Mortgage Terminology to Know Before Locking into a Loan
Whether you are a new home buyer or looking to refinance a loan that you are already locked into, consumers agree that mortgage and loan terminology can often be confusing and sometimes overwhelming. Along with having to shop for a lender, consumers also have to shop and compare the total cost of the loan, including the interest rate, fees, points, prepayment penalties, the loan term and more. When making one of the most important financial decisions of your life, knowledge is key.
Below are a few mortgage terms and term details to know before locking into a loan.
One of the first and most obvious terms to consider is the loan’s interest rate. The interest rate is used to calculate your monthly payments and will determine how much you’ll pay over the life of the loan. When comparing your mortgage options, take a close look at the annual percentage rate (APR). This figure combines the yearly interest costs and other fees charged by a lender over the life of the loan. Contact me at 207-831-1903 for an itemized list of what is included in each APR calculation for your new loan scenarios so that we can help you make a fair mortgage program comparison.
Points are a type of pre-paid interest issued by the lender as an alternative to charging higher interest rates on the loan. One point is equal to one percent of the loan principal (the actual amount of your loan). If you opt to finance your home at a lower interest rate, the discount points are often paid at the time of closing. Consumers looking to live in their home for 10 to 20 years or longer may find that having more points with a lower interest rate will pay off over time whereas consumers who only plan to live in their home for 5 to 7 years may find a loan with a higher interest rate and fewer points the better option. Contact me today to discuss different loan options available depending on the future plans for your new home or visit me online at email@example.com to learn about current loan programs.
Processing a mortgage application can be time consuming and costly. Typically this process takes anywhere from two to eight weeks. Avoid any mortgage closing delays by paying off unnecessary debt and checking your own credit file a few months before shopping for your mortgage.
Once you’ve shopped, compared and closed on your mortgage, expect to accrue additional lender fees. Closing costs, which may consist of title insurance costs, lender attorney fees, appraisal fees and more, can add thousands of dollars to your borrowing costs. When shopping for your lender, collect good faith estimates (GFE) of lender closing costs and fees. Though lenders aren’t required to provide a GFE of settlement charges before the borrower applies for the loan, federal law does require them to provide it three days after. Work closely with a Maine Mortgage Specialist and take the time to scrutinize each estimate and define each closing cost fee so that you can make an informed decision.
The Loan Term
When shopping for a mortgage program that will fit your current and anticipated finances it is important to understand the number of years your loan will be active. Typically, mortgages with shorter terms carry higher monthly payments, while mortgages with longer terms spread payments out over the long life of the loan. Consumers who can afford the high monthly payments of a short term loan can save a lot of interest over time.
Loans with longer terms may seem affordable now, but what happens when your financial outlook changes and you’d like to refinance before the term is complete? Paying your loan off too early may result in a prepayment penalty or fine. To help determine if your current loan has any prepayment penalties, contact me.
Having a general understanding of the mortgage business and what goes into a home loan will ensure that you properly compare your loan options. Working with an experienced mortgage broker/banker enables you to shop thoroughly and determine the best maine mortgage program for your specific financial needs.