Other Factors to consider than an Interest Rate
Although it may seem to you that the most logical way to compare mortgage loans is by interest rates, keep in mind there are other Factors that should he evaluated as well. Since every situation is unique and since the lowest interest rate might not always result in the best loan for you, your mortgage broker can assist you in evaluating all of these factors to find the mortgage loan that best meets your needs.
Where do I start my evaluation?
The Annual Percentage Rate or "APR" is one place to start when comparing different types of mortgage loans. The APR calculation is based on a complex mathematical formula and is required by the Federal Government. It expresses the cost of the mortgage loan as an annual rate and is normally higher than the advertised rate because it includes interest, points and other finance charges. Keep in mind that the APR is an artificial measurement of the relative cost of the loan transaction. It does not have a bearing on the actual interest rate of the mortgage loan, but it does take the interest rate into account. The APR is not the only factor to consider when getting a mortgage loan, but it can be very useful in helping you make a decision.
What other factors should I consider in comparing mortgage loans?
Type of mortgage loan- Depending on the type of mortgage loan you choose (i.e., Adjustable Rate Mortgage, Fixed Rate Mortgage, Balloon Mortgage, or Graduated Payment Mortgage), the interest rate and payments may vary considerably. An Adjustable Rate Mortgage typically offers lower initial rates by sharing the future risk of higher rates between borrower and lender. A Fixed Rate Mortgage offers the security of stable principle and interest payments. A Balloon Mortgage is usually a short—term fixed rate loan with smaller payments for a period of time and one large payment at the end of the term. If you are looking for a mortgage loan in which you expect to make larger monthly payments as your income grows. then the Graduated Payment Mortgage may be appropriate.
Points- You may he required to pay "points" on your mortgage loan. A point is a one—time charge paid to the lender at closing to obtain a lower interest rate on the mortgage loan. One point is equal to I percent of the loan amount (i.e., two points on a $100,000 mortgage would cost $2,000).
Term- What is the length of time from when you close on your mortgage loan to the time the mortgage note will be paid off in full? This is called the term and is usually 15 or 30 years. Is there a balloon payment in 3, 5 or 7 years? Each of these scenarios would typically have a different interest rate. You can expect longer term mortgage loans to have higher interest rates.
Type of Property- You may find that certain types of property (i.e., single-family, condo, etc.) may only he purchased with certain types of mortgage loans. if the property is a rental unit, a second home, or a mixed-use property such as an apartment with a storefront, this could affect the interest rate available to you.
Size of the Loan- There may he a surcharge associated with very large mortgage loans such as those over $500,000.
Downpayment- Is a low downpayment or a high downpayment required? Some mortgage loans may or may not he available to you depending upon the downpayment you can afford and a low downpayment may incur additional costs.
Mortgage Insurance- If your downpayment is less than 20 percent, you may he required to pay a fee for mortgage insurance. The cost of mortgage insurance can differ between loans that are self insured by the lender and those which require private mortgage insurance (PMI). Also, conventional loan mortgage insurance can differ greatly from FHA mortgage insurance premiums (MIP).
Prepayment Penalty- Is there a penalty if you decide to make early or considerably larger payments on your mortgage loan than scheduled? What if you decide to pay it off early? This may he applicable to Adjustable Rate Mortgages.
Time— Time is money, so he sure to find out how much time it will take to originate, process, underwrite and close your loan. Some lenders can perform these tasks more quickly than others. Your mortgage broker is an expert at working through the mortgage lending process and saving you time.
Credit- The better your credit rating, the better chance you have of securing a mortgage loan and a lower interest rate. Bad credit reflects high risk to the lender and you may find that your mortgage application is denied if you have had credit. The goal is to keep your credit good at all costs.
Closing Costs- Although closing costs are usually factored in when calculating the APR, there are some fees that are normally exempt from the APR (i.e., survey, appraisal and assumption fees). The size of the fee will depend on the lender, hut it may range from several hundred dollars to one percent of the mortgage loan amount. Be sure to compare your total out-of-pocket requirements.
Service– Charter Financial as an experienced mortgage broker/ banker has extensive knowledge of the many loan programs available and will take the time to fit your unique needs to the best loan. You will find that the service you receive during the mortgage application process can make all the difference in the world. Charter Financial is attentive to your needs and will make purchasing a home a pleasant experience.