Many people say that having children will change your lifestyle
forever. No more partying all night, no more calling in sick to
go snowboarding, no more telling the boss to kiss your hiney.
Maybe. But we think it’s the mortgage.
Thing No. 1 Two sides of your coin.
Mortgages
fundamentally break down into two camps. Fixed Rate and Adjustable. The
fixed rate mortgage guarantees a certain interest rate for a period of
time. The most popular fixed mortgages are 15 and 30 years. The biggest selling feature of fixed mortgages is the
'guarantee' of the payment no matter how much rates may go up. However,
if you pick a long-term fixed mortgage - say 5 years - you'll pay for
the privilege of having your interest rate locked in. In general,
unless you think rates are going to go up past your premium, you'll end
up paying more in interest costs over the life of your mortgage if you
choose long term fixed. An adjustable rate mortgage (a.k.a.
variable rate mortgage) does as the name implies - move up and down
according to a financial index like the Treasury rate. (which moves up
and down according to…God knows what.) Many of them are offered
with a fixed front end of five or even ten years. These are
called teaser rates and they are usually 2% lower than the fixed-rate
percentage. With an adjustable rate mortgage you can expect the
interest rate to be adjusted at regular intervals and your payment will
change (up or down) accordingly. For more detailed info than you can
possibly bear, go to mortgageguide101.com
Thing No. 2 Determine which way the wind is blowing.
If
interest rates are going down, consider a shorter-term mortgage. Go for
one year or less (if your credit rating and life circumstance will
allow). Read up on financial sites and see whether rates are expected
to go down, stay the same, or go up; during what time frame. Based on
this information you can decide whether to lock in, for what time
period and whether a variable mortgage or adjustable rate mortgage are
better deals.
Thing No. 3 Shop the Internet plus.
One of your best
tools in getting quotes is the Internet. Many sites offer free mortgage
quotes from either one or many lenders. This saves a lot of footwork
and hassle. Start at places like LendingTree.com and E-loan.com. You
may also want to check out the rates at CNNMoney, Bankrate or HSH
Associates. These sites carry nationwide listings of mortgage interest
rates and other related information. Don't limit your search to
the Web though. Once you have an idea of the best rates from national
lenders, get on the phone to your community banks and any other
institutions, including credit unions, with which you may have a
relationship. Ask if they can beat the national rates. Often, the local
lender can offer a better deal simply because he or she knows the local
market and wants to keep your business.
Thing No. 4 Loan Officers vs. Mortgage Brokers.
Loan
officers at a bank, credit union or other lending institution are
employees who work to sell and process mortgages and other loans
originated by their employer. Mortgage brokers are professionals who
are paid a fee to bring together lenders and borrowers. They usually
work with dozens or even hundreds of lenders, not as employees, but as
freelance agents. The mortgage broker working to secure your loan is
earning a fee for the transaction and the better deal they achieve for
a lender, the more they are paid. Don't be too anxious to disclose to a
broker the interest rate you are willing to accept--let them tell you
what terms they can secure. What difference does it make? A local
or online mortgage broker may find you a lender in another part of the
country. An online bank might not have a local office where employees
can help you one-on-one. Using a local bank can sometimes be a
plus. Their staff generally understands the specifics of local
properties, but a distant lender who doesn't will delay closing until
questions are answered. Mortgage brokers can often find a lender
who will make loans that a bank refuses--problem credit is one example.
Loans for unique or commercial properties might be easier to secure
through a mortgage broker.
Thing No. 5 Figure out what you can afford.
You can typically
borrow up to three and-a-half times the main earner’s income before
tax, plus one times any second earner’s income, or alternatively
two-and-a-half times their joint incomes. Your lender may only count
half of income such as overtime, commission or bonuses unless this is
guaranteed. Lenders will reduce the amount they will lend if you have
substantial outgoings such as other loan payments.
Thing No. 6 APR is not a month.
You always see advertisements
for loans, such as mortgages, that include a percentage figure called
the APR. This stands for 'Annual Percentage Rate'. This is not an
interest rate but a figure, which represents the total charge payable
each year for a loan. You don’t need to know how to work out an APR,
you just need to use the APR to compare costs when you are shopping
around for a loan.
Thing No. 7 Interest Only.
An Interest-Only Mortgage covers
only the interest on the loan. It does not pay off any of the capital.
You’ve got to have a plan for paying separately into a savings or an
investment scheme to build up a lump sum to pay off the mortgage at the
end of the term. See Step 8 How to repay your mortgage - Interest-only.
It is your responsibility to make sure you have enough money to repay
the mortgage at the end of the term, otherwise they’re coming after you
and your house.
Thing No. 8 Shop for discounts.
If you are good at
saving money, get the best prepayment and payment frequency options you
can keeping in mind that most of us may have the best of intentions
regarding extra payments, but then we have a way of flaking. So, you
still need to get the best interest rate you can.
Thing No. 9 Points vs. Rate.
When picking a mortgage, you
usually have the option of paying additional points -- a portion of the
interest that you pay at closing -- in exchange for a lower interest
rate. If you stay in the house for a long time -- say five to seven
years or more -- it's usually a better deal to take the points. The
lower interest rate will save you more over a long run.
Thing No. 10 Know your costs.
To ensure that life becomes
as complicated as possible, there are a variety of different costs and
fees in your mortgage including related third-party vendor fees such
as: Appraisal, Credit report, Lender's title policy, Pest
inspection reports, Escrow (where applicable), Recording fees, Taxes An
estimate of these fees constitutes the Good Faith Estimate or GFE,
which the lender is required by federal law to give to you.
Although, the Good Faith part means it’s not guaranteed.
Thing No. 11 Negotiate.
Generally, the difference between the
lowest price for a loan and a higher price is an overage. They can be
in the form of points, fees, or the interest rate. Have the lender or
broker write down all the costs associated with the loan. Then ask if
the lender or broker will waive or reduce one or more of its fees or
agree to a lower rate or fewer points. You’ll want to make sure that
the lender or broker is not agreeing to lower one fee while raising
another or to lower the rate while raising points.
Thing No. 12 Get Pre-approved.
Pre-qualified
isn’t the
same. Getting pre-approved means the lender has checked you out
thoroughly and is willing to make you a loan. They’ll lay out all
the terms and rates they’re offering so you can choose the best loan
for you. Doing this before you shop will give you the best idea
of what you can afford, and once you do start shopping, you won’t lose
out on a house you want while waiting for a loan approval. See
five things-buying a home for details about credit reports and the
cleaning
up thereof.