “Blacks, Hispanics More Likely To Pay Higher Mortgage Rates.” Depressing!

Chart is saying 31% of all people and 26% of all Hispanics pay 3% – 3.9% for a mortgage, and Asians have the highest percentage of their race paying the lowest rates etc

Why didn’t they entitle the chart with something more positive such as, “Being Asian Can Get You A Lower Mortgage Rate,” or “Although Asians Need Higher Grades And Test Scores To Have The Same Chance To Get Into University, At Least Asians Get To Pay Lower Mortgage Rates,” or “Despite Some Disadvantages Of Being A Minority, You Can Still Get The Best Mortgage Rate Possible,” or “Being A Minority May Make It Easier To Get A Better Rate.” Great titles such as these focus on the positives of the data, rather than only the negatives.

As an online media entrepreneur, my suspicion for why Pew Research Center and the like focus on the negatives is due to the desire for attention. A negative title creates controversy by bringing up the suspicion of discrimination. But if there is discrimination among Blacks and Hispanics, why would there not also be discrimination against Asians? We’re all minorities, after all.

Given I’m an Asian person who recently refinanced my 5/1 adjustable rate mortgage to 2.35% after four long months, I thought I could shed some light again on how all races can get a lower mortgage rate. We all want the same thing, so let’s stop segregating ourselves, shall we?

Lake Tahoe Vacation Property Sunset

This post is dedicated to those who refuse to welch on their mortgage debt, even if they bought at the wrong time or got into a high interest rate mortgage that cannot be refinanced. I know your pain and frustration.

I’ve got a confession. I’ve been reluctant to pay down my 4.25%, 30-year fixed vacation property mortgage because it makes me face the truth that I bought a two bedroom, two bathroom vacation property at an inopportune time. Instead of attacking the bad mortgage with laser focus, I wanted to forget all about it.

I’ve been so reluctant to pay down the principal that I paid down my 3.375% rental property mortgage in 2015 instead. Illogical right? My rationale was the following:

1) I already did something positive. The vacation property mortgage was originally a 30-year fixed at 5.875%. Back in 2007, that was considered OK. In December 2012, after not turning in the keys like so many people did during the financial crisis, Bank of America contacted me for a free loan modification down to 4.25% with the same payoff schedule. It was like a reward for being good! I’m sure the Justice Department fining BoA $10B+ had something to do with it too. I had been trying to refinance the loan for years, but couldn’t because I was current. Curiously, only those who were delinquent could get some reprieve. The loan modification lowered my total payment from ~$3,200 to $2,497. Score!

2) Not 100% sure of keeping the property. My Lake Tahoe property ranks last in importance in my real estate portfolio. Most vacation properties do. If the world was going to end again, the vacation property would be first to go if I had no more money. In such an impending scenario, it would be unwise to pay down extra principal. I knew with 100% certainty that I would never foreclose or short-sale my properties in San Francisco because they are way in the money and highly cash flow positive. After such a strong recovery with much more stringent lending standards, I’m confident we will not go back to hell.

3) Investment opportunities. After the financial crisis, I felt it was time to invest more rather than pay down more debt. My net worth was rocked by ~35% and in order to get back to even or reach new heights, I felt strongly the need to put more capital to work. As a result, I’ve been investing six figures a year since 2009. I also put down $248,000 for a fixer upper in early 2014 and spent another ~$170,000 on home improvements. Only in 2015 did I decide to aggressively save cash and pay down my other rental property mortgage because I couldn’t find as many attractive investment opportunities. Besides, the 2/2 condo mortgage in SF was supposed to have been paid down by 2013.

An Adjustable Rate Mortgage (ARM) is simply a mortgage that offers a lower fixed rate for 1, 3, 5, 7, or 10 years, and then adjusts to a higher or flat rate after the initial fixed rate is over, depending on the bond market. I take out 5/1 ARMs because five years is the sweet spot for a low interest rate and duration security.

Fear of an excessive interest rate increase after the fixed rate period is over is the main reason why most homeowners take out a 30-year fixed mortgages. The other reason 30-year fixed mortgages are more popular is because banks have more wiggle room to earn a higher profit margin.

What’s important to realize is that there is a cap on how much the interest rate can increase during the initial adjustment period. There is also a lifetime cap on your mortgage interest rate if you decide to hold and not refinance. Finally, none of these caps may ever be realized if the 10-year Treasury bond yield or LIBOR doesn’t increase.

Despite the Fed continuously raising rates in 2019, I’m a believer that mortgage interest rates will stay low for a long time because US Treasury rates will stay low for a very long time. Therefore, taking out a 30-year fixed mortgage where you pay a 1% – 2% higher interest rate is suboptimal.

Remember, ARMs are different from negative amortization mortgages where the principal balance increases rather than decreases over time. Let me use my latest 5/1 ARM mortgage refinance to explain.