Friday, April 5, 2013

4 Questions Every Borrower Should Ask Up Front About Their Mortgage

When applying for a home loan, be sure to consider the initial costs and interest, as well as the terms and conditions of the loan before signing the contract and close escrow. As a home buyer age 50 or older, it is imperative that you know the terms of your loan before you enter into a contract that is not designed to benefit you. 

As a side note, once you have the basics down, it's simple enough to find a GTA mortgage rate comparison service online, so there's no need to worry about that. Getting the fundamentals down is absolutely vital before locking in a loan, so make sure to do thorough research. 

With so much focus put on interest and monthly mortgage payment, many new home buyers forget to ask the important questions up front. Here are four vital questions to ask after you receive an approval and accept a home loan. 

What are the Costs of Obtaining the Loan? 

Just because the lender offers a competitive interest rate does not mean that the difference of 0.5% interest will offset the initial costs of obtaining the loan. One question all borrowers should ask the lender before accepting an offer for credit is how much are origination fees, discount fees to lower interest, the appraisal, the credit report, administrative fees, document prep fees, closing costs, title insurance, and any other fee the lender charges upfront. 

All lenders are required to provide a Good Faith Estimate, which details the out-of-pocket closing costs necessary just to get the loan. Compare these estimates and keep these figures in mind before making a decision. 

How Long Will It Take Me to Break Even if I Buy Discount Points? 

If you have the option to buy discount points to lower your interest rate, it is important to do the math to determine if buying these points is going to pay off based on the length of the mortgage. When you are buying a new home, the best way to determine if the discount points will really offer you a discount is to divide the upfront cost of the points by the amount you are saving monthly with the lower rate. 

This will show you how many months it will take you break even. You can determine if you will be staying in the house long enough for the discounted rate to pay off. 

Is there a Pre-Payment Penalty? 

Some mortgage loans have terms written into the contract that restrict you from paying your mortgage off early without being charged a pre-payment penalty. A pre-payment penalty is a common term built into a loan contract to ensure the lender earns a reasonable amount of profit in interest for extending credit. 

To prevent a borrower from refinancing as soon as the loan goes through, the lender may charge a percentage of the remaining interest due to borrower to close the mortgage contract. Review how long the penalty is valid and determine if the fee is fair compared to the common fees that other lenders charge. 

How Long will it Take for the Lender to Fund the Loan? 

You need to know the average funding times so that you know how long to lock in the rates. Today, most lenders require you to lock in your rates so that you can avoid falling victim to a sudden rate increase before the loan closes. 

The average funding time frame ranges between 20 and 45 days, but in some seasons funding can take longer. Find out the anticipated turnaround time and how long funding will take to protect your interests. 

When you are applying for such a large loan like a mortgage, you need to look past interest and monthly payments and assess the terms and conditions of the loan. By asking the right questions, you can avoid entering into a contract close to retirement that will not benefit you long-term. 

About the Author: Marley Thomas is a freelance finance and real estate industry blogger. He takes pride in providing consumers with the best research upfront, so they can feel confident in making the right decision for themselves.

1 comment:

  1. Mortgage is a serious financial commitment and in case you have made a decision to apply for it, it’s necessary to consider different details. Buying a house is something that can’t be made in a hurry. Make up a list of questions and ask all of them to your lender. And of course, meet a few different lenders before making a final decision. Don’t hurry and act wisely because it’s necessary to be sure that you’re on a right track. You’re about to take out a long term loan, not a payday loan no fax, and you should know that you have chosen the best option.


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