Selection of a suitable mortgage from a range of offers is the most vital part of housing finance, as this will affect all aspects of a borrower’s monthly payment, interest rate and down payment. To make a better mortgage decision, a comparison between two or more mortgages is wise, taking into consideration the interest rates, closing costs, early payment options, prepayment penalties and other associated costs. If you are seeking an adjustable rate mortgage, it is vital to know how often your rate will be adjusted. An adjustable rate mortgage is suitable if you decide to stay in the home for 3 to 5 years, while living longer than this in the residence would make a fixed rate mortgage a better choice. There are a wide variety of loans and lenders for both adjustable rate and fixed rate mortgages.
A loan officer can help you in getting answers to the questions you have with respect to selecting the right mortgage package. Identify your loan officer’s role and responsibilities in helping you secure the loan you need.. Ask about your loan officer’s specialty (if any) on any type of loan, his or her overall experience, and any associated real estate network. You may also need to collect his or her address and phone number for future contacts. Your loan officer can clarify the following for you:.
● Closing costs and other applicable fees.
● Terms and duration of locked-in interest rate.
● Variation of interest rate based on the size of the down payment.
● List of documents and information they require.
● Payment terms.
● Early payment options.
● Closing time of the loan.
You should also ask all necessary questions regarding caps and adjustment periods and all costs and fees associated with your loan. During this discussion, many lenders will try to hide additional fees and highlight a low interest rate. However, knowing your Annual Percentage Rate (APR) is the best way to compare the loans, as it will reflect the actual rate of a mortgage. Here is a short checklist that you should carefully consider before selecting a lender.
● Compare fees, interest rates and annual percentage rate(APR).
● Consider your personal circumstances and select a lender that best suits your needs.
● Identify a lender with a wide range of products from which a suitable product can be chosen and tailored according to your requirements.
● Identify a competent lender with excellent customer service and attitude.
● Research the lender’s reputation and feedback.
Once you identify your lender and qualify for a suitable rate, take some time to make your final decision regarding the mortgage, especially the lock-in rate if you’re looking at an ARM.
How do I compare mortgage offers?
You will want to compare all your mortgage options as the decisions you make will affect every aspect of your monthly payments, interest rates, and your down payment. There a few simple questions you will want to ask your lenders before pushing forward with the loan.
What is the mortgage interest rate going to be?
Will I be charged points for the loan?
What are the closing costs and other fees?
What is the rate I will be paying every year for everything associated with the loan, or the APR?
Is there a penalty for paying early?
How quickly will the loan be paid off, or what is the term?
Make sure to get concrete answers for these questions, plus anything you may want to ask and are not sure of.
If you choose to go with an ARM, an adjustable-rate mortgage, you might be at more financial risk, as rates could go up or down. In this case, you will want to ask more questions about the mortgage.
How often will the rate adjust?
What would the monthly payments be if the loan were to hit the cap limit?
What is the index that will determine the loan?
What is the most recent trend in the index?
Just make sure you know what you are getting into: you do not want to end up paying more for your loan than necessary.
Now, to carefully examine the loan differences, you will want the answers to several very important questions. These questions include how long you will be staying in the home, whether or not your job and income are secure, if you could actually afford potentially higher payments in the future, and if you are comfortable with taking a risk. Make sure you pick a mortgage that suits your individual financial and personal needs, and do your research!
Choosing the right mortgage
There are several different loans to choose from out there today and it is not always easy to find the right one. There are a few basic questions that will help you make the best financial decision for your loan.
● How long will you plan on living in the home? If the answer is anything short of 3 years, then you will most likely want to go with an adjustable-rate mortgage. If you plan on living in the home from four to six years, you will want to veer towards a 5 or 7 year ARM, or perhaps a 5 or 7 year balloon loan. If you plan on staying in the home for more than seven years, you will want to get a 10 year adjustable-rate mortgage or a 15, 20, or 30 year fixed rate mortgage.
● Do you like the thought of a lower monthly payment or of building equity more swiftly? If you want to create the smallest monthly payment, then you will want to go with a 1, 3, 5, or 7 year adjustable-rate mortgage or a 30 year fixed rate loan. If you prefer to build equity faster, you will want a short fixed term loan, such as a 15, or 20 year loan.
If you believe Interest rates will rise in the future, you will want to most probably go with a fixed rate loan, or a 10 year ARM. A seven year balloon payment might be an option to consider as well. If you think interest rates are likely to fall, then go with a 1 year ARM. If they are going to stay the same, consider 1, 3, 5 or 7 year adjustable-rate mortgage.
● Do you like risk? If the answer is no, stick with a fixed rate loan, or a higher year ARM such as a 10 year loan. If you feel that you would be comfortable with taking a chance on saving money, then focus your loan research towards a smaller year ARM, such as a 1, 3, or 5 year adjustable rate mortgage. You could also go with a five or seven year balloon as well.
12 questions you should ask your loan officer
You will be overloaded with different questions you want to ask your loan representative and may get some of your more important questions lost in the mix. Here are 12 important questions you want to ask to help pick a mortgage loan.
