There are so many factors and things to remember when you are looking for a mortgage, that it is easy to get confused or forget something important. After all, most people only buy a home once or twice in their lifetimes. The process of getting a mortgage is not one that is familiar to most people, therefore, it is easy to lose sight of some of the details, which can cost big money later. If you are looking for a new mortgage, refer to the list below to help you remember all of the important questions to ask your lender.
1. What is the APR on this loan?
The easiest and most obvious question to ask your lender concerns the interest rate on the mortgage loan. Most people simply accept the quoted interest rate, which is not the true measure of the cost of the loan. Instead, most experts recommend that you ask for the APR, which includes all of the fees and costs of the loan.
2. What is included in the APR calculation?
When meeting with your lender, you want to also ask for an itemized list of everything that is included in calculating the APR. This will help to make accurate comparisons. While the APR is supposed to include all costs associated with taking out the mortgage, some lenders routinely include fees and costs that others might leave out.
3. Will the interest rate remain the same for the full life of the mortgage?
There are two main types of mortgages available. Fixed rate mortgages are mortgages in which the mortgage rate remains the same throughout the life of the mortgage. Variable rate mortgages are mortgages where the interest rate is subject to changes, depending on various factors.
If the mortgage is an adjustable rate mortgage, you should also ask the lender how the mortgage rate and adjustments are decided, when mortgage rates can change, and if there is a cap on mortgage rate adjustments to protect you from excessively large mortgage rate adjustments.
4. What will my monthly payment be?
Your monthly payment is arguably the most important part of the mortgage calculations for most borrowers. It is how most people will determine if a mortgage is affordable or out of reach. Keep in mind that lower monthly payments can mean that you will pay more for your mortgage over the life of the loan, but that is often a tradeoff for keeping a mortgage manageable.
5. How much will I have to pay at closing?
Closing costs can be either significant or incidental. In many cases, lenders are willing to include specific closing costs as part of the loan, which will reduce the amount of money you will have to hand over when you sign the loan papers. The tradeoff for that, however, is that you will be adding to the amount of money that you borrow, and paying interest on those closing costs.
6. How much of a down payment do you require?
It used to be traditional to require at least twenty percent of the cost of the house as a down payment in order to get a mortgage. Over the past several years, lenders have required less of a down payment, or have even agreed to no down payment loans in certain situations. Each lender has their own rules about down payment requirements, and many offer loans with different down payment requirements.
Keep in mind that the amount of down payment that you propose can substantially affect the interest rate you are offered, as well as the overall amount of the loan. In addition, if you make less than a twenty percent down payment, you will be required to carry private mortgage insurance until you have at least twenty percent equity into your home.
7. What will it cost if I pay off the loan early?
Many banks and lenders will assess a penalty if you pay off your loan early. If you think you may refinance for a lower interest rate later, or you may seek a shorter term loan when your financial circumstances improve, that early payment penalty may determine whether or not refinancing your loan makes sense.
8. How much will paying a point reduce my interest rate?
Paying points is a way to reduce the interest rate on your loan by paying the interest up front. Typically, one point costs one percent of the mortgage loan amount, and lowers the interest rate by one quarter percent, but each lender has their own calculations. The payment for points is due at closing, but by paying points, you lower your monthly payment. This only makes sense to do if you are planning to remain in the house, or in the current mortgage, long enough to realize the savings. A very general rule of thumb is that if you will be in the mortgage without refinancing for at least five years, then you will noticeably save money by paying points up front.
Allan Young is a freelance writer who writes about financial products and specific services available from a
mortgage lender .
