One type of financial arrangement that is common to many of us is a home loan. But how much do we know about mortgages?
Make Sure You Know About Home Loans
Unfortunately, what most of us know about mortgages is only what we learn from a lender or broker in the process of making a loan (not much and little of what we should know).
Take time to get some good information about mortgages, either to better understand your current situation or to prepare for the future.
There are many aspects of a mortgage that can be very expensive not to know about when you originate a loan, so be alert. Ask lots of questions about any potential mortgage you may be considering.
Home Loan Interest Rates and Fees
One of the most important mortgage considerations, obviously, is the interest rate. Most often what we hear about is the APR. This refers to the “annual percentage rate.” Government regulations require this figure to be available for comparison purposes on any home loan application. It should include all loan costs like interest, points and other fees the loan is paying for.
In recent years many people have accepted variable rate loans. This means that the interest rate can be adjusted at a later date. Even though interest rates have been at historic lows (meaning they are not likely to go down and very likely to go up) these loans have been all too common.
Many of the mortgage foreclosures we hear about now are due to increased rates greatly raising monthly payments, often doubling home loan payments—or more. In my opinion you should never accept a variable rate home loan!
Fixed-rate loans are loans with a set interest rate and payment amount. These are usually for periods of 15, 20, or 30 years.
If at all possible, it is better to get a shorter term home loan, a 15 year loan for instance, for several reasons. Interest rates are lower, to start with. Because of this aggregate interest payments are not nearly as much as those for a 30 year mortgage. You will save immense amounts of money.
Down Payment for Your Home Mortgage
Although most people fail to take advantage of it’s potential, the best way to arrange for a mortgage is first to save enough to make a least a 20% down payment. Although it makes getting a loan more difficult, following the economic collapse recently banks have been asking for larger down payments which is a good thing.
Making a larger down payment on your home loan has several advantages. First, you will be able to get a lower interest rate. Banks really will “compete over you” when you will have a greater investment in the property. You will also avoid paying private mortgage insurance which is added to your monthly payment when you start with less.
Objective, Consumer Oriented Information
There are many other things to learn about: closing costs, points, loan origination fees, escrow, and so on. One good introduction is titled Looking for the Best Mortgage: Shop, Compare, Negotiate.
This is information from the Federal Trade Commission site which also includes numerous consumer related articles about such subjects as credit reporting, job hunting, identity theft, fraudulent investment schemes, telemarketing scams, and much more. You might want to bookmark this site for further reading on a wide variety of financial topics.
Another good site, also from the federal government, is a Federal Reserve Board page simply titled, Home Mortgages. It is a essentially a directory for a number of articles they offer, many of which provide helpful information you may need.
Stay in Charge
Most important of all, perhaps, know this. Shopping for a loan is in some respects like shopping for other products. Look for the best product and lowest price (interest rate and fees).
Never let the seller (loan provider) put you on the defensive. They are not doing you a favor by making the loan; you are doing them a favor by making the purchase.
If you let them flip the roles on you, as is often the case, you will more likely than not be taken advantage of in one way or another.
Learn Before Making a Home Loan
Unless you take time to learn about mortgages before making a home loan you are taking a significant chance of getting into serious trouble. There are many pitfalls with home mortgages. Be sure to do your homework. It will reward you richly.