1. How will you help me in getting the loan I can afford and that will suit me personally?
2. Do you specialize in any particular type of loan?
3. Do you give recommendations on realtors or perhaps an attorney for the closing?
4. What experience do you have in your field, and how does it help me?
5. What training, if any, have you had?
6. Do you have other qualifications I should know about?
7. What are the best hours to get a hold of you?
8. Are you available on the weekends or evenings?
9. Will you be away any time in the near future before my home is set to close?
10. How often will you provide updates to me on the status of my loan?
11. Do you prefer communication via e-mail or over the phone?
12. Will you also stay in contact with my realtor and any others involved in my mortgage loan as well?
Make sure you get the answers to your questions, and that they are what you want to hear. Also, do not forget to check and see if the loan representative appears to be compatible with you, as this may be as important as any of the other questions.
11 questions for your mortgage lender
1. What is the interest rate? This is the easiest question to ask, and often you will not even have to. Make sure you understand what the APR will be. This is the easiest way of figuring out all the costs involved in the loan, and what your end monthly payment will be. Get an itemized list of all items included in the adjustable-rate mortgage so you know you can make an equal comparison with other loans. Some lenders will leave out their fees in this calculation, so make sure you include that as well.
2. Will the interest rate change over the life of the loan? If you have a fixed rate mortgage, the rate will stay the same for the length of the loan, so this question may not have to be asked. If you are opting for an APR, make sure you know when the rates will change. Ask the lender to tell you what index and margin will determine your interest rate and what the cap will be. In some cases, you may ask for a chart so you can compare with other lenders.
3. Will I be charged points? Some lenders may offer you a lower rate if you put more money down upfront. Lenders may also charge you with origination points, which are an administration fee for processing your loan and application, but ultimately will not affect your interest rate at all. Understand what you are paying for.
4. What are the closing costs and other applicable fees? Always get a good faith estimate of closing costs. Make sure to take the time to go through the estimates and decide which route to pursue. Some lenders will use different terminology for the same items. Understand the differences in both.
5. Will you lock in interest rates? For a specified period of time, lenders may offer to lock in rates, usually a 30 or 60 day lock. This will help cover you if the interest rates go up. There may be an additional fee involved, so make sure to ask.
6. How will my down payment affect the cost of the total loan? You may be able to reduce the cost of your monthly payment and interest rate by making a larger down payment. However, if you are unable to put down at least 20 percent of the loan, you most probably will have to get PMI (Private Mortgage Insurance) to protect the lender in case you default.
7. What documentation do you require? Lenders will require a significant amount of personal information. They will require you to provide information on your income, present employer, and information on your assets, social security number, and the appraisal of your home. Ask for a detailed list, so you will not be set back by surprise requests.
8. What will the payment terms be? You will need to decide on how you can pay for the loan, with a check enclosed with a payment coupon or direct deposit. Ask if there is a grace period and what the penalty is for late fees.
9. May I pay the loan off early? There is a good chance you will want to refinance your loan before it is paid off. Some lenders will charge a fee for paying down a large sum before the principal is due. Make sure to ask.
10. How long will it take to close the loan? Ask how long it will take for the lender to review your personal situation and finances. Usually two weeks will be the minimal amount of time; however, it could take up to two months.
11. What could possibly delay this process? Poor credit is one of the most common reasons that a mortgage loan may be delayed. Make sure to check your own credit first, before the lender does, so you can solve problems before they are discovered. Make sure to ask what information they will be checking, and check into that information yourself.
20 question to ask before deciding on a home
If you’re in the market for a home – and a home mortgage – here are 20 standard questions you should ask your lender.
1. What is the term of the loan?
2. What is the initial interest rate?
3. Is that rate fixed or adjustable?
4. How much would my beginning monthly payments be?
5. When can the interest rate be adjusted?
6. How will the interest rate be calculated?
7. What is the maximum interest rate increase for each adjustment period?
8. What is the maximum interest rate increase over the term of the loan?
9. What would the interest payment be today?
10. At the maximum interest rate, would be my monthly payment?
11. Could how much I owe be increased over time?
12. May I see a GFE (Good Faith Estimate)?
13. Is there anything that could change on my GFE, and when?
14. Are there costs not included on the GFE?
15. Is there a prepayment penalty?
16. Would I require n account for insurance and taxes?
17. Do I need to obtain mortgage insurance on this loan?
18. What is required for this loan?
19. What makes you recommend this loan to me?
20. Are there any other loans that will fit my needs?
Know about caps and adjustment periods and make sure you understand all the costs and fees pertaining to your loan.
What is the difference between interest rate and APR
Do not just use an interest rate to consider mortgages: make sure you look at the APR. Comparing loans can be confusing, as different lenders list the same items using different terms. The best way to truly compare loans is to look at the annual percentage rate (APR).
The APR formula: The APR is a better way to compare loans because it factors in all the costs and fees related to the loan. Therefore, it reflects the true cost of the loan, whereas the interest rate is only a minor factor in your overall costs.
The Truth in Lending Act: This act is to protect you, and to force lenders to be honest. They must explicitly state the APR on any loan advertisement posted. It is intended to stop lenders from luring you in with small rates and on the same note, hiding fees.
