Mortgage Loan Review So You Don't Throw Your Money Away

When you are searching for a mortgage to buy your new home, consider the following. Know the APR, the annual percentage rate. Understand points and lender fees and how they impact your ARP. Comprehend the impact different length of terms has on your total payments. If you prepay, will there be any penalties to pay? This article highlights these considerations and provides a short, descriptive summary.

What is the APR? The annual percentage is the effective interest rate that takes into account not only the interest on your mortgage loan, but also the impact that lender fees have, points and any other payments that get wrapped up into a loan. A good rule of thumb is to have a annual percentage rate that is close to your loan's interest rate. This tells you that the fees the lender is charging are relatively low in relationship to the amount of money you are borrowing. The APR gives you a way to comparison shop between the different offerings that lenders make. Just because a lender quotes a low interest rate doesn't mean that you are getting a better deal than from a lender offering a mortgage with a higher interest rate. The best comparison comes from using an APR as a measuring stick between lenders. The next section covers points and lender's fees.

Your APR is the sum of the loan's interest rate and the points and lender's fees. The loan interest rate is easy to spot - your lender tells you exactly what it is up front. 6% for a thirty year loan is straightforward enough. What isn't always so easy to spot is the contribution that fees and points have on your APR. The points you pay are typically a percentage of the loan amount that the lender or mortgage broker receives as a result of putting the deal together. Like most real estate fees, this in negotiable. You can expect a mortgage broker to take a larger fee, i.e. - points, since they help you find the best loan for your financial situation. Typically, a real estate mortgage broker will be able to obtain a loan at the best possible rates considering your credit history and your employment record. That broker fee gets adding into your ARP. In addition to points and lender fees, your total monthly payment will be significantly impacted by the amount of money you borrow and the length of the mortgage.

Assuming you are considering a fixed interest loan, the amount of money you pay and how quickly the ratio between payment to interest and payment to principal is, the term of the loan has a large impact on the monthly payment. A 15 year fixed rate loan compared to a 30 year fixed interest mortgage will have significantly higher payments per month assuming all other things equal. Again, choosing the length of time that you want to borrow for directly impacts how much money you pay every month.

Finally, when reviewing the type of mortgage you want or need for your new home purchase, find out if there are any prepayment penalties. Most standard, conventional mortgages do not have a prepayment penalty. Some borrowers like to make one extra payment per year to reduce their total mortgage payments significantly. Finding out this information is as simple as asking your lender.



First Time Home Buyer