Top 10 Questions about Home Mortgages

Top 10 Questions

So you’re ready to buy your first home. Or are you moving to a bigger house? Or are the children gone and you’re moving to a smaller house or a condo? When it comes to home mortgages, there’s a whole lot to know, especially if you’re a first-time buyer. So we’ve put together the top 10 home mortgage questions to clear up any doubts or uncertainties you may have. Check them out.

1. Is there any way to make my home mortgage cheaper?

Everybody wants a cheap home mortgage. Here are a few things you can do to keep your costs down:

1. If you can afford a higher monthly payment, you should go with a shorter-term mortgage. In the long run, it’ll save you literally thousands of dollars.
2. Pay as many points as you can. The more you pay up front, the sooner you’ll pay off your mortgage, and the less it’ll cost you.
3. Check you local newspaper. Most of them have a daily section where they publish the top lenders’ current mortgage interest rates. If you don’t have the newspaper listings, then do a little research. A fraction of a percentage point can save you thousands of dollars.
4. Get a feel for the mortgage rate market. Watch the trends and try to determine if a fixed rate or an adjustable rate mortgage is best for you.

2. What are discount points and why would I want them?

Discount points are equal to 1% of the total amount of your home mortgage. You have an option of buying purchase points, which you’ll pay at closing. The purpose of discount points is to lower your interest rate.

For example, if your mortgage was $100,000, then one discount point would be $10,000. Paying even one discount point can ultimately save you thousands of dollars over the term of your mortgage. So it’s to your advantage to pay as many discount points as you possibly can.

3. Should I get a fixed rate or an adjustable rate mortgage(ARM)?

The tide has come in and gone out on the preference for types of home mortgage rates. For a while, fixed rate was the way to go. Then, ARMs were more popular. The reason it swings back and forth so much is because it really is a matter of choice.

The best rate for you depends on your situation. If you’re planning on moving within five years, then an ARM is definitely the way to go because, even if the rates go up a lot, it won’t be long before your mortgage period is up.

However, if you plan to stay where you are, then a fixed rate may be the safer and cheaper way to go. The way the mortgage interest rates go up and down like a yo-yo makes it hard to make that decision. Just keep an eye on the current mortgage rates and try to decide which rate works best for you in your current situation.

4. What’s a balloon mortgage?

A balloon mortgage usually has a term of 5-10 years, with a fixed interest rate. The payments are low because they cover only the interest. At the end of the term, a lump sum is due.

A balloon mortgage is good if you’re planning on moving before the balloon payment is due. Otherwise, that payment is mighty big at the end of the term, and if you can’t pay it, you may lose your home.

5. What’s a reverse mortgage?

A reverse mortgage is a fairly recent development in the home mortgage industry. It offers an opportunity for seniors over 62 years old, who live in their homes, to establish a regular income.

Basically, a line of credit, or a series of monthly payments, are instituted, using the equity in their home as collateral. This is a really good source of income for seniors who own, or almost own, their homes. However, be aware of high interest rates – they’re fairly standard with reverse mortgages.

6. Is there such a thing as a “no-fee home mortgage”?

If you see an ad for a “no-fee loan”, don’t go there! There is no such thing as a “no-fee home mortgage”. This is misleading advertising.

The lenders who offer “no-fee loans” make it sound good, but the absence of up-front fees just adds to the amount of your principle. And, of course, this adds to the amount of your payment, and to the amount of your interest.

The bottom line here is that a home mortgage costs you a set amount of money. If you don’t pay it up front, you’ll pay for it over the period of the mortgage, which is actually going to cost you more. So beware of the “good deal” – it may not be a “good deal” in the long run!

7. What fees are included in my closing costs?

Closing costs can blow your mind! You think you have it made when you’ve got your down payment and you’re ready to finance. Then, all of a sudden, you get hit with your closing costs.

Before you sign your mortgage contract, you need to plan on paying a number of fees, to cover the costs of putting your mortgage together. They include the processing fee, the appraisal fee, the origination fee, the discount points, the documentation fee, the attorney’s fee, the fee for the home and pest inspections, the homeowner’s and hazard insurance costs, the mortgage insurance costs, the surveying costs, and the cost of your prepaid interest.

Wow! That sounds like a lot! And it is. So you need to be prepared for it. Getting a home mortgage is only half the battle – you need to be prepared to cover all these other costs, too.

8. Should I buy mortgage insurance?

Anyone in the real estate or mortgage insurance business will tell you that you need to buy mortgage insurance. But beware! Most of the mortgage insurance you’re sold with your mortgage is actually decreasing term insurance. What this means is that the premium stays the same for the period of the mortgage, but the actual insurance protection decreases.

So you’re paying insurance for the full amount of the mortgage for the full term of the mortgage. Many people cancel this as soon as they find out how much they’re paying for it.

The suggested alternative is a term insurance plan for the life of the mortgage. Term insurance is the cheapest insurance available. You can get coverage for the full amount of your mortgage, for the full term of your mortgage, for a minimal sum every month – a much better deal!

9. Can I negotiate my mortgage interest rate?

Not many lenders will negotiate mortgage interest rates. They’re pretty well set, according to market standards.

However, if you have a good credit rating, and maybe a sizable down payment, a lender might be more open to negotiating with you. Keep in mind, though, that when you’re financing a mortgage, there’s room for lenders to make up for up-front deals with long-term costs.

10. Where can I find the best home mortgage interest rates?

If you want a really good deal on your home mortgage, we suggest you check the online mortgage lenders. The advantage of dealing with online lenders is that they have access to all the lenders on the market, and can find the best mortgage to fit your individual situation.

In Conclusion

As you can see, there’s a lot to learn about home mortgages. And one small mistake can end up costing you thousands of dollars over the long run. So It’s very important to know what you’re doing.

But not to worry – there’s help on the Internet. There are many online home mortgage brokers who have lists of hundreds of lenders just waiting to sign a contract with you. Mortgage rates can vary quite a bit, and with all the lenders trying to attract you with special offers, you’re sure to come up with a great rate.

Many of these sites have online mortgage calculators to give you an idea of what you’re going to pay for your home. And once you’re settled, they have other services they can help you with, too, like home equity loans. So do a little research online, and start packing!

Related Resources:

1. 1st-in-Loans.com – your complete online source for information and great deals on all kinds of loans, including home mortgages

2. 1st-in-Credit-Reports.com – find out all about your credit report before you apply for a home mortgage

About the Author:

Arden Mellor is a successfully published freelance writer, one of experience and diversity. The knowledge brought to you through Arden's articles has been designed for simplicity. The world is much too complicated, and Arden’s contribution to the world is to bring the complexities of life into a simpler arena, one that anyone and everyone can understand and use. Arden writes many informative articles on such topics as mortgage loan calculator, visa credit cards and student loan consolidation, and our wishes are that you benefit from the wisdom presented in these articles in making life simple.

This article on the "Top 10 Questions about Home Mortgages" reprinted with permission.

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