How it all comes together: Below is an example of two different offers, with each as a 30 year fixed loan of $150,000.
Offer A: Quoted rate of 6.5 percent, one discount point and an origination fee of 2 percent.
Offer B: Quoted rate of 6.4 percent, charges two discount points, same origination fees with a higher closing cost.
|Offer A||Offer B|
|Discount points||1 point (1% of $150,000) = $1,500||2 points (2% of $150,000) = $3,000|
|2% origination fee||$3,000||$3,000|
|Other closing fees||$800||$1,150|
Notice how the second loan, Offer B, carries a lower interest rate and lower monthly payment. But, once you look at the APR, you discover that it is slightly more expensive because of the upfront fees.
Do not forget all the other costs associated with your loan, as there are quite a few. Credit reporting fees, court reporting fees, and closing costs are just a few examples. APR is much more useful for a fixed rate loan, where as an adjustable rate loan may vary. Keep in mind, the APR will assume that you will keep the home for the life of the loan. Do your research, and save yourself some money.
Which lender is right for me?
Do not just consider the interest rate when deciding on which mortgage offer to select. There are several factors you should consider when making a decision that you will be living with for a number of years to come.
● Compare fees as well as the interest rate. A great place to start is looking at the annual percentage rate. Make sure to ask for a good faith estimate of every fee you may incur with the new mortgage. Find out what other charges may come along that are not included in their offers. Do not just compare numbers, but look into the lender themselves. Do you trust them? Do they appear to be honest and upfront with you?
● Consider your individual circumstances. Do not only look into bigger lenders, as your individual financial situation may not fit well with a big lender. Some lenders work especially with people who have poor or bad credit, or who have only a small down payment. Find yourself a lender who will work with you and for you, to obtain the mortgage you need and can afford. Shop around.
● Look at the full spectrum of loans available. Times have changed, and so has the mortgage market. Find a lender who will offer a wide variety of loans, from fixed-rate loans to adjustable-rate mortgages. A good lender will be able to find what suits you best, and not what suits them best.
● Compare customer service. Customer service is something that is highly overlooked in the present era, as most people are more focused on pricing. You may be dealing with this lender through the length of your loan, so make sure it is a person you can trust and who will be there when you need them. Remember, if they are not willing to work with you upfront, when they are competing for your business, imagine what will happen after they get your business.
● Look into the lender’s reputation and feedback. If you haven’t worked with a certain lender before, make sure you check out the feedback that lender has received. Word of mouth is essential in any business, including the loan market.
Picking a good mortgage lender makes a difference
How can you know if a mortgage lender is a good partner in your homebuying experience?
● Service: Make sure you are dealing with a lender you trust and who will talk to you in plain English, in language you will understand. Make sure they are working for you and not against you. You want a lender who will answer your questions entirely and patiently.
● Products: Find out if your lender specializes in any particular type of loan, and what type of loans they usually recommend to borrowers in your personal situation. Ask the lender if they will listen to your needs and create a loan that will fit your needs. Make sure you take note of your monthly payments, and how they can change through the life of the loan.
● Costs: Pay close attention to the annual percentage rate and any other fees that you may incur. Lenders should be compensated for their work, but make sure it is a reasonable payment. Some lenders will offer discounts and may waive certain fees. See if any of these discounts will apply to you.
● Servicing: Some lenders will sell the loan to another provider, while others will keep it. This should not be alarming, as it is common practice. However, it’s better to know what to expect, and that your payments may eventually need to be sent to a different lender.
● Performance: Choose your lender carefully, as some may not be able to actually fulfill their end of the deal. It is a rare occurrence, but it does happen. Stay involved with the loan through the entire process and keep in touch with your loan representative to make sure everything is as it should be.
What you should know about home mortgages
Make sure you find the answers to these questions before moving forward with your mortgage. Keep in mind, if you have any questions that are not listed here, ask them. Your individual needs may be different from the norm.
● What is the best rate I qualify for? Make sure the offer they extend is the best offer they can make at that particular time. Interest rates change frequently, so keep yourself educated.
● Do I have to pay points for this rate? If you have any blemishes on your credit, you may be charged points to get the best interest rate.
● Will you lock in these rates, and is there a charge for the lock? Your lender should be able to keep your interest rate locked for a certain time period; this may cost you some extra money, but might be worth it.
● What is the term of the loan? In other words, how long will you be repaying your debt?
● What is the minimum down payment required? If you cannot make the 20 percent down payment, then you will most likely be required to get private mortgage insurance.
● What will my monthly payment be? This is a very important question, as it will allow you to budget for your other expenses as well.
● Is there a penalty for prepayment? Or, will you be charged a fee for paying your mortgage off early?
● What are the total fees associated with the loan? Make sure to ask for a good faith estimate so you know all the fees associated with the loan and its processing costs.
● Under what circumstances can the lender demand full payment of the loan? If you miss payments, the lender may require you pay the full balance of the loan.
● What documentation is needed? You will need to submit information on your personal finances.
● How long will this loan process take? It may possibly turn some sellers away if the timeframe for securing your financing is too long.