Articles & Tips
What to Look for When Comparing Home Mortgages?
With all of the ads and news stories floating around today about how home mortgage rates are near historic low levels, it’s easy to think that the only that matters when you’re shopping for a mortgage is the interest rate. But the reality is, if you don’t consider all of the fees included in the home mortgage product you’re considering, you could end up spending a lot more than you think.
First of all, all interest rates are not created equal. Some contain additional fees, while others are so-called “teaser rates,†which omit other fees and costs associated with the mortgage. When comparing home mortgage rates among lenders, be sure to compare the annual percentage rate, or APR, which is a market standard that allows a more accurate comparison.
Also be aware that the interest rate may be dependent upon the down payment required by the loan. Generally speaking, the best rates are available to those borrowers who have down payments of at least 20 percent. In fact, if your down payment is less than 20 percent, chances are you’ll be required to pay private mortgage insurance, which can significantly increase the real costs of your loan.
Depending upon your financial situation and the loan-to-value ratio of your home mortgage, you may also be asked to pay points, which reflect a portion of the mortgage cost, at closing. In some cases, lower interest rates require the borrower to pay points at closing, so be sure to ask if the rate you’re seeing requires any points.
Closing costs can also vary dramatically among lenders. Settlement fees, taxes, recording fees, and lender fees can add up to thousands of dollars, all of which are payable at closing. Depending on the lender, you may be able to negotiate some of these fees and eliminate others. Once you’ve narrowed your search to two or three lenders, ask each to submit a complete list of any and all fees associated with the loan closing.
Finally, once you’ve identified the home mortgage that suits your needs and budget, be sure to carefully read the loan document thoroughly to ensure you understand all of the included fees and costs, including potential penalties. Before signing, ask your lender to explain – and re-explain, if necessary – any terms or fees that are not clear to you. The answers you receive could mean a savings of thousands of dollars over the life of your loan.
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