uccess With Money
uccess With Money
Your Personal Guide to Achieving Success With Your Money and Your Life
One type of financial arrangement that is common to many of us is a home mortgage. But how much do we know about mortgages?
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 and ask lots of questions about any potential mortgage you may be considering.
One of the most important mortgage considerations is the interest rate. Most often we hear about the APR. This refers to the “annual percentage rate.” Government regulations require this figure to be available for comparison purposes. 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 common and many of the forclosures we hear about now are due to increased rates greatly raising monthly payments, often doubling or more. Never accept a variable rate loan!
Fixed-rate loans are loans with a set interest rate and payment amount. These may be for periods of 15, 20, or 30 years. If at all possible, it is better to get a 15 year loan for several reasons. Interest rates are lower, to start with. Because of this payments are not nearly as much more than those for 30 years as most people suppose. But you will save immense amounts of money.
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 20% downpayment. This 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.
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 a page 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 titled, Looking for the Best Mortgage. It is a good summary of the topic and easy to understand while still offering some very good information.
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 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.